But let’s ignore the immature theatrics from Trump and Biden and focus on one of their policy disagreements.
The two candidates squabbled over whether creating a government-administered health plan (see page 31 for a description of Biden’s so-called “public option“) would lead to the demise of the current system of employer-provided health insurance.
For what it’s worth, there are two big reasons why I’m not a fan of the current employer-based system.
- It is propped up by a huge distortion in the tax code known as the “healthcare exclusion.”
- It leads to over-insurance and therefore exacerbates our third-party payer problem.
That being said, I’m very aware of the fact that politicians are always capable of making things worse (the “lather-rinse-repeat cycle” of government failure).
About two months ago, I shared this video which explains why the so-called public option will wind up being an expensive boondoggle.
Given the track record of health entitlements, I think the video you just watched is correct. A public option would be a fiscal nightmare.
But does that mean it also would be a threat to the employer-based system of private health insurance?
I think the answer is yes, largely because the subsidies that will make the system more expensive are also the subsidies that will make the public option seem like a good deal.
Let’s use two analogies to get this point across.
- Fannie Mae and Freddie Mac dominate housing finance, not because government-created entities are efficient, but because they use subsidies from the federal government to under-price private competitors.
- Parents know private schools produce much better educational outcomes than government schools, but most families opt for the inferior option because it’s already being financed by their tax dollars.
I fear the same thing will happen with the so-called public option. Politicians (in their never-ending efforts to but votes) will keep increasing the subsidies. That will make employer-based health plans seem less attractive by comparison.
And there will also be political pressure to provide an ever-more-extensive set of benefits (as illustrated by the cartoon). That will also make employer-based health plans seem less attractive by comparison.
The net result of all this is that even though the vast majority of workers are happy with their current employer-provided health plans, Biden’s public option will slowly but surely squeeze them out of the market.