House Passes Health Bill

On November 7th, 2009 at around 11pm, the US House of Representatives narrowly passed a sweeping health care reform bill by a vote of 220 to 215. The nearly $1.1 trillion bill would extend coverage to an additional 36 million Americans that are currently without health insurance and also create a government run public insurance option. You can download the full text of the bill here, though I can’t imagine many people (including several representatives) will actually read all 1900+ pages.

The public insurance option has been at the center of most of the debate and controversy surrounding health care reform in the United States. Supporters of the public option believe it will create additional competition for private insurance companies, forcing them to reduce premiums and eliminate dubious practices such as excluding pre-existing conditions or dropping coverage when someone gets sick. Opponents of public insurance fear that it will destroy the private insurance market. The logic here is that private insurance companies will be unable to complete with a government option when the government doesn’t have to worry about turning a profit.

Which side you’re on depends largely on whether or not you believe health care is a basic human right, such as public safety. If you believe that it is, then it shouldn’t matter if private insurance companies survive as long as everyone has access to medical care.

The impact a public health insurance option would have on the private insurance market depends on how it is designed. If public health insurance is heavily tax-payer subsidized so that premiums are kept exceedingly low, then it will cause many private insurance companies to go out of business. However, that is not what has been proposed in any version of the health care reform bill that has passed through the House or the Senate. Therefore, it is very likely that the public and private insurance options can coexist peacefully much like public and private education institutions coexist, and public and private transportation options coexist.

As I was thinking about the idea of a public insurance option, I was reminded of a parallel in the housing market. In many countries, housing finance is provided by both public and private sources. This is a necessity in order to allow low-income households to afford housing where most of the housing stock is out of reach for the vast majority of the population. No matter how many subsidies you throw at households to enable them to purchase something, there will always be those that are too poor or too “undesirable” as customers to be fully served by the private sector. Normally this is fine. Not everyone needs an iPhone, for example.

On the other hand, when it comes to issues like housing and, yes, health care there is often a political and ethical need for the government to step in. If millions of people are without homes because no private housing finance provider is willing to finance a purchase, the government needs to provide a public housing finance option. You can read more about this in the India Housing Assessment article in the Research page of this blog. Likewise, just as a public option is necessary in housing finance, a public option for health insurance is a must if you want to cover everyone.

It is also true, however, that government is simply incapable of serving the needs of everyone due to financial limitations and just plan politics. Therefore, the private sector should be seen as an ally rather than an enemy. In the case of housing, this means the government needs to provide incentives for the private sector to move down market over time, thereby reducing the number of people that are served through a public option. Again, read the India Housing Assessment for ideas on how this can be done in housing. There are some interesting lessons to be learned that can be applied to the health care reform debate.