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Lanny Davis on the “Public Option”

Here’s Lanny Davis, the former Clinton team member and all-around Democratic good guy, on the subject of the “public option” crowding out private competition, and becoming a stalking horse for a single-payer system:

“I favor a public option – but the White House needs to explain better why, if public option is heavily subsidized by tax dollars, it won’t always have substantial competitive advantage over any private insurers, even those with very modest profit margins, and thus, will not result in a total federal government take-over — in effect, socialized medicine as in Canada, U.S., and the U.K.”

If I’m reading Davis correctly, he thinks there’s no problem with a public option that better communication (aka lying) can’t solve. That’s unless he honest-to-goodness believes that a public option won’t lead eventually to a single-payer system.

There’s a really stupid-simple question I have to ask. If there’s room in the market for another health-insurance vendor, then why haven’t capitalists and entrepreneurs stood up one or more new ones? By definition, that statement means that money is being left on the table. Nothing, but nothing, would prevent legitimate business people from rushing to fill that void. It’s like catnip.

Since it’s not happening, then obviously there’s no opportunity to do anything here, unless you have advantages that simply can’t be matched by the private sector.

Lefties, from Obama to Davis and downward, are deluded fools if they honestly think (as Obama has said many, many times) that private insurers are too expensive because their profits are too high. That simply isn’t how free exchange works.

“But you don’t get it, Francis, if the public insurer doesn’t have to make a profit, then his prices will be lower than the private insurers charge, by about 3%!” (That’s a typical aftertax margin for large health insurance companies, by my rough analysis.)

Ok, so if you don’t want to make a profit at all, then you have to find investors who are willing to provide risk capital at what is in effect a negative rate of interest. Or else you have to print your own money. Oh, wait, that’s the idea, isn’t it?

If there truly is a market need for another health insurance provider, that means that Barack Obama (an experienced and astute businessman) has discerned a market opportunity that everyone else missed. Those only come in two flavors: either there is a lack of vendor presence at some particular price point, or else the market is fully-served. The first case is usually addressed by changes in technology or product features, which are things the private market can easily do (and since they don’t, there’s ipso facto no opportunity).

The second case means that a new market entrant can only gain share by taking it away from the existing providers. So tell me again, Mr. Davis, how a public option will leave the private insurers in business.

Actually, I know exactly how it will happen. The existing private insurers will be forced to give up their current underwriting and capital-management activities, and forfeit them to the government. They’ll lobby Congress to retain their servicing and marketing operations, and will become regulated passthroughs to the public insurance pool. This will take away the objection (stated by Obama himself) that the government can’t even run a Post Office, let alone 17% of the economy.

And in return, the companies will make a fortune because all the risk will be gone from their businesses.

Hmm. Maybe I should think about buying stock in Cigna, Wellfleet, Aetna, United Healthgroup, et al.

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