We Already Have a "Public Option" -- It's Called Medicare

09/25/2009 05:12 am ET | Updated May 25, 2011

Senator Charles Schumer indicated earlier this week that Democrats were fleshing out plans to pass health legislation, particularly the option of a new government-run insurance program, with a simple majority, instead of the 60 votes that would ordinarily be needed to overcome a filibuster. Typically for the party that still seems to suffer from an acute case of "Stockholm Syndrome", the Democrats continue to agonise about using their substantial majorities in Congress to fight for what they really believe in and question whether to use a budget reconciliation procedure to incorporate a public health insurance option in the legislation.

We've got a better idea for the Democrats, which will enable them to pass a bill without resorting to controversial Parliamentary procedures, whilst still incorporating a public health care option:

Expand the provisions of Medicare.

In the words of New York Congressman Anthony Weiner let's do, "Medicare for all Americans." Since its inception in 1965, Medicare has covered almost all citizens over age 65, and it is one of the most popular government programs existing today. Individual state-managed health programs with low reimbursement to caregivers cover additionally most children with congenital malformations and children with many other disorders. For low-income families, the combined federal and state-managed Medicaid program is available for the majority of medical disorders that are not primarily cosmetic. Why not expand its role to incorporate citizens not covered in any of the existing private health insurance plans? Why not, in fact, allow Medicare to compete against private health insurance companies in order to keep them honest?

The implicit presumption underlying the arguments of opponents of a public health insurance component is that it will add another layer of complex bureaucracy to an already overencumbered health care system, and offer a "consumer unfriendly" service, vastly inferior to supposedly consumer friendly private health insurance plans. (Private plans tend to be "consumer friendly" until the consumer attempts to exercise his/her right to comprehensive medical supposedly paid for by the increasingly exorbitant health insurance premiums.) But even if we accept the logic that a private health insurance program is invariably more efficient than a government administered option (which we don't, for the record), why do these very same health insurance providers argue that a supposedly inefficient government run health plan will create "unfair competitive advantages?"

In fact, few Americans rail against Medicare or characterize their experiences as something akin to a Kafka novel. As a program, it has great political legitimacy and is as strongly entrenched in the American political landscape as our Social Security system. In 1963, most elderly Americans had no health insurance. Few retirement plans provided any such coverage. The poor had little access to medical treatment until they were in critical condition. Only wealthier Americans could get the finest care, and only by traveling to a few big cities like Boston, Chicago or New York.

In 1966, 19 million were enrolled in Medicare; in 1998, 39 million. Today, 43 million of Americans are covered by the program, yet seldom does one hear a senior citizen complain about struggling under the burden of "socialistic health care". The program, while not without its flaws, has displayed significantly less cost inflation than private insurance. At 4% per annum its administrative costs less than half of most private insurance companies and polls consistently show very high satisfaction among its participants.

So why does Senator Kent Conrad continue to suggest that there are not enough votes in the Senate to pass a public option for health insurance? It would be interesting to see what would happen to Senator Conrad's polling numbers in his own state were he to suggest that the government disband its existing public option - Medicare - in the interests of costs savings. Even the Republicans aren't dumb enough to make that proposal, which makes one wonder why the Democrats don't do the obvious and simply incorporate the program into a broader health care reform measure.

Healthcare gets complicated when it's built around profits rather than care. Private insurance companies largely generate profits by carefully screening applicants to identify those with a high risk of needing expensive treatment, and either rejecting such applicants or charging them higher premiums. But such screening is itself expensive. Furthermore, it tends to screen out exactly those who most need insurance.

Most advanced countries have dealt with the defects of private health insurance in a straightforward way, by making health insurance a government service. Through Medicare, the United States has in effect done the same thing for its seniors. To be sure, Medicare is not fully adequate to cover all of the medical needs of seniors, and it would be foolish in the extreme to "finance" a new public health care option by cutting "waste" from the very supplemental program payments to private health insurance companies that make Medicare in its current incarnation affordable to most American seniors. To cut Medicare to finance an additional public health insurance option is akin to cutting one's nose to spite one's face.

Ed. note: This is an updated version of this post.

For more of Marshall Auerback's argument, including specifics on Medicare expansion, visit NewDeal2.0.