Economists Debate 'Public Option' On Health Care The idea of creating a government-run health care plan to compete with regular insurance companies has received mixed grades among economists. The debate is over whether the plan would eliminate waste in the system as advertised.
NPR logo

Economists Debate 'Public Option' On Health Care

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Economists Debate 'Public Option' On Health Care

Economists Debate 'Public Option' On Health Care

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


The words public and option are pretty innocuous, until you put them together. And these days, they become explosive. Public option refers, of course, to President Obama's proposal to create a government-run health insurance plan that would compete with private insurers. Congress is deeply divided on the issue.

And NPR's David Kestenbaum reports, even people who study economics aren't sure it will work.

DAVID KESTENBAUM: Princeton economist and professor Uwe Reinhardt has spent his life giving out grades. So much so that he gives them out by instinct, to things that don't usually get grades, like last week when President Obama gave his big speech to Congress on health care reform, Reinhardt took out a pencil and paper and listened. Overall, he thought, impressive, A-. But then, Obama brought up that idea of a public option.

President BARACK OBAMA: It could provide a good deal for consumers that would also keep pressure on private insurers to keep their policies affordable and treat their customers better.

KESTENBAUM: This section got applause in Congress.

(Soundbite of applause)

KESTENBAUM: Reinhardt wrote down C+.

Professor UWE REINHARDT (Economics, Princeton University): With all due respect for this brilliant president, I do not share, as an economist, his theory that a public plan would be a splendid instrument of cost control.

KESTENBAUM: The idea that it would keep costs down by adding a competitor made no sense to him. We'll get to that in a second. The pitch for a public plan is that somehow it will be able to put the brakes on health care costs. So to get a spirited economic defense of the public option idea, we have Jacob Hacker, a political scientist at Yale, also known as the father of the public option idea.

Professor JACOB HACKER (Political Science, Yale University): It's what I've been called. I like to think of it as my brainchild. But if that's the case, then I've been suffering a lot of brainchild abuse lately.

KESTENBAUM: Here's how a public option would work, he says. People who don't get insurance through their employer could shop for a plan on what's called an insurance exchange. It would list some private health plan options and one offered by the government, the public option.

Prof. HACKER: So it's really important that people understand the public plan is not some plan that swoops in and kind of sucks people up like a big spaceship. And, you know, the public plan is only available to people in the exchange. And you always have a choice of private insurance plans alongside it.

KESTENBAUM: Hacker says the public option would drive down costs in a couple of ways. It would have lower administrative expenses than private insurers. And it would have the power to bargain for lower prices.

Prof. HACKER: This public plan will kind of call out the private plans, you know, keep them honest, as President Obama has put it.

KESTENBAUM: This is the point in the debate where you start asking each side for evidence. Hacker says, sure, Medicare. Reinhardt also says sure, and also points to Medicare.

So, Hacker first. He argues that Medicare, run by the government, has done better than private insurers at bargaining for lower prices: point for the public option idea. Uwe Reinhardt at Princeton says, okay, but you are missing the point. The big source of waste in the system, it's not high prices for this treatment or that one. It's volume, entirely unnecessary treatments, tests or procedures. Reinhardt says eliminating those is very difficult for any insurance company, whether it's for-profit, not-for-profit, or something run by the government, like Medicare.

Prof. REINHARDT: I don't think Medicare really has been that. They can control prices and they have, but they cannot control volume.

KESTENBAUM: Jacob Hacker agrees overtreatment is a big problem. There are ideas for how to reduce it, he says, by paying doctors and hospitals differently. If the government had a public plan, it could lead the effort to try those out.

Prof. HACKER: But the truth is, I mean, you know, you're getting to the most difficult question in health care reform. And the public plan is not a magic solution to this problem. But there are no magic solutions.

KESTENBAUM: Uwe Reinhardt, though he gave Obama's presentation of the public option a C+, actually supports the idea. He thinks it would be simple, and allow workers to move around without losing their insurance. Reinhardt just doesn't buy the claim that it will fix the bigger problem of rising costs.

David Kestenbaum, NPR News.

Copyright © 2009 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.