Obama on financing the "public insurance option"

“Despite all this, the insurance companies and their allies don't like this idea. They argue that these private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers. It would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities.
…
Finally, let me discuss an issue that is a great concern to me, to members of this chamber, and to the public - and that is how we pay for this plan.”

From the prepared text of President Obama’s speech to Congress on the need to overhaul health care in the United States, as released by the White House and published by the New York Times (9 September 2009).

http://www.nytimes.com/2009/09/10/us/politics/10obama.text.html?pagewanted=all.


Now let me see if I understand these two parts of the President’s speech, delivered tonight.

In the first paragraph the President argues that the “public insurance option” would be self-sufficient on the premiums it collects. He asserts that it will be efficient because, supposedly, it will avoid overhead such as profits and (presumably excessive) executive salaries. I don’t believe this, but let me not quibble.

He then asserts that the public option would keep pressure on private insurers on pricing and customer service the same way public colleges and universities provide additional choice and competition to students without harming private colleges and universities. But the reason why public colleges and universities are able to compete with private colleges and universities is BECAUSE they are subsidized by the public sector. Without that subsidy, PUBLIC COLLEGES WOULD NOT EXIST TO PROVIDE COMPETITION TO THE PRIVATE COLLEGES AND THEREFORE ARE BY DEFINITION LESS EFFICIENT AND CANNOT BE USED AS A EXAMPLE OF COMPETITIVE PRESSURE. They are simply an artificial entity surviving on the generosity of the state and have no standing as efficient entities.

In the second paragraph, the President asks how are we going to pay for this. But if the public option really was self-sufficient and could be self-financing by relying on the premiums it collected, as he said it would be, WE WOULD NOT NEED TO DISCUSS HOW WE PAY FOR THE PUBLIC OPTION.

Me thinks this plan still needs more thought.

Thanks to David Henderson of Econlog for the pointer.