The New York Times posted the transcript of President Obama’s Tuesday, June 23 news conference. I thought he expressed the right balance on Iran’s political situation and was refreshingly articulate and direct on the need for a government run health insurance plan for consumers. The President used the Republicans' own logic to defend the need for a government option.
President Obama: “Why would it drive private insurance out of business? If -- if private -- if private insurers say that the marketplace provides the best quality health care; if they tell us that they're offering a good deal, then why is it that the government, which they say can't run anything, suddenly is going to drive them out of business? That's not logical.”
President Obama: “But just conceptually, the notion that all these insurance companies who say they're giving consumers the best possible deal, if they can't compete against a public plan as one option, with consumers making the decision what's the best deal, that defies logic, which is why I think you've seen in the polling data overwhelming support for a public plan.”
The President came just short of refusing to sign legislation that did not contain a public option, indicating he will be expending unlimited political capital to get it. The logical extension of his argument would be if FedEx (FDX) and UPS have prospered by competing with the Post Office, why can’t Aetna (AET), CIGNA (CI), Humana (HUM), UnitedHealth Group (UNH) and WellPoint (WLP) annihilate any competition from government run health insurance. Consider that FedEx and UPS are winning after the Post Office had over a 100 year head start.
The need to make a profit did not hinder the success of FedEx and UPS, and all these private insurers have a running start on the government. If profits are a disadvantage in competing then why did state governments allow nonprofit Blue Cross plans to be converted into the for-profit WellPoint colossus? If WellPoint cannot compete with the government then let Blue Cross go back to being nonprofit. Was WellPoint’s argument that a for-profit insurer can provide better service and more value to the consumer than a nonprofit invalid?
Medicare has an extremely low overhead for the level of insurance it writes. Yes it does incur a great deal of fraud, but more money is saved in overhead than spent in fraud. Private insurers can thrive alongside of a government plan if they balance the cost expenditures of enforcement with the cost savings of enforcement, and run leaner operations. The private insurers can leave the marketing and sales to the proposed exchanges, eliminate medical underwriting and start contracting with medical providers by the patient rather than by the service.
A certain amount of enforcement is necessary to prevent excessive fraud, but private insurers waste far too much money on administration for the benefits they provide. This is why they can only survive in an environment where their competitors do the same. The President wants to break this cycle using a government run health insurance plan as his tool. Once the environment changes, the private insurers will change and continue to be profitable.
The President’s argument could be equally applied to the pharmaceutical companies spending more on sales and marketing than research. But President Obama is not yet ready to slay that horse.
The real question the private insurers must answer is whether Medicare is more competitive because of lower overhead or lower payments to providers? I believe the emphasis on lower provider payments is far overstated. Medicare is more competitive than private insurance because it has far less fat.
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