Nevada’s ‘public option’ is another legislative blunder

Reno Gazette Journal July 11,2021

During the recently concluded 2021 legislative session, the Nevada State Legislature passed the state-managed “Public Option” in healthcare making it just the second state in the nation to pass such a law. The public option plan will be available for purchase to eligible participants starting in 2026.

For starters, if you are wondering what public option is, and where does it fit in with the other multitude of government “solutions” like Medicare, Medicaid and Obamacare, you are not alone. For the purposes of this column, our primary focus is the public option. Nevada’s version of public option will force health insurers who participate in the state’s Medicaid program to submit a bid for the public option plan. Additionally, the premium for the public option plan must be five percent below similar plans sold on the Obamacare exchange (the law requires the premium to be 15% lower than similar plans in four years). Additionally, healthcare providers who accept Medicare patients or the state employees’ health insurance plan will be required to accept patients on the public option plan.

Set aside the fact that I have serious issues with government “requiring” private entities and individuals to do something. Government involvement in setting premiums and reimbursement rates is a slippery slope. Take Medicare for instance. Medicare reimbursement rate is at about 80% of the amount private companies pay. Providers often lose money while serving Medicare patients, but they make it up by billing private companies at a higher rate. With the public option plan, as government forces premiums down, providers will end up losing money on public option patients. This will lead to providers pulling out of the public option, which will make them ineligible to treat Medicare patients. Eventually, this will impact the long-term viability of both programs.

Public option is a government program, and every government program starts with some seemingly noble claim. Sponsors of public option claim that it will expand coverage while cutting costs. Show me one government program that cut costs in a sustainable manner. We have seen this movie before. There will be some temporary cost cuts in the early going. Over time, the bureaucracy will increase, and so will the costs. Then come the government subsidies, so the lower premium reduction claim can be preserved. We can all see the explanation: adverse selection has resulted in the government plan covering the patients with the most illness making it expensive. Wait times will increase as providers exit. In the end, public option will expand until it can no longer be sustained.

To gain an understanding of how government programs start and expand, we do not have to look any further than social security. When the program started in 1940, it was 0.29 percent of the total federal expenditure. By 2000, in just 60 years, it became the biggest annual federal expenditure increasing nearly hundred-fold to 22.88 percent of the federal spending (Source: Social Security Administration).

One final point: Government is the most inefficient sector of the economy. It is run by bureaucrats who report to politicians. Politicians worship at the altar of special interest groups and lobbyists. Most government programs are influenced by special interest groups and riddled with government waste. Take the San Francisco homeless encampment as an example. The encampment costs the city of San Francisco $60,000 per tent, per year, according to the San Francisco Chronicle. That is twice the median cost of a one-bedroom apartment in that city. That is the only kind of “savings” that government is capable of delivering and public option in Nevada will follow a similar trajectory.