Putting a price on government-run health care

Geoffrey Lawrence

Media attention grows every day on the specifics of the "public option" that the current Congress is proposing for American health care insurance.

Much of the debate has focused on what the proposal would mean for health-care quality and availability in the United States. 

Since the federal government would subsidize the "public option" out of taxes levied on private insurers' health plans, many observers fear the public option is simply a scheme to undermine private alternatives, but in disguise — and would devolve ultimately into a de facto, government-run, single-payer monopoly.

Such single-payer health-care systems in Canada and the United Kingdom have ended up limiting the availability of health care and rationing it, not through price, but through other, seemingly arbitrary, conditions. An example: The average wait time in Canada for medical treatment across 12 specialties was 18.3 weeks, reports Nadeem Esmail of the Fraser Institute. That's one way that government rations its supposedly "free" health care.

Likewise, a recent modeling analysis commissioned by the Heritage Foundation to examine the provisions included in House Bill 3200 confirms that the bill could have similar results. Because of lower reimbursement rates from the government as opposed to private insurance providers, physicians' average income would drop by $13,117, suggests the paper. This diminished incentive for individuals to invest the time and energy that medical training requires would almost surely lead to a shortage of doctors — meaning: more rationing.

These legitimate fears of government rationing have, in recent weeks, understandably overshadowed a much more mundane yet critically important issue with the proposals on Capitol Hill: cost. 

According to the Congressional Budget Office, House Bill 3200 would cost American taxpayers $1.042 trillion over its first 10 years. However, even this number does not begin to reveal the entire story. The main provisions of the bill would not go into effect until FY 2013 — the fourth year in the CBO analysis. Eligibility for the public option is further implemented on a graduating scale — meaning that the costs continue to escalate throughout the 10-year period, as more and more businesses drop their employer-provided health benefits and hand their employees over to the public option. By the ninth year, its projected costs would exceed the costs of the first five years combined.

Yet the CBO analysis has an obvious limitation: The CBO is prohibited by law from projecting costs beyond a 10-year horizon. It is clear, however, that the projected costs from health care proposals being considered in Congress would continue to escalate beyond that time horizon — making cost estimates over the second 10 years of even greater interest.

Using a constant rate of growth (8.54 percent — the average growth rate over the final three years) to project out the CBO cost estimates over the second 10 years for HB 3200 yields a total cost for the second 10 years of $3.258 trillion. Hence, the bill's cost over the second 10 years could easily be more than three times the projected cost of the first 10 years.

What would that mean for the Silver State? Data from the Tax Foundation indicates that Nevadans bear about 0.95 percent of the federal tax burden. This means that, under CBO cost projections, HB 3200 would force Nevadans to bear a new federal burden of $9.9 billion over the first 10 years and as much as $31 billion over the second 10 years. At the current level of spending, $31 billion is as much as Nevadans would spend on the entire operation of state government over 10 years.

What would Nevadans get for this investment? Many would lose their private insurance plans and be forced into the public option, where they can expect longer wait times and government rationing. According to the Heritage Foundation study, 83.4 million Americans would lose their private insurance plan as those plans are undercut by the public option. Using 2008 population statistics, this could mean about 713,000 Nevadans.

Any government enterprise that is forcibly subsidized by its own competition in the private sector is always problematic. Yet in this case, it seems clear, the proposed "public option" would simultaneously increase costs and decrease the availability of timely medical care.

There are better solutions for health care reform.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.