Paul Krugman is among those arguing in favor of the public plan option in healthcare reform in part because “health reform will fail unless we get serious cost control.” But there are very good reasons for thinking that expanding the government’s role in health insurance would not achieve this goal. The Congressional Budget Office has reported that over the years 1975-2005, the real per capita cost growth for Medicare and Medicaid was actually slightly higher than that of other healthcare.
This suggests that the government sector won’t necessarily be better than the private sector at controlling costs. James Capretta, former top budget official for health in the Bush administration and current fellow at the Ethics and Public Policy Center, has articulated why this is so (see here and here). First, the political process protects the market share of incumbents. Second, beneficiaries of subsidized insurance stand little or nothing to gain from selective use of services because the money they spend largely is not their own.
Walton Dumas is a researcher at AEI.