Notes on Cannon

Today, I'm writing about Michael Cannon's Cato Institute policy analysis "Fannie Med: Why a Public Option is Hazardous to Your Health." The first thing to consider here might be the title itself. Why?

I'm not so familiar with Fannie Mae, but clearly Cannon is making an analogy between the proposed public option and Fannie Mae. The problem is that I don't have the context to understand the analogy.

But...with a little research, I now think I get it. I learn from the Fannie Mae website that:

Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets.

Okay, so the public option would work similarly, I think (or would it?). It, too, would be government-sponsored. And the usefulness of this analogy for Cannon is captured in this passage, again from the Fannie Mae website:

On September 6, 2008, Director James Lockhart of the Federal Housing Finance Agency (FHFA) appointed FHFA as conservator of Fannie Mae. The U.S. Department of the Treasury has agreed to provide up to $200 billion in capital as needed to ensure the company continues to provide liquidity to the housing and mortgage markets.

I guess the point that Cannon is making, then, is that the public option could end up like Fannie Mae--bankrupt. And if that happens, what? Why is a public option "hazardous to your health"? Because you'll end up with no health care coverage (if you choose the public plan)? Presumably, the government would bail out the public option, though, so I'm not sure I fully get the analogy.

Okay, well, now I need to spend some time summarizing Cannon's argument--or arguments. It seems as though one main claim that Cannon is making is that a public health insurance program WILL NOT increase competition in the health care market. Instead, a public plan will lead to the end of the private health care market. He writes:

President Obama’s vision of a health insurance exchange is not a market, but a prelude to a government takeover of the health care sector.

In another passage, which I find persuasive, he draws on the President's own words. He quotes the President as saying:

No matter how we reform health care, we will keep this promise to the American people. If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.

One of Cannon's main projects in this article is to show how this statement is not true ("You lie!")--to show that, in fact, many Americans will not be able to keep their doctors if the government creates a public plan and, perhaps more importantly, that we DO NOT want the government administering our health care plans.

Near the end of the article, Cannon succinctly states his position:

A new government program would supplant private insurance, despite offering inferior care at a higher cost.

There are three claims here and these are, I think, the central claims that Cannon is making:

1. A government plan would supplant (supersede and replace) private insurance

2. A government plan would offer inferior care

3. A government plan would have a higher cost (in dollars? in lives?)

Let's examine the support he provides for these claims.

CLAIM 1: A government plan would supplant (OED: supersede or replace) private insurance.

Why or how would a government plan supplant private insurance? Cannon provides two reasons:

1. the public plan's premiums will not reflect their actual cost (thus, private plans will be unable to complete)
2. the government has myriad ways of subsidizing its own programs, including a public health care program, so there is no way that a public plan could ever "go out of business" (whereas there are plenty of ways that private plans could)

As a result, Cannon suggests, there is no way that private plans would be able to compete with a public plan. A public plan will have lower premiums than private plans, forcing private ensurers to lower their premiums to a point that is unsustainable and a public plan will have government backing (as opposed to the "strategic reserves" that private plans are required to keep), so it will never face bankruptcy or insolvency.

CLAIM 2: A government plan would offer inferior care.

Cannon provides a number of reasons to support this claim.

1. "government programs uniformly lag private insurance in adopting quality innovations" (6).
2. "Government programs are not merely slow to innovate, they are outright hostile to quality innovations" (7).
3. "government’s lack of a profit motive may not be an advantage at all. Profits are an important market signal that increase efficiency by encouraging producers to find lower-cost ways of meeting consumers’ needs. The lack of a profit motive could lead a government program to be less efficient than private insurance, not more" (4).

CLAIM 3: A government plan would have a higher cost (in dollars? in lives?)

I'm not as sure about this one--Cannon is certainly making the point in this piece that switching to the public plan could lead to...having to change to a new doctor, being given inferior care, and, perhaps, even lost lives. Is this a scare tactic? Maybe.

Cannon writes:

As the new program’s artificially low premiums crowd out private insurance, the government would exert even greater downward pressure on quality. (12)

At the end of the article, Cannon suggests that

If Congress wants to make health care more efficient and increase competition in health insurance markets [it] should convert Medicare into a program that gives seniors a voucher and frees them to purchase any health plan on the market [and reform] the tax treatment of employer-sponsored insurance with “large” health savings accounts [that] would give workers the thousands of dollars of their earnings that employers currently control, and likewise free workers to purchase any health plan on the market.

Here, we get a sense of the ideology driving Cannon's position. According to its website,

The mission of the Cato Institute is to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace.

When set against this backdrop, Cannon's hyper-concern about a "government take-over" of health-care and his proposal for how to reform the system with vouchers make sense. It's not just that Cannon and those at Cato are against the public option, it's that they are, generally, against an active federal government and for a more market-based approach.

So what are my questions about Cannon's article?

First, he assumes that the public plan will inevitably kill our private health insurance system. He sites some numbers (provided, again, by the Lewin Institute!) on how many Americans are likely to switch to the public plan:

A Lewin Group analysis estimated that Obama’s campaign proposal would move 32 million Americans into a new government-run plan. Lewin subsequently estimated that if Congress used Medicare’s price controls and opened the new program to everyone, it could pull 120 million Americans out of private insurance—more than half of the private market. The share of Americans who depend on government for their health care would rise from just over one- quarter to two-thirds. (3)

Despite the credibility issue for the Lewin group, it's worth asking--how many people will opt for the public plan. Is it going to change things as dramatically as Cannon suggests? He has a skepticism of government--is he just sketching a worse-case scenario or is what he is saying will happen going to happen, inevitably?

At another moment in this piece, he writes,

The “Blue Dog Coalition” of moderate House Democrats has offered several criteria that a new program would have to satisfy in order to do so. The Blue Dogs insist, for example, that the program would have to be completely self-sustaining (i.e., premium revenue would cover all costs), that the government not leverage its market power to favor the new program, and that government not enact any regulations that favor a new government program over private insurers. (8)

So, there are some who are taking steps to try to ensure that a public option does not automatically lead to the demise of the private system. Of course, Cannon is not buying what these folks are selling.

But it is, I think, important to point out that no publicly financed or government-based system is going to make Cannon happy. He's not for government playing a role in administering health care--at any level (note what he said about giving vouchers to seniors). Ideologically, he's going to argue that the market is the best way to distribute health care services, no matter what.