Response to Ezra on Edwards's Plan

I'll be doing more detailed analysis later, but for now, check out Ezra's discussion of John Edward's new plan. While I certainly don't mind the inclusion of a Medicare like program as part of Edwards's state-based "Health Markets," Ezra is a bit more enthusiastic than I would be:

In other words, the public sector will finally be allowed to compete with the private sector, and consumers will be able to decide which style they prefer. For Democrats, this is a significant step forward.

I don't think allowing public plans to compete with private plans is a panacea. There's no particular reason to think the "New Medicare" option will perform much differently from a similarly generous private plan. The one major advantage is that it will presumably not be skimming off premiums to provide dividends to shareholders. But other administrative costs may remain just as high. After all, private plans spend money on marketing or designing benefit systems to attract a healthy pool of beneficiaries for a reason: that's the only way in a competitive system to avoid the death spiral of higher rates and fewer healthy customers. Community rating or minimum benfits requirements may help a bit, but New Medicare would still have to find ways of excluding sick people outright or making itself unattractive to them or it would have to start raising rates, just like in the private sector (unless it gets extra subsidies).

The best way to allow Medicare-like programs to "compete" is either a) mandatory expansiosn to a new group or b) voluntary expansions to a fairly small group of new customers at a time, so the average health of the pool stays decent and others start clamoring for the same option. One example of option b) would be a pilot program expanding state employee pools to a few small businesses, but the only way to scale it up once the clamoring begins is to make it mandatory for the first group before moving on to voluntary expansions for a different small slice. Just expanding the group of people eligible to buy in voluntarily invites the adverse selection death spiral.