Health care reform is once again in the air. Virtually all Democrats favor some meaningful expansion of public insurance, whether through single payer or the creation of a “public option” that would allow consumers dissatisfied with the private market to buy into a public program. Republicans, not surprisingly, have pushed back, not only against single payer, but also against the public option, saying it will drive private payors to extinction. All the political jousting implicates a larger and serious policy question; namely, what should be the role of private payors in the nation’s health care system?Arguments to date on that subject have largely overlooked two crucial realities. First, payors (public and private) perform multiple functions regarding health care delivery. That the government is better at one function does not mean, or even imply, that the government is better at all of them. By disaggregating the services payors render in connection with health care financing, debates about the ideal roles for public and private payors — as well as whether one of them will or should compete the other into extinction — can be had on understandable terms.Second, although frequent references to the competitive virtues of a public option have been made, insufficient thought has been given to the conceptual specifics of why and how private payors faced with a public option might evolve. In terms of improving care delivery, observers have underexamined how private payors might serve as welfare-enhancing big data digesters, care evaluators, choice intermediaries, and incentive innovators — all proficiencies that not only rate to improve the cost and quality of care, but are entirely harmonious with modern experience about where private actors often create value: by collecting, analyzing, packaging, presenting, and deploying information.Once these two significant theoretical refinements are brought to bear, a richer analysis of the public-private question emerges — and one that supplies good reason to doubt that private payors should or will (at least in the short term) be put to the sword by either Congress or public-option-armed consumers.
