Well, sort of. To see why this could be a problem, you have to consider the difference between marginal and average cost. Your average cost is the total cost of running your hospital or practice, divided by the number of patients. Your marginal cost is the cost of serving one additional patient. If you’re a hospital with a lot of fixed costs for things like buildings, maintenance and machines, your average cost per patient will be much higher than your marginal cost of tucking one more person into a bed.
In that situation, it is possible that for it to be profitable to take on additional patients whose fees are less than the average cost of serving everyone, but higher than the marginal cost of serving that one extra person. This is basically what airlines try to do, because their marginal costs are very low, while their average costs are high. So they charge some price-insensitive fliers a lot of money, and then offer others prices very close to the cost of carrying one more body on the plane. It’s a great deal -- if you get to be the marginal cost consumer. But people tend to forget that not everyone can be the marginal-cost consumer; someone has to cover those average costs.
Hospital profit margins are no more lavish than insurance company profits were; that suggests there might be a problem with trying to push every patient in the country down to Medicare rates. Yes, you in the back, I am indeed aware that Europe provides excellent health care for a much smaller percentage of GDP than we here in the United States. The problem is, a lot of the expensive stuff we do is the legacy of decisions that were made decades ago: Decisions about how many hospitals to build, how much equipment to buy, how to train our doctors and pay our health-care workers. We cannot snap our fingers and transform all that physical plant and human capital into the Dutch health-care system. If you try, the workers who are going to lose jobs or see their pay cut will form a powerful political coalition to fight you -- and the history of such fights suggests that they will win.
It is thus hard to see a scenario where the public option holds to the promises of its supporters -- that it will cover its own costs rather than turning into a sucking hole in the middle of the federal budget -- and also fulfills their dreams of a kinder, gentler, cheaper public insurer. If insurers were making money in the market, there would maybe be an argument. But they aren’t, and there isn’t.
On the other hand, the political logic is sound. Almost no one dives deep into the details of any policy, or thinks systemically about costs. A public option sounds plausible -- which in politics is much more important than whether it actually is.