Josh at TPM notes that Joe Lieberman has shifted his argument for opposing a public option.

Yesterday, he claimed the public option was a health entitlement that would add to the deficit, just like Medicare. Various people promptly shot that down.

Today Joe changed his tune to match the insurance industry argument that AHIP used in the PriceWaterhousCoopers report, which was also discredited. (Also here, here and here.)

Here’s Lieberman today on Fox, via TPM:

If the public option, the government run health insurance company, negotitates hard to lower the reimbursement, the money it’s paying to hospitals, doctors, they’re gonna have to get that money somewhere, and where they’re gonna get it is from the 200 million americans who today have private health insurance. Premiums will go up. It’s exactly what’s happened with Medicare and Medicaid.

My hospitals in Connecticut told me a while ago that they get 70 percent of the average cost of patient care from Medicaid, about 90 percent from Medicare. If that was it they’d go out of business. So they charge the private health insurance companies 130 percent of the average cost, and that’s what would happen with this new entitlement, new government run health care program. It’s just not worth the risk.

The insurers’ “cost shift” argument has been challenged by health care economists. It implies several interesting but unspoken assumptions that Congress hasn’t fully digested:

1. There is no competitive market for or pricing of health care. Instead, there is a set of costs that health care providers must recover, and they have the market power to force insurers to pay whatever they need to cover those costs.*

2. So if Medicare exercises national market power to force providers to accept less than what providers want, providers will turn around and use their market power to charge the private insurers whatever the providers want to make up the difference.

3. Moreover, while providers have this market power over the helpless insurance industry, they are not fully exercising that market power. How do we know? Because arguments 1 and 2 mean that the providers could have charged insurers even more in the past, but didn’t do so (out of the goodness of their hearts?). (I suspect this will come as a suprise to economists!) They’ll only exercise this hidden market power if the public plan comes in and imposes its own payment reductions on the providers, at which point the providers will exercise more of their market power and raise prices to the private insurers.

It’s a clever argument. It says that despite the massive and pervasive concentration of the insurance industry in most states, the private insurers are mostly helpless against the greedy doctors and hospitals.

That excuse would then explain why, 2-3 years before most of the proposed reform measures take effect that would try to regulate insurers and drive down provider costs, the insurers are proposing major increases in premiums for next year. The insurers are arguing they have no choice, because those greedy doctors and hospitals are forcing these price increase on the insurers.

But let’s go back and reexamine Joe’s argument (and the Business Roundtable is buying the same argument): In swallowing the AHIP argument, he’s really saying that providers have tremendous market power to force price increases at will on private insurers, whose premiums are passed through to the businesses and individuals that have to pay the escalating premiums. And even without the public option, the greedy providers would still have that dangerous market power.

There are undoubtedly communities in which provider hospitals and doctor networks do have and exercise market power. But the strategy that might check that market power — expanding Medicare and/or giving lots of businesses and people the choice of a public option tied to Medicare’s pricing — is the one thing Joe and his insurance buddies won’t let us do. In fact, Joe and his like-minded colleagues would kill health reform to prevent us solving the market power they implicitly assume is causing the health-related fiscal crisis. So much for the fiscal scolds’ concern about future deficits.

And heaven forbid we should strengthen the public option by opening up its counter-market power solution to more people and businesses. Better to just let the health care system bankrupt the country.

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* I read this argument somewhere, will update when I find the link.

More: Igor Volsky/Thing Progress, Lieberman Lies to Justify Healthcare Filibustering
The Incidental Economist, The Healthcare Cost Shifting Myth and Show Me the Studies — covers the debate with links and counter-arguments from comments.