Health Care and Student Loans: The Bad Guys Are on the Run

Good news from Dean Baker? Twice in one post? Indeed.

Health Care and Student Loans: The Bad Guys Are on the Run

Progressives should be feeling good right now. There is clear evidence that we are winning on two really big issues.

Starting with the smaller of the two, Sallie Mae, the largest private issuer of student loans, is now proposing to accept a plan in which the government is the sole issuer of government guaranteed loans. Sallie Mae’s plan is that it continue to be given the opportunity to originate these loans, picking up fees in the process.

This proposal is in response to the Obama administration’s plan to get the private sector out of the government guaranteed loan business. There is ample evidence that the involvement of private firms just adds costs — approximately $90 billion over ten years according to the Congressional Budget Office. Sallie Mae’s compromise proposal is a recognition of the fact that it cannot stop the Obama plan.

If this story is good, the news on health care is even better. The industry is now proposing a scheme whereby it will curtail cost growth by 1.5 percentage points a year. At these point none of the details of the proposal are public and it is unlikely that any of the commitments in the proposal will be binding in any serious way on the industry.

However, the fact that they would suggest that such cost savings are possible is an enormous concession. After 10 years, the cumulative savings from this proposal would amount to more than $400 billion a year, more than $3,000 for every family in the country.

The industry is talking this way because they are scared to death at the prospect of having a Medicare type public plan, which will both provide competition for private insurers and create an effective mechanism to constrain the fees charged by health care providers. As many have argued, the public plan is a real game changer.

These new developments in both the health care debate and the debate over student loan policy are great news. In both cases the industry groups are now prepared to make important concessions that they never would have envisioned even a year ago.

Of course, there is no reason to accept their compromises. Why should we waste any of the money that could be going to help college students so that Sallie Mae executives can draw high salaries and its shareholders can enjoy large dividends. Let them make money in the market, not by adding costs to a government program.

Similarly, the threat of a public plan has forced promises of concessions from the health care industry. If we don’t actually get the public plan, there is no enforcement mechanism for these promises. If we go ahead and put the public plan in place, then we know that the industry will deliver on its promises.

Now is not the time for compromises. We must keep the pressure on. It is showing results.

—Dean Baker

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