Arguing for a Publicly-Funded, Non-Profit Health Insurance Plan Option

The 5/28/2009 issue of The New England Journal of Medicine contains three Perspectives on the health care reform issue. In “Healthy Competition — The Why and How of “Public-Plan Choice” Jacob S. Hacker, Ph.D., (Professor of Political Science at UC Berkeley and author of Health Care for America) makes a solid argument for including a publicly funded insurance option in U.S. health care reform. Here are some excerpts from this article

[…] The aim of public-plan choice is healthy competition that will ensure Americans are better cared for and more secure. Such competition does not require an endless array of choices but rather a reasonable number of meaningfully different choices. Indeed, the key reason for public-plan choice is that public health insurance offers a set of valued features that private plans are generally unable or unwilling to provide: stability, wide pooling of risks, transparency, affordable premiums, broad provider access, and the capacity to collect and use patient information on a large scale to improve care. Public health insurance emphasizes the broad sharing of risk, ensuring coverage that is affordable and of high quality for the small portion of the population that accounts for most health care spending. On the other hand, private plans are generally more flexible and more capable of building integrated provider networks, and they have at times moved into new areas of care management in advance of the public sector. […]

Healthy competition is about accountability. If public and private plans are competing on fair and equal terms, allowing enrollees to choose between the two will place a crucial check on each. If the public plan becomes too rigid, more Americans will opt for private plans. If private plans engage in practices that obstruct access to needed care and undermine health security, then the public plan will offer a release valve. New rules for private insurance could go some way toward encouraging private plans to focus on providing value. But without a public plan as a benchmark, backup, and check on private plans, key problems in the insurance market will remain.

Perhaps the most pressing of these problems is skyrocketing costs. Public health insurance has much lower administrative expenses than private plans, it obtains larger volume discounts because of its broad reach, and it does not have to earn a profit, as many private plans do. Furthermore, experience with Medicare suggests that public insurance is better equipped to control spending over time while maintaining broad access to care.[…] Nearly all other advanced industrial democracies rely much more on public health insurance than the United States does, and all have lower health care costs per person, have seen their costs rise more slowly, and yet have maintained better overall health outcomes and much stronger health security for all their citizens. […]

To be sure, there are reasonable concerns about how the bargaining power of a new public plan will be used — concerns reflected in current proposals for alternative models that would fulfill some of the goals of a Medicare-like public plan but would have limited ability to secure lower rates and might be run by state governments[…] or even private insurers under public contract. Yet a watered-down public plan would be a grave mistake. Instead, the public plan should include safeguards designed to ensure that providers are fairly represented, that initial rates are reasonable, and that bargaining for lower prices does not negatively affect patients’ access to care or shift costs onto private insurers.

Rather than a weak alternative, a new public plan should be Medicare-like — national, governmental, and built on Medicare’s basic infrastructure. But it should not be Medicare. It needs to have a broader set of benefits. It must have a separate risk pool. It should improve on the way in which Medicare pays providers, particularly physicians. And, most important, it must compete on a level playing field with private insurance plans. This means, above all, that its administration should be separate from the agency that runs the new health insurance pool that contracts with and regulates private insurers. […] Creating a level playing field requires attention to the three R’s of workable public–private competition: rules that are the same for all plans, risk adjustment, and regional pricing. […]

For other views on health care reform go to “Public Health Care and Health Insurance Reform — Varied Preferences, Varied Options” and “The Proposed Government Health Insurance Company — No Substitute for Real Reform” both published in the same issue of the NEJM.