The Public Option: The Third Way, Not the Third Rail

10/22/2009 05:12 am ET | Updated May 25, 2011

It's in. It's out. Is it in again or is it out again? The public option in health care reform or the "government health program," depending on your perspective, is the "Wack-A-Mole" of health care reform.

In today's national health care reform debate, we seem stuck on an "all or nothing" approach to the public option which I would argue is not the right approach. Let's consider another incarnation of the public option, one that meets the original goal of healthy competition. The premise of a public option competing with commercial for-profit plans is a good one. A public option, with drivers other than profit, can raise the bar for quality and overall performance in competition with private plans. It can be done on a level playing field. It can be done without forcing commercial health plans out of business. And, it can be accomplished in a cost-effective manner.

How can I be so sure? In Los Angeles, we have been doing it for more than a decade (and sister organizations in 8 other counties). L.A. Care Health Plan is the largest public health plan in America with nearly 800,000 Medicaid, Children's Health Insurance Program (CHIP) and Medicare enrollees. We are a public entity governed by a stakeholder board, which includes representatives from safety net hospitals, community clinics, physicians and enrollees.

While fiscal responsibility is at the core of L.A. Care, profit is not. Since we have stakeholders and not shareholders, we concentrate on improving quality, driving innovation, supporting the safety net, and expanding coverage. In 2008, LA Care achieved certification by the National Committee for Quality Assurance (NCQA). We've developed innovative ways to align financial incentives across the system to drive quality improvement and address disparities, resulting in more timely prenatal care and adolescent well care delivery.

We have also made investments in safety-net providers that not only benefit our enrollees but others in our community who rely on the safety net. Examples include our investment of $1.5 million in accessible exam room equipment to better prepare safety net clinics to serve an aging population, and $7 million in oral health to fill in a gap in dental care. We've also been innovative in our use in aligning financial incentives among providers, and members to improve quality and address disparities, such as improving timely prenatal care and adolescent well care. We've even expanded health coverage to over 70,000 low-income children who do not quality for Medicaid or CHIP. All of this has been accomplished in the state with one of the lowest reimbursement rates of any Medicaid program in the nation.

Let's see here, an existing public plan model has a track record of expanding coverage, supporting safety net providers, realigning financial incentives, increasing quality, responding to consumer need and doing it all while containing costs. Isn't that what we are all looking for in health care reform?

The adage is if you know one health care market, you know one health care market. Provider organizations vary regionally in their infrastructure, contracting capacity, and ability to coordinate and manage patient care. Regions also vary tremendously in the availability of and access to specialty and tertiary care, evidenced by the wide swings in regional health disparities. That's why the public plan option must be nimble enough to respond to local market conditions.

It is important that policymakers broaden their search to include local public plans like L.A. Care, as well as cooperatives and not-for-profit safety net health plans that are already serving low-income populations through government-sponsored programs.

With about 64% of Medicaid market share in Los Angeles, we've proven that a public plan can compete with a private plan. L.A. Care has invested over $80 million into supporting community clinics and providing coverage to tens of thousands of kids who otherwise would be uninsured.

The plan must be nimble enough to respond to local markets and not force private insurers out of the mix. This can be accomplished by offering states incentives to create regional plans that are either public, not-for-profit, or cooperatives, and meet criteria to ensure they are accountable, transparent, compete on a level playing field, and serve the public's interest. It shouldn't be monolithic, national and have the ability to rate-fix.

Because it wouldn't be health care reform without a new acronym, let's call these entities "State-Designated Regional Health Consortiums" or SDRHCs. These localized SDRHCs can be an option offered to individuals and businesses through the exchange, and can also serve public programs outside of the exchange.

States should not be mandated to form SDRHCs, but should have a strong financial incentive to develop one. One idea would be for the federal government to offer an enhanced Federal Medical Assistance Percentage (FMAP) rate for a minimum of four years to states that create and/or utilize SDRHCs within the first year of reform.

SDRHCs should be required to have local stakeholder governance, which will ensure that the plan will reflect the needs and priorities of the region it serves. These organizations can be structured as public or quasi-public, private not-for-profits (under certain conditions), and cooperatives. The governing body should include representatives from consumers, government, safety net providers, physicians, hospitals, and other providers.

SDRHCs will operate under a set of open-meeting and conflict of interest rules that ensure transparency and oversight. These organizations will be financially self-sustaining, as the funds used to operate the plan shall be derived from enrollee premiums. While SDRHC's will receive some federal and state start up funding, it will be in the form of grants or loans. SDRHCs will have the same licensing, oversight, actuarial rate setting methodology, and financial reserve requirements as private plans. SDRHCs would be held to the same set of requirements for access and quality of care as private plans. However, because SDRHCs drivers are different than private plans, SDRHCs should be required to reinvest margins in the communities they serve. They should support the safety net, administer community grantmaking programs, or provide a return to the purchasers/consumers, thus improving the health of the local community.

SDRHCs should be required to offer contracts to all qualified safety-net providers under the same terms and conditions that the plan requires from other providers. Safety net providers include Federally Qualified Health Centers (FQHCs), community health centers, rural and Indian health services centers, disproportionate share hospitals, public and university hospitals, and rural and children's hospitals. The reasoning behind this requirement is that even with universal health coverage, there will still be a need for the safety net. Safety net providers will continue to be the main source of care for those who remain uninsured or are socially or behaviorally complex to effectively treat in private systems. These providers will also continue to see a significant number of those who have coverage through government-sponsored programs.

There are many successful models of these types of plans in different parts of the country, and particularly here in California. Let's not just give up on the public plan option - let's figure out a way to make it work by keeping the aspects of it that bolster the strengths of our existing markets and not those that threaten it.