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The Progress Report

Posted April 3, 2009 | 12:14 PM (EST)

The Case For A Public Health Care Plan


by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, and Igor Volsky

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Though President Obama and 73 percent of voters strongly support a new public health insurance plan that can compete with private insurers equally and transparently within an insurance exchange, some lawmakers have indicated that a public plan may not be part of the final reform legislation. Yesterday, the Congressional Progressive Caucus threatened "to vote against any health plan that doesn't include a public plan option." "We have polled CPC members very carefully in recent weeks and a strong majority will only support comprehensive healthcare reform legislation that includes a public plan option on a level playing field with private health insurance plans," explained CPC co-chairmen Reps. Lynn Woolsey (D-CA) and Raul Grijalva (D-AZ)." Senate Finance Committee Chairman Max Baucus (D-MT) has recently said that the public plan is just a bargaining chip to "encourage the private health insurance industry to move in the direction it knows it should move toward -- namely, health insurance reform, which means eliminating pre-existing conditions, guaranteed issue, modified community rating." "I think we can accomplish" health care reform "without" a public plan, Baucus said in an interview with The Progress Report. The insurance industry asserts that a new public plan would underpay medical providers, increase costs for Americans with insurance, and force millions to leave the employer market and move into a public plan. There is also limited bipartisan support for the plan. Sen. Ron Wyden (D-OR) has warned that there is "no GOP support for a plan that included a government option" and in March, Sen. Mitch McConnell (R-KY) sent a letter to Obama, effectively taking this option off the table.

LOWERS COST: Despite the opposition, a new public health inurance plan could restore competition into the consolidated health insurance market, lower health care premiums, lead the way in innovation, and improve health quality. As CAPAF Senior Fellow Peter Harbage and Director of Health Policy Karen Davenport argue in a new report about the public plan, "in the face of tremendous consolidation in the health insurance market, employers and individuals have a shrinking set of health insurance options. Private insurers have used this market power to boost their profits." Harbage and Davenport add, "By including a public health insurance plan as another insurance option and creating a health insurance exchange that delivers transparency and accountability to the market, we can assure both viable competitors and real competition." As former Gov. Howard Dean (D-VT) argues, health reform "rises and falls on whether the public is allowed to choose" a public option. In a recent interview with The Progress Report, Dean explained that "the free market does not work in health care, except in very perverse ways. So, you have to find a system that works better in addition to the free market...it's a structural problem in delivering health insurance." According to the Urban Institute, "the presence of a well-run public plan would constrain private spending, as the plans would have to compete on price." Forcing private insurers to compete fairly with a public model that has lower administrative costs and operates with greater efficiency could "reduce projected health care costs by about $2 trillion over 11 years, and lower premiums by about 20 percent on average."

IMPROVES QUALITY: Traditionally, public health insurance plans like Medicare have "been the source of important payment innovations" that private plans have generally adopted." Today's Medicare program, for instance, "promotes quality care alongside cost containment. ... Medicare's refusal to pay medical care providers for 'never events' where a patient suffers a knowable and catastrophic mistake such as having the wrong limb removed is something other major insurers are now adopting." Similarly, Medicare development of its provider-payments systems and its investments in measuring and reporting quality care indicators are "two things that private insurers are now following the Medicare lead in doing." Moreover, "the way in which Medicare pays hospitals -- on a per stay basis rather than by reimbursing on a system that charges for each service or treatment delivered -- helped to change the way that care is delivered in the United States." The Veterans Health Administration has also "implemented a sophisticated electronic medical record systems and a quality measurement approach that focuses on preventive care and chronic disease management." A new public plan has the potential to do even more "to drive improvements in the health care system" and set the standard for developing new payment models and investing in preventive care and care coordination.

DESIGNING FAIR PUBLIC-PRIVATE COMPETITION: While the public option has become the subject of heated debate, few have spent much time sketching out the details for how to foster fair private-public competition. Robert E. Moffit of the Heritage Foundations has argued that it would be impossible to design a framework that pits for-profit private insurers against a government program that need not turn a profit. The government will institute lower rates, taxpayers will assume liability, and private insurers, Moffit warns, will simply go out of business. But eliminating medical underwriting will lower the administrative costs for private insurers and force companies to compete on quality, not risk. As health care economist Uwe Reinhardt explains, "if the new public plan had to negotiate its own prices, then it would not have a competitive advantage any more 'unfair' than is the ability iof large insurers -- such as Aetna and Wellpoint -- to negotiate lower prices with hospitals and physicians than these providers charge smaller insurers. For some reason, no one has ever called this form of price discrimination 'unfair.'" In fact, more than 30 states already have public health insurance options. In their role as self-insured employers, states are responsible for containing costs, promoting quality, and assuring that employees get the benefits and the care they need. In these states, employees may choose between private plans and the public plan, while in some states this pool is open to private employers as well -- a clear example of a public health insurance plan offering additional choices. Len Nichols of the New America Foundation has designed a framework that would ensure that the same body that's running the government plan isn't setting the rules of the competition, charging unreasonably low rates, or assuming too much risk. Such models already exist. Under Nichols' conception of a competing public option, the new program would "be accountable to an entity other than the one identified to govern the marketplace." The managers would be evaluated by patient satisfaction, not profits, and the people running the plan would have no incentive to stint on patient care in favor of the bottom line. In other words, public and private payers compete on a completely level playing field and follow all of the rules of the marketplace. The public plan would be actuarially sound, would not leverage Medicare to force providers to participate or use Medicare payment rates, and would have to adhere to the same rules regarding reserve funds. Costs would be lowered through competition and system-wide reform. By changing the way Medicare and the public option reimburse for services and increasing the efficiency of both programs, the government can encourage private insurers -- who are now competing directly with the new public plan -- to also adopt more efficient payment practices.