01/17/2014 02:43 pm ET Updated Mar 19, 2014

Obamacare Rocks

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The relentless flow of good news about Obamacare may explain why a growing number of elected Republicans are walking away from the issue. Two new bits of insurance news suggest progress that backers of reform find quite encouraging.

The first explains how governments are competing in the insurance exchanges, simultaneously giving shoppers greater choice and potentially providing profit that can help fund services to indigent Medicaid recipients. In essence, this is the public option that liberals fought hard for, but failed to get into the legislation that was enacted.

The second carries the provocative headline that says it all: "Health insurers think Obamacare is going to be fine."

Taken together, this is really good news for those of us who connect the dots. Why? Because a key to whether Obamacare succeeds is whether private insurers participate and make coverage available at an affordable price. If they boycott, because of bad computer systems, bad press or inadequate profits, the reforms simply cannot work. If they see it as a major business opportunity and compete in a growing number of markets, their competition can moderate prices and enhance the chances of success.

But many liberals think that anything that what makes the health insurers happy should make the rest of us sad. That's because of their perception that such firms maximize profit by minimizing needed care and that ultimately their pursuit of profit is hazardous to our health. Such critics think provisions of the large requiring that the rebate premiums if they fail to spend an adequate amount (80 to 85 percent) on care are inadequate despite the fact that half a billion dollars in refunds were made last year.

The entry of public plans into markets will constrain premiums by defining the bottom of the market. The assumption is that such plans will generally be cheaper, perhaps at the cost of limiting provider choice and steering patients to less fancy facilities. In New York City, such plans have already enrolled about one-third of insurance shoppers. Thousands have signed up for such plans in Los Angeles and Detroit.

This new option is made possible as the states have converted Medicaid reimbursement to capitation, essentially turning local agencies into insurers as well as care providers. In other words, the New York Medicaid program pays MetroPlus "x" amount of dollars to care for a patient for an entire year rather than "y" amount of dollars each time the patient visits a doctor and "z" amount of dollars when the patient is hospitalized. The state thus knows its costs in advance while the plan thrives if it finds a more efficient way to deliver care.

Capitation and the more efficient delivery of care -- two broad principles Republicans have long supported -- are what Obamacare is all about.

For the optimistic, there's even the possibility of a benign spiral here by forcing Medicaid providers to be more consumer friendly. In a capitated plan, patients have the option of simply taking their business -- and the annual reimbursement -- to a competitive firm, thereby providing an incentive to keep patients happy as well as healthy. Private patients may prove to be more demanding than today's Medicaid patients. If so, they could improve the quality of care for all participants in such plans.