Why Do We Need a Public Plan Option, Anyway?

Written by: Michael Pine on Aug 10, 2009 10:15 AM EDT

Why Do We Need a Public Plan Option, Anyway?

By Helen Halpin, Michael Pine, and Harold Pollack

This is the first in a series of four blogs that attempt to provide perspective and direct activity where it will do the most good.  It focuses on the role of the federal government in health care with particular emphasis on the “public plan.”  It is structured as a conversation in which Helen Halpin advocates a progressive approach, Michael Pine presents conservative counter-arguments and alternatives, and Harold Pollack explores ways in which legitimate concerns of left and right may be reconciled.  We hope this approach will enable us to get beyond the knee-jerk, minute-by-minute responses that often characterize communications from both extremes.  Finally, this blog concludes with a set of high priority action items for the coming week.

Halpin:

Since President Obama first unveiled his health insurance reform proposal during the primaries, he has been a strong advocate of giving non-elderly Americans the choice of a public health insurance plan, like Medicare, which is, in fact, a single payer plan for the elderly.  Why model a health insurance program for the non-elderly after Medicare? 

Because the Medicare program for the elderly:

•    - Is the most efficient health insurance offered in the United States (as measured by the percentage of premium dollars that are spent on actual medical care [97%] compared to 15-30% of your premiums that go to administrative costs, marketing, and profits in the private health insurance industry),

•    - Enables the elderly to go to ANY doctor or hospital in the country they choose (while most private health insurance plans limit enrollees’ coverage to only the doctors and hospitals in their “networks” or charge you much more out of pocket for going to a doctor or hospital out of your network),

•    - Is guaranteed for all Americans when they turn 65,

•    - Can never be taken away,

•    - Does not exclude pre-existing conditions,
•    - Does not charge elderly persons who are female, or sick, or older more for their health insurance, and
•    - Has monthly premiums that are heavily subsidized by the federal government so that the elderly can afford it.

The private for profit health insurance market promises none of these things.

President Obama supports offering all Americans the choice of a public plan, because they will get much greater value for their health care dollar and it will give all of us the choice of another option as an alternative to for profit health insurance – where the goal is maximizing equity to shareholders, rather than maximizing the health of the American people and the choices they make in seeking medical care.  If we are all forced to buy insurance in the private for-profit health insurance industry (the alternative to a public plan option), the health insurance companies win and the American people lose.

President Obama has laid out two primary goals for the public plan option: 

1. The first is to give the American people the choice of a plan that will promote their health and pursue shared goals of equity, liberty, security, and efficiency.  The second is to put the private for profit health insurance industry in the position of having to compete with a more efficient, equitable and secure health insurance options (the public plan), and in the process make them more efficient, equitable, and secure in the process of that competition.

There is no reason to be scared of the public plan.  Ask the elderly if they want Medicare taken away.  The elderly also have the choice of private for profit health plans.  But guess what?  Given the choice, 80% of the elderly choose to remain in the public plan – the single payer plan – compared to only 20% who choose for profit health insurance.

Pine:

Although progressives and conservatives may argue about many things, they both are suspicious of monopolies that use their dominant market position to stifle all attempts at competition.  On the other hand, conservatives are equally suspicious of monopsonies that use their purchasing power to tyrannize producers, while progressives often are willing to look the other way when the monopsony is the federal government.  But both monopolies and monopsonies rarely are able to resist the temptation to set unrealistic prices that ultimately work to the disadvantage of all.

If a public plan were structured to create real competition in the health insurance marketplace, no honest free-market conservative could find rational grounds to oppose its creation.  But Medicare is not designed to compete with private insurance plans, and talk about creating a public plan modeled after Medicare should give little comfort to individuals concerned about the future of American health care.  Medicare has a poor record of setting fair prices for healthcare services, and cost-shifting within Medicare (e.g., the mess surrounding payment for renal dialysis and related services) and from Medicare to other payers has made many conscientious health care practitioners extremely wary of increasing federal power to set healthcare prices.  Congress, which micromanages Medicare reimbursement, has enacted a Sustainable Growth Rate adjustment that now threatens to reduce Medicare payments to doctors by 20 percent.  No wonder even progressive-leaning health care professionals are uncomfortable when they are asked to accept an ill-defined federally-administered public plan.

When Senator Grassley expressed concern that a proposed public plan would be given unfair advantages over private plans, President Obama acknowledged the validity of this concern and challenged critics of the public plan to devise means to ensure fair competition on a level playing field.  But progressive advocates of a public plan continue to emphasize how federal power can be used to drive down prices and protect consumers without paying much attention to how unfairly disadvantaging private payers may result in unintended consequences that adversely affect healthcare providers and their patients.  Until Congress demonstrates that it can manage defense spending without spreading pork all over the nation, claims that the federal government can make hard decisions to contain health care costs in a responsible manner are tenuous at best.  So let’s not rush into a public health insurance plan until there are iron-clad assurances that it will be forced to follow the same rules and adhere to the same standards as private health insurance plans.

Pollack:

Thank you for the chance to participate. I must acknowledge that I am a suspect arbitrator in this friendly debate. I come with a rap sheet as an advocate for the public plan option. Helen was a prescient leader and researcher in the development of the public plan option, and deserves a lot of credit for moving the public debate even before the 2008 campaign put this issue on the front pages.

I do, however, acknowledge the worries Michael Pine raises. A truly powerful public plan raises genuine policy dilemmas. Policymakers would need to explicitly confront the implications of their massive market power. In both Medicare and Medicaid, policymakers have been loath to acknowledge the responsibilities that accompany the public sector’s steadily increasing role.

Michael is right that political pathologies intrude, for example in underpayment of primary care providers, overpayment for medical devices, and in disgracefully low Medicaid reimbursement rates. These problems are unsurprising, given government’s huge role in managing 1/6 of our national economy and given the central role of cash-strapped state governments in operating the Medicaid program.

Fortunately, government’s capacity to manage itself is better than the pessimists suppose. Medicare and Medicaid cost growth has actually been more restrained than has been observed in the private sector. Quality of care within the VA has shown startling improvements over the past two decades. The VA now provides superior care to that provided by others who serve less challenging patient populations. Innovations proposed by the Obama administration--for example the valuable proposal to expand the power of MEDPAC to reduce political micro-management—will even more.

The issue at hand, from both a political and policy perspective, is not the virtues or vices of a true monopsony with the power to dictate prices. That fear (or aspiration) will not be realized in the 2009 reform. Congressional Budget Office projections suggest that current public plan options will enroll perhaps 10 million people. Rather than killing off private insurance, the projected number of Americans receiving private coverage is projected to grow.

In part for reasons Michael identifies—in larger part due to the fear of competition from insurers and others—the public plan will be limited to a limited set of people who participate in insurance exchanges. The plan will also be constrained in its ability to leverage Medicare’s massive market power in dictating reimbursement rates. Under any configuration, the public plan would certainly differ in many specific details from Medicare, which was created almost two generations ago for the retired population.

Ironically, self-professed Senate fiscal conservatives who hold the balance of power have thereby weakened our ability to constrain the growth of health care costs. (There is also the possibility that we will get no public plan, possibly dressed up under the fiction that co-ops or other 11^th-hour gimmick are equivalent to the ability to choose a true Medicare-like plan.)

I am disappointed that this year won’t produce something closer to Helen’s vision. Yet we should not dismiss the value of what we will get. Despite many limitations, health reform will be a landmark piece of legislation. Anyone who cares about the future of American health care or the success of the Obama presidency should be fighting hard supporting this effort, helping to get the very best bill we can get. As Robert Borosage and Jonathan Cohn eloquently put things, we can’t allow Republicans to outwork us, and we can’t allow specific disappointments to sap our enthusiasm for what promises to be a major achievement. Social Security was a flawed piece of legislation. It created an essential platform for our social insurance system. The same outcome is likely here.

The more limited, politically feasible public plan still promises clear benefits to the people who enroll in it, and to the healthcare system as a whole. Such a plan will provide an invaluable backstop and yardstick to provide a real check on private plans. The first people eligible for the public plan will be a population now largely uninsured or exposed to the inefficiencies, underwriting, and rescission practices of the non-group insurance market. This will be a major help to millions of people. As a caregiver for a physically and cognitively disabled adult, I would love the option of a public plan that is national in scope, that does not discriminate on the basis of expected expenditure, and that is backed by the permanence and credibility of the federal government rather than the profit-maximizing calculations of a private payer.

The public plan will bring other benefits to the overall health care system. It will allow a platform to standardize information systems and to apply comparative effectiveness research in (for example) the provision of preventive care. It will create an infrastructure to address knotty issues of risk adjustment and the organizational challenges of assisting the disabled.

And, yes, this modest beginning will allow government, physicians, hospitals, patients, and others to address the very legitimate issues Michael raises. For years to come, the public plan will not be the behemoth conservatives fear and liberals such as Helen and myself would hope to see. The public plan is not the only or perhaps even the most important component of health reform. Insurance market reform, subsidies to working-class people, and the crucial but intricate structures of insurance exchanges greatly matter, too.

With these caveats duly noted, a public plan would be a great achievement. It provides yet another reason to fight for health reform.

Action Items for the Coming Week:

Four things supporters of meaningful health reform should consider doing during the coming week are:

1.      Every time you get upset about spontaneous riots and other ploys being foisted on the country by the Just Say No radical right, if you possibly can, make a small (or large) donation to a group that is fighting back (e.g., Democracy for America, Organizing for America);

2.      Make a list of at least five people you know in states and congressional districts represented by legislators whose support could be critical to the passage of health reform and contact them with a personal request that they contact these legislators and urge them to support the President's health reform initiative;

3.      Review the White House’s recommended talking points (see material and links below) on how to address the personal concerns of people who are uncertain about how health insurance reform will affect them and use this material whenever it is appropriate; and

4.      Review material on how to deal with attempts to disrupt civil discourse on health reform (e.g., http://www.talkingpointsmemo.com/documents/2009/08/hcan-playbook-for-thwarting-town-hall-protesters.php?page=1) and participate in at least one meeting or group effort to show support for reform.

White House’s Recommended Talking Points:

1.  No Discrimination for Pre-Existing Conditions

Insurance companies will be prohibited from refusing you coverage because of your medical history.

2.  No Exorbitant Out-of-Pocket Expenses, Deductibles or Co-Pays

Insurance companies will have to abide by yearly caps on how much they can charge for out-of-pocket expenses.

3.  No Cost-Sharing for Preventive Care

Insurance companies must fully cover, without charge, regular checkups and tests that help you prevent illness, such as mammograms or eye and foot exams for diabetics.

4.  No Dropping of Coverage for Seriously Ill

Insurance companies will be prohibited from dropping or watering down insurance coverage for those who become seriously ill.

5.  No Gender Discrimination

Insurance companies will be prohibited from charging you more because of your gender.

6.  No Annual or Lifetime Caps on Coverage

Insurance companies will be prevented from placing annual or lifetime caps on the coverage you receive.

7.  Extended Coverage for Young Adults

Children would continue to be eligible for family coverage through the age of 26.

8.  Guaranteed Insurance Renewal

Insurance companies will be required to renew any policy as long as the policyholder pays their premium in full. Insurance companies won't be allowed to refuse renewal because someone became sick.

An excellent presentation of how special interest groups are trying to block health care reform with myths and scare tactics like... is available at: http://www.healthactionnow.org/

Some state-by-state facts and figures that may be useful in making the benefits of health reform more relevant to individuals who want to know how health reform will affect them personally is available at: http://www.healthreform.gov/healthcarestatus.html.

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