National Journal’s cover story last week (“The Deal Busters“) was about the 4 issues that could kill health reform. And first on the list was creating a public health insurance plan option to compete with private insurers in the push for increasing coverage.
The National Journal does a great job of describing the stakeholder groups’ political pros and cons around a public plan, but it doesn’t delve too deeply into the policy implications of expanding health insurance coverage with or without a new public plan option. That issue was recently discussed in Charlie Baker’s blog – which included several key points about public versus private insurance plans:
- Public plans often set the standard that private plans follow, and thus are not neutral actors in the market – Medicare is often ascribed such a market tilting role
- Public and private plans face different financial pressures, i.e. private plans need to at least break even, while public plans can get financial infusions from their larger government entities
- Public plans “can set provider prices at pretty much any level they like, while private organizations need to reach a mutually agreeable number,”[quoted from Charlie Baker’s posting], which can lead to cost shifting from public plans to private payers – as happens today with Medicaid (and probably Medicare)
- Public plans are required to go through administrative processes, (such as publishing rules for public comment, etc.), which makes changing their benefits structure or operations an extremely time consuming process
The discussion also included a number of factors that would be necessary for a public plan to actually compete on a level playing field with a private plan, including:
- Premiums reflecting all administrative costs, including those performed by other government agencies
- Medical claims and administrative costs being covered by premium revenues
- Provider reimbursement rates being negotiated rather than unilaterally set
- Providers being able to refuse to accept the public option for the under 65 population, while continuing to be able to accept Medicare patients
- The regulating/marketing operations and the purchasing/selling roles for the public plan need to be separated and not done by the same entity
- Payments need to be risk adjusted – this is necessary in any restructuring of insurance markets whether there is a public plan or not
Adding to the analytical information mix about the effects of a public plan option in health reform, the Lewin group just published a paper on this subject – “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options.” This paper looks at several options for how a public plan could be structured, e.g. open to everyone or just individuals and small employers, and using Medicare or private sector payment levels.
Not surprising, the study found that using Medicare’s lower payment amounts to hospitals and physicians, and making the public plan available to everyone results in the lowest premiums for the public plan option and the greatest shifting of individuals from private insurance to the public plan. HOWEVER, the Lewin plans analyses are based upon several assumptions that other coverage expanding reforms proposed by President Obama in the 2008 campaign are also created:
- Mandate for children to have coverage
- Medicaid is expanded for all adults below 150% of the Federal Poverty Level
- Tax credits are provided to people with incomes between 150-400% of the FPL who buy private insurance
- Tax credits are provided to small employers with low-wage workers to offset some of the cost of health insurance
- Large employers are required to offer insurance or pay a payroll tax
- Medical underwriting and health status rating is eliminated, but rating by age is permitted
These changes are designed to increase insurance coverage, and are certainly individually and collectively important for fundamentally reshaping the health insurance market – particularly the last bullet. Therefore, the operations and influence of any public plan would be very different with those changes than in today’s insurance environment, and that needs to be considered in discussing the political and practical pros and cons of a public plan option.
The conclusion I draw from all this – and which I’m paraphrasing from my comment on Charlie Baker’s blog – is that government programs serve a valuable social role, but the differences between public and private operations need to be recognized as they each carry specific benefits and limitations. Therefore, the real conundrum about whether a public plan in health reform is part of the right answer depends upon how the question is asked and whether it’s put into a policy or political context. Unfortunately, those two contexts are not separable in the real world, so the challenge in this debate is to connect the two in the legislative process, and see if a compromise can be reached to realistically increase insurance coverage and contain costs, but that won’t cause any stakeholder group to fall on their sword.