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A public plan would provide an alternative to people who mistrust private plans. And it would help keep those plans honest by serving as a benchmark for costs, benefits and premiums. -
The government would inevitably end up giving the public plan unfair subsidies. Like all government attempts to meddle in the market, it would institutionalize waste and raise costs for everyone.
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Len M. Nichols, Ph.D.
Why the U.S. needs a Public Health Insurance Plan
The question of whether a new public health insurance plan should be allowed to compete with private health insurance plans has polarized the health reform debate unnecessarily. Extremes from both political parties have tried to use the issue to prevent progress toward a bipartisan health reform package.
But health reform must be bipartisan to be sustainable over time. This means both sides' priorities must be reflected in the policy solution.
Allowing individuals to choose between public and private competitors serves two primary purposes. First, many Americans fear that private insurers, even those that operate on a nonprofit basis, will always restrict access to care (the mirror image of those who fear government involvement in any market). A public health insurance plan would reassure those who mistrust private insurance that their insurance product is accountable to elected officials and not to corporate stockholders or the proverbial bottom line.
Second, a public health insurance plan could serve as a valuable benchmark and enable consumers (and market managers) to compare the premiums, benefit design, and administrative efficiencies of different health plans. This benchmark would be especially valuable in the first year of the new insurance marketplace.
At the same time, the public health insurance plan must not be allowed to bankrupt private insurers unfairly nor should it be permitted to pave the way for governmental control of the health system.
The following three conditions are absolutely necessary for public and private health plans to compete fairly:
- All insurance market rules must apply to all plans equally.
- The authority governing the insurance marketplace cannot also manage the public health insurance plan.
- The public health insurance plan cannot leverage Medicare or other public insurance products to administer prices or claim an unfair advantage.
Real-world experience is instructive. More than 30 states offer their employees a choice between privately insured products and a product for which the state bears the insurance risk. Under this scenario, the state picks the managers of the self-insured product, which then competes with traditional private insurers. In her recent testimony before the Senate Finance Committee, Secretary of Health and Human Services Kathleen Sebelius pointed to state employee benefit plans as examples wherein "public and private plans compete on the basis of benefits, innovation, and cost" without destroying the marketplace.
Yet, this type of public plan alone will not be sufficient to control costs. Therefore, cost growth control must be addressed through a systematic approach that includes a health information infrastructure, best practice information, decision support tools, and realigned provider and patient incentives. Medicare can and must lead the way with some of these transformations. But simply using Medicare's pricing power to control costs without addressing the underlying reasons health care costs are growing so rapidly will not fix our problem.
Some people question why a public plan is necessary if competition is actually fair. A public health insurance plan would help restore consumer confidence in our health system and provide a valuable benchmark for competition. Buying power is not what makes a plan "public" and a private-only marketplace is not a prerequisite for competition. Americans should be allowed to choose between public and private health insurance plans that compete on a level playing field.
Michael F. Cannon
A Level Playing Field? Don’t Make Me Laugh.
No. Competition between a government program and private insurers could never be fair. Government would assume control over an ever-increasing share of the market, drive health care costs higher, and depress quality.
Consider what would be necessary to create and sustain a level playing field between government and private insurers. First, a new government program would have to be completely self-financing. No special subsidies for start-up costs or operating costs, and it would have to maintain real reserves just like private insurers. Second, Congress could not leverage its market power to favor a government program by adopting Medicare's payment rates or requiring providers to participate as a condition of Medicare participation. Third, Congress and federal bureaucrats cannot be allowed to enact any regulations favoring the new program either deliberately or inadvertently. That means there cannot be even an implicit guarantee that the government would bail itself out. Fourth, no future Congress and no future bureaucrats can be allowed to do any of these things, ever.
These conditions will never be satisfied because public-plan supporters do not want them to be. Indeed, they want to violate every single of them from the get-go. They want a new program to build on Medicare's infrastructure, to use Medicare's payment rates, and to receive special subsidies.
In fact, if a government program were to be stripped of any special advantages it would cease to be a government program. It would be just another private insurer. Take away the violence and intimidation, and Tony Soprano is just an eccentric and earthy businessman.
Government programs do not contain health care costs; they shift, increase, and hide them. Government shifts the cost of my consumption to you. Costs rise overall, as they always do in a commons: nobody spends other people's money as wisely as they spend their own. Government hides the cost of its programs with price controls that extract wealth transfers from providers and that impose nonmonetary costs on patients, such as when 12-year-old Deamonte Driver died tragically in 2007 because his mother could not find a dentist willing to accept Medicaid's controlled prices. Raising $1 of government revenue costs society as much as $2, but that second dollar never shows up in any budget.
Comparing government to private spending growth is a nonsense metric. The employer-sponsored insurance system—a creature of Congress—bears more resemblance to a government program than a free health insurance market. And even private payers must use a delivery system shaped by government purchasing.
Government's greatest hidden costs come from forgone innovations in medical delivery. Medicare has rewarded waste, uncoordinated care, duplication, and medical errors, and penalized providers who try to solve those problems, for more than four decades. Some health plans do coordinate care, use electronic medical records, and strive to eliminate waste and error. And what happens when those plans try to compete in Medicare Advantage? President Obama proposes to kick them all out.
What was that about a level playing field?
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I am an American who has lived abroad for the past 4 years running 2 companies for the Department of Health and NHS in England.
I went there with a traditional “let the markets decide” mentality and have returned with a somewhat more tempered view.
I think it is shameful that our country permits people to be un- or under-insured, as it creates a waste of precious assets (namely our health care professionals and facilities) and it is immoral to permit people to constantly be on the brink of financial and possibly health catastrophe.
I just relocated my family back to the US and have first hand experience of the difficulty of getting insured, depsite being young, healthy and wealthy. I can only imagine the experience of those less fortunate.
Nobody wants a bloated, government-run health insurance program, but clearly the markets have not worked.
Posted 6 May 2009, 17:33 by john faraguna
The free market is a wonderful idea, but one that rarely exists in the real world. There are plenty of places where free market incentives are in conflict and lead to negative (though “Pareto optimal”) results for pretty much everyone involved. One such instance is with health insurance in the US. The following will review issues with the fact that insurers are:
A. Publicly traded companies
B. For profit
Problem A: Playing The Market
It is perfectly logical that health insurers (and many other businesses) would want to go public in order to raise funds and expand their business.
In theory this would make sense in the long run, investors would buy stock that represents a partial ownership of the company and voila you have a insurer flush with cash and ready to expand, capitalism at its finest.
However, health insurers really have two types of investors: those that buy stock, and those that pay premiums (ie their customers). Few, if any, companies provide a serious dividend anymore, and most people that buy a stock are hoping to “buy low and sell high”. This is extremely different from all those customers who reliably pay their premiums, copays, etc. each month as an investment in their own future, health and well being) every
Here in lies the disconnect. We have people going into stock for what is essentially the short term. When we’re talking about health, 10 years is still short term compared to my the average lifetime expectancy of ~74 years (or 54 years of adulthood).
This begs the question, whose goals are driving corporate and CEO decisions over at your insurance company? The people paying premiums for the long haul, or investors looking for a quick profit?
The recent financial cluster f&$k should be reasonable proof that decisions are all too often made to please the stock prices and the board of directors. And hey, why not? CEOs are in it for the short term too, they want the stock to go up, get a big salary and a bigger bonus and get out a few years later. CEOs are not judged in the long term success of a company or the effects on their actual customers, they are judged on stock price.
This was not originally the case, way back when, a long long time ago, buying stock in a company really was about buying a piece of it. A buyer not only got stock, but also a solid dividend that came from company profits. There has never been something wrong with a company that makes 10 billion every year even though it didn’t grow in a year. A solid dividend rewarded long term goals and not only the quick buck that could be had from “buying low and selling high”.
I suppose what I’m getting at, is that buying a stock without a legitimate dividend seems much more like a gamble on the emotional sentiment of the market (at worst) and the short term growth of the firm (at best). However, none of this is supporting long term success and actual legitimate business decisions for all of us paying our premiums and hoping for affordable care.
Problem B: Saving Lives In the Pursuit of Profit (we’ll discuss big pharma another day)
What do private companies do? They try to minimize costs and maximize revenue, profit and growth.
How might that translate into health insurance company decisions? Minimize how much health care you provide (costs) and maximize how much you get from customers (revenue). This is not exactly a great goal from the perspective of the average American.
What would they do with the profit? Pay a huge bonus to senior management, save some money for a rainy day, maybe buy another smaller insurer to boost that good old stock price?
What would they not do? Lower premiums, provide quality care, invest in long term health, etc. etc.
Could a private health insurance company aiming for profit ever be a good vehicle for quality and affordable health care? I would venture to say no, and the reality today shows that it clearly has not in the past. How else could we spend more than 2x the money per person and be in worse health than other modern countries that spend half as much?
But wait, you say, what about the magical powers of the good old Invisible Hand? Good point (if this were a textbook). In reality, many of the requirements needed for the market to do its thing, bring down costs and improve efficiency are seriously lacking and unlikely to change in the near future:
Competition: There are few insurance companies that control the large large majority of the market (more like an oligarchy than a free market)
Low Barriers to Entry: Serious costs and governmental red tape required
Transparency: I work in the industry and I am very often confused as to what health care benefits I have, so what chance does the average American have?
Free choice: We usually go with what our company provides if we’re lucky enough to get it.
This is not to say that we don’t switch insurers throughout our lives, we do and usually not by our choice (usually via our company, new job, job loss, etc.). That is unfortunately one of an insurer’s excuses, because why should they think in the long term and focus preventative care if you’re going to leave and they’ll never get the “benefit” of supporting healthy customers. Sure, they’ll pretend for appearances sake, but in capitalism choices are made to make money not because it’s the right thing to do. Even if a CEO tried to go against his/her better money making instincts, he/she would likely be fired and replaced by someone more ethically flexible and profit focused to keep that stock price up.
In summary, the fact that the insurers in charge of our health are all driven by absurd incentives from investors rather than their customers is a serious problem. Could the requirement of dividend payments help, yes?
How about a private non-for profit insurance company? –This is not without precedent, German Health Care is provided via regional, private and non-for-profit insurers could be a very interesting option to look into. I would also argue that no industry or company is less efficient and wastes more of the country’s money on pushing paper than insurers (the US spends many times more on paperwork for health care than all other western nations), so I would not really worry about a non-profit’s ability to keep efficient.
Posted 6 May 2009, 17:19 by yf35
An essential element of health care reform is ensuring that vulnerable populations have access to coverage that meets their care needs. For persons with disabilities and chronically ill older Americans – arguably the most vunerable populations in the nation-long-term services and supports are their primary unmet care need, and are critical to promoting health and preventing illness. REAL health care reform must not leave out the largest coverage gap in our current system. While appoximately 45 million Americans do not have medical insurance, over 200 million adult Americans lack any insurance protection against the cost of long-term services and support.
What our country needs is a national insurance trust whose premiums provide cash benefits to pay for long-term care expenses. That would allow baby boomers to pre-fund their long-term care needs. We would pay premiums like we do for car or health insurance. When we needed help, we could receive cash benefits to hire an aide, pay a family member who misses work to help us or order groceries to be delivered. Unlike current long-term care insurance, no one could be excluded because they are too sick. And like Medicare, those who can’t afford premiums would receive help. Based on sound financial principles, this plan would give us more choice and control over our lives.
Long-term services and supports must be included in any health care reform legislation. The way Americans pay for long-term care is national problem. And it deserves a national solution. We must, at last, make it affordable to care.
Posted 6 May 2009, 17:15 by Doug Pace, NHA
Absent unfair subsidies the U.S. government doesn’t stand a chance trying to compete in the individual market. In today’s market, individual plans need to be/remain competitively priced, offer flexibility to tailor benefits and services to consumer needs, and provide easy access to broad networks of quality doctors and hospitals. Offering a plan of this caliber requires not only a mature set of core health plan and medical management capabilities (which the government lacks) but also a differentiated set of retail capabilities (also which the government lacks) to effectively attract and retain the ever-fickle individual health plan consumer.
Posted 6 May 2009, 17:09 by Brendan Edwards
Medical knowledge is expanding at an exponential rate, unprecedented in history. Much more can be cured, much more can be prevented than ever before.
On the other hand, medical delivery appears to be deteriorating. Over-treatment, under-treatment, delayed treatment, wrong treatment, and no treatment are themes in the medical news.
It’s “cutting edge” on one hand and “failure” on the other.
The amount of medical knowledge is overwhelming. There’s a dwindling supply of primary care people. It’s easy to say that’s because they earn less than specialists. But the problem may be bigger. A primary care physician today must know far more than a comparable person one generation ago. If that physician is also asked to be a “gatekeeper,” in a patient’s passage to more highly focused care or a fully-equipped setting, the health care system will erode because of primary care overload. The results are higher costs resulting because of delayed treatment and all of the other phenomena that are mentioned above, and failure to deliver really good health care.
Insurance, from whatever the source, and information, no matter how widely shared, will not get us to better, more efficient health care. There is absolutely no evidence that either private or public health insurance plans have been effective. Information systems are impractical — maybe even wasteful — unless they are coupled with disease management systems such as active monitoring. There’s a long explanation for that; I’ll save it for another day.
The bottom line is that public insurers, private insurers, health information management schemes, or systems based on gatekeepers or promoting the primary care model are all talk-arounds and will not achieve the goal of better, less costly health care for the greatest number of people.
What that requires is a significant schematic change, a relatively seamless and comprehensive care system that serves almost all of needs of a discrete, probably geographic, population. For such systems, government’s role is to 1.require that they accept all citizens in each area, 2. recognize only systems that can delivr comprehensive care, 3. ensure that there is an adequate, but controlled, amount of competition in order to ensure that subscription rates are managed, and 4. disseminate input (disorder) and output (care, cost) data for each system.
Is this a pipe dream? No. There are in fact, models that already encompass many of these features. Let’s look at them instead of retreading the exhausted and flailing system that we have now.
Posted 6 May 2009, 16:36 by Bruce Eissner, MD
I hesitate to think of what will be produced by present deliberations. Hopefully, there will be more focus on PREVENTION. In that regard, we must have more front line people trained in the basics (PAs and Nurse Practioners) to help provide the preventative care and selection of those that meed the skilled treatment of a physician. Some of that is taking place but the government would be wise to provide assistance to those that aspire to such positions. Clearly we do not have enough doctors to do all the front line work. A good look at the German system might be in order.
Posted 6 May 2009, 16:25 by Kenneth H. Hanson
The debate seems more ideological in nature than driven by data or science. The facts show that the people are better served by a government run system rather than by a private system. Of course, the individual person may prefer the benefits of private healthcare if they are able to afford it.
Healthcare differs fundamentally from other services and goods in that the end-consumer rarely decides or even has the knowledge necessary to make decision. Caveat Emptor is a non-sensical principle in this setting with profound implications on fundamental notions of how markets function.
The most important issue the US healthcare system faces is not how to reward innovation (which has little impact on the quality of life of patients), but how to maximize the efficiency of resources currently dedicated to healthcare.
I would be interesting to understand whether any of our contestants have ever had to deal with serious illness in both systems.
Is this debate about the well being of patients, physicians, or industry?
Posted 6 May 2009, 16:18 by George Simeon
There really isn’t a lot to debate. The US needs universal health care for economic, social, and moral reasons. A single-payer system is the most efficient.
We don’t have a universal system today because there were alternatives (for some, but not all people who needed and deserved health care) and because of ideological opposition that grew out of mid-20th century ideological opposition to “socialism.”
Now the existing system is collapsing — big companies that funded health care are dissolving and small and mid-sized companies are struggling with health care costs. And, our new economy depends on mobility not supported by the current system. Boomers (our biggest generational group) face a health care funding and delivery crisis. (If you are a boomer and not concerned, please visit a nursing home in your area, talk to someone who has managed a major health issue, run some scenarios about your future health care needs, and develop a good plan if you don’t already have one.) There is also a generational leadership change. People under 50 years of age have less mid-20th century ideological baggage regarding health care systems, tend to apply pragmatism to health care systems questions, see universal health care as a key attribute of today’s leading societies, and are worried about how to help and care for the generations that raised us and our fellow citizens in general. The under-50 generations also grew up managing the job and career mobility demands of our rapidly changing, new global economy.
Because of the looming health care funding crisis, our changing global economy, boomers’ impending needs, and the generational change in US leadership, changing to a universal single-payer system is inevitable. The sooner we implement one, the better for our society, freedom, and economy.
Thank you for considering these ideas. We are all in this together and can and will do better. Regards, Chris M
Posted 6 May 2009, 16:16 by Chris M
I struggle to see how a government run health plan will save money or improve care and access. In a monopolistic system, why would someone spend a nickel on R&D to develop better treatments, protocols, or programs if there is no competition? The free market system continually innovates because providing a better product ultimately results in more members, hence more revenue for the health insurers. This is why we continue to see evolution in disease management programs to better target and treat chronic conditions.
Furthermore, providers already lose money on every Medicaid and Medicare member they treat, so if the idea is to extend Medicare reimbursement rates to all Americans, we are simply going to drive all physicians and hospitals out of business. One reason why commercial health insurance costs what it does is because hospitals and physicians have to overcharge privately/commercially insured individuals to make up for Medicare and Medicaid reimbursements.
Bottom line: given the overall poor state of health of Americans (obesity, diabetes, heart disease), until people decide they want to improve their health, it doesn’t make a difference who is funding the program because the claim activity will continue to increase.
Posted 6 May 2009, 16:11 by Blake
Yes to a public option. There are several reasons: 1) one objective of health care insurance/coverage is stability. You want to know it is there in times of need. Access to insurance via the private sector is flimsy. You cannot establish stability and sustain security in an unstable environment such as the private sector. 2) a public option provides choice, a hallmark of U.S. health care. 3) allowing the public option and private sector to compete is a win win: the people will ultimately choose the better approach. It is grassroots, an experiment, market-style competition, and it represents opportunity to benefit from the wisdom of the crowd. We will miss a great opportunity if we cave to the pressures of the private sector and eliminate the public option. There is a great moment at hand and I hope we seize it.
Posted 6 May 2009, 16:10 by margaret heldring