As the debate on health care reform unfolds, no issue has caused such partisan rancor — and spawned such misleading rhetoric — as whether to create a new public insurance plan to compete with private plans.
The nation already has several huge public plans, including Medicare for the elderly (once reviled by conservatives, it is now only short of the flag in its popularity) and Medicaid for the poor.
Now the issue is whether to establish a new public plan to encourage more competition among health insurers and provide Americans with an alternative.
Most Democrats and some Republicans have already accepted the need to create one or more health insurance exchanges where individuals without group coverage and possibly small businesses could buy insurance policies. Some proponents hope that big businesses could enroll their workers as well.
An exchange would give the government (federal or state) a lot more power over insurers that choose to participate in order to tap a vast new market of previously uninsured people. It would determine the range of benefits that all participating plans would have to offer. It would presumably require those plans to accept all applicants, regardless of “pre-existing conditions.”
What Republicans are adamantly opposed to is the idea of adding a public plan to that exchange. They portray it as a “government takeover” of the health care system, or even as socialized medicine. Those are egregious mischaracterizations.
There is no serious consideration in Congress of a single-payer governmental program that would enroll virtually everyone. Nor is there any talk of extending the veterans health care system, a stellar example of “socialized medicine,” to the general public.
The debate is really over whether to open the door a crack for a new public plan to compete with the private plans. Most Democrats see this as an important element in any health care reform, and so do we.
A public plan would have lower administrative expenses than private plans, no need to generate big profits, and stronger bargaining power to obtain discounts from providers. That should enable it to charge lower premiums than many private plans.
It would also provide an alternative for individuals who either can’t get adequate insurance from private insurers or don’t trust the private insurance industry to treat them fairly. And it could serve as a yardstick for comparing the performance of private plans and for testing innovative coverage schemes.
Unfortunately, many Senate Democrats are so desperate to find a political compromise with Republicans — or so bullied by the rhetoric — that they are in danger of gravely weakening a public plan, or eliminating it entirely. That would be a mistake.
Here is a look at the main proposals now under consideration:
THE MOST ROBUST This approach, favored by many analysts, would allow the new public plan to piggy-back on the rate-setting powers of Medicare. As a result, it is the one most feared by Republicans, the insurance industry and doctors and hospitals. Any doctors who wanted to participate in Medicare, as virtually all do, would also have to participate in this plan and would have to accept the same payment rates as Medicare provides.
With lower costs, it would be cheaper for consumers, charging its members premiums as much as 20 to 30 percent lower than premiums for comparable private coverage, a boon to hard-pressed families.
It would also shave hundreds of billions of dollars from the amount needed to cover the uninsured — a crucial advantage as Congress scrambles to finance the reform effort.
The risk is that if this plan, given its power, were too stingy, it might drive some financially stressed hospitals into bankruptcy. The hope is that the downward pressure on reimbursements might force them to innovate and find big savings.
Republicans and private insurers fear, with some reason, that such an inexpensive public plan would entice or drive tens of millions of Americans away from private insurance, especially if big employers were allowed to enroll their workers in an exchange. The challenge is to craft rules to discourage employers from simply dropping their own subsidies entirely.
The prospect of competing with a government plan terrifies the private insurers. But in our judgment, if that many Americans were to decide that such a plan is a better deal for them and their families, that would be a good thing. Innovative private plans that already deliver better services at lower costs would survive. Inefficient private plans would wither.
In an effort to address some of these fears, Senator Jay Rockefeller has introduced a bill that would use Medicare provider payment rates for only the first two years and let doctors opt out after three years while remaining in Medicare. That would get the new public plan off to a good start, after which it would compete on its own.
LIGHTER VERSIONS Other proposals are circulating that would level the playing field with private plans. They would require the public plan to hold the same reserves as private plans and sustain itself from premium income without drawing on the federal treasury. It would probably pay providers higher rates than Medicare but lower rates than most private plans. Its administrative costs would be far lower, allowing it to offer lower premiums. These more modest versions could be worth having, but they would save individuals and the health care system far less money.
STATE-BASED PLANS A bipartisan group, led by three former Senate leaders — Republicans Bob Dole and Howard Baker and Democrat Tom Daschle — has proposed leaving it to states to create public plans if they wish. The federal government would be able to step in after five years if a state has failed to establish an exchange with affordable insurance options. That looks like a formula for delay and inaction.
COOPERATIVES Propelled by a belief that no public plan could survive a Republican filibuster, Senator Kent Conrad, Democrat of North Dakota, has proposed instead setting up private nonprofit cooperatives — run for the benefit of their members rather than stockholders — to compete with profit making insurance plans.
The presumed advantage of this approach is that cooperatives might be able to charge lower premiums because they would not have to earn large profits. Their performance, too, would be a yardstick against which to measure whether profit making plans are charging fair premiums.
Health care cooperatives have existed at the local or regional level for decades in this country. Many have gone belly up. A few still provide high quality care at reasonable prices. Given sufficient size, seed money and negotiating power, a cooperative organization could help transform the health care system. But Republicans seem unlikely to accept a strong national organization, so creation of cooperatives is apt to be local and spotty. They would be unlikely to deliver as much savings as a large public plan.
TIGHT REGULATION Right from the start of the debate, some experts have suggested that much tighter regulation of the new insurance exchange could achieve many of the goals of a public plan.
Regulators could insist that insurers not exclude people with pre-existing conditions or charge them higher premiums. The exchange could offer customers a menu of private plans and be modeled on the federal program that serves Congress and other government personnel. Several European countries, including Germany, provide better health care at lower cost than the United States without relying on a public plan. And the near-universal coverage in Massachusetts was achieved without a public plan option.
We continue to believe that a public plan would be desirable. Surveys by the Commonwealth Fund have found that Medicare beneficiaries report fewer problems obtaining medical care, less financial hardship due to medical bills, and higher satisfaction with their coverage than do workers insured by private employers.
If Senate Republicans block a public plan, much tighter regulation will be essential to guarantee affordable private coverage for millions of Americans.
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