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Reply #11: "The House Public Plan: Yes, It's Worth It" [View All]

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emulatorloo Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-07-09 04:03 PM
Response to Reply #1
11. "The House Public Plan: Yes, It's Worth It"

The House Public Plan: Yes, It's Worth It

Jacob S. Hacker is the Stanley B. Resor Professor of Political Science at Yale University, author of The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream, and an occasional contributor to The Treatment.

Diane Archer is the director of the Health Care Project at the Institute for America's Future and the founder and past president of the Medicare Rights Center.

How short memories are in Washington. A few weeks ago, when it looked possible that Nancy Pelosi could marshal enough Democratic support to create a robust public insurance option with rates tied to Medicares, everyone was talking about the big savings and reduced premiums that a series of estimates by the CBO showed this option could create. Then, the concern was that the public insurance plan would put private insurers out of business by using the governments bargaining power to drive too hard a bargain with providers, creating an un-level playing field.

Now, however, the punditocracy is abuzz about the latest CBO estimates that show that the public plan eventually embraced by Pelosi--one that would negotiate rates with providers, rather than base them on Medicares--might actually charge higher premiums than the average private plan. No matter that the CBO estimates clearly state that the higher projected premiums reflect its expectation that the public plan will disproportionately enroll less healthy Americans--which might be seen as a virtue, since these are folks private insurance tends to serve most poorly. And no matter that a subsequent CBO letter to the House stated that even a public plan with negotiated rates would still place downward pressure on the premiums of private plans. Suddenly, in the commentariat, the public plan isnt a fearsome predator. Its a complacent kitten. Initially not worth having because it would be too strong, its now, according to critics, not worth having because it would be too weak.

In truth, both the initial fears and current dismissals are overblown. The CBOs declining estimates of savings certainly make a strong case for having the public plan use modified Medicare rates, as we have long argued. Its a shame the House will not be considering a bill that shows how substantially a public plan can contribute to freeing up federal dollars to help Americans afford coverage. But we should keep in mind that the prime argument for the public plan has never been about a particular payment formula. It has been that a public insurance plan is vital as an institutional check on private plans, its role evolving to reflect the emerging weaknesses (or strengths) of regulated private competition. Put simply, health reform is much more likely to succeed with a public health insurance option, even one with negotiated rates, than if private insurers are left to run the show.

Let us start with the obvious: No one knows for sure the exact role that the public option will play. CBO may be correct that the public plan will attract a less healthy pool of enrollees, and that risk-adjustment (paying plans with higher-cost patients more) will not fully compensate for this. And it is surely correct that the public plan will have lower administrative costs than private plans. (It should be emphasized that if the public plan has higher premiums primarily because its attracting less healthy enrollees, then it is still reducing average premiums and hence federal subsidies for premiums. Thats because average premiums would be even higher if the people enrolled in the public plan enrolled in private plans. Thats what the CBOs more recent letter discussing downward pressure on private premiums implies.) But while the CBO estimates are rightly the authoritative source for Congress, they are by no means infallible. CBO has made clear that an unusually high level of uncertainty attaches to its analysis of the public plan.


The public plan is also critical to reform as a cost and quality benchmark, one that is particularly crucial if private premiums accelerate upwards. The insurance industry has threatened that premiums will skyrocket if an individual mandate is not tough enough. It may be an idle threat, but if a final reform bill ends up looking more like the Senate Finance bill than the House bill, it might not be. In most local markets, competition is likely to be anemic, and regulation of insurers inadequate. There will be little to prevent insurers from raising rates as they have threatened.

Having a public plan in place should also help keep down the rate of growth of health insurance premiums over time. Over the past twenty years, the public Medicare plan has had a substantially slower rate of growth than private insurance. The CBO report on the House bill states that private insurers are better at controlling utilization than a public plan would be. But, to date private insurers have failed to prove their value at cost control and demonstrated they have strong incentives to delay and deny needed care rather than drive efficiencies in the system.


In short, its no time to be despondent about the fate of the public insurance option. For sure, pegging rates to Medicare and obligating Medicare providers to accept these rates would be far preferable, and a public plan with negotiated rates may do less to keep the insurers honest and drive down costs. But its still immensely valuable to give Americans an out--another choice--to let the insurers feel the heat of not being the only game in town. The fierce and continuing opposition of the insurance industry suggests that they think that a public option will prove a serious counterweight in an increasingly consolidated private market. The overwrought pessimism of the pundit class should not aid them in their cause of protecting themselves from a public-spirited competitor.

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