HEALTH REFORM: Health Analysts Debate the Public Plan
There's quite a lively debate among health policy analysts going on over at the National Journal's Health Care Experts Blog in response to the moderator's question: Can Congress fashion a public health plan option so that it does not blow up health care reform this year? This post was my contribution on that blog:
Let me be crystal clear: if the playing field is level, it is possible for public and private health insurance plans to compete in such a way that our citizens—enrollees and taxpayers alike—are well served and private health insurance plans that add value thrive. The choice of a public health insurance plan should not create an impasse or stall reform efforts.
Appropriate insurance market reforms—minimum benefit package, guaranteed issue, guaranteed renewal, no pre-existing condition exclusions, modified community rating, risk adjustment—combined with subsidies and a requirement to purchase coverage could achieve satisfactory performance from a market comprised exclusively of private health insurance plans. Yet, I admit that there are few real-world examples that prove regulations of this kind can compel all private insurers to behave appropriately, though the experiment in Massachusetts does appear promising on this front. Even more importantly, I acknowledge that many advocates and citizens are highly skeptical that regulations or contracts will ensure private insurers comply with all reforms for all people. Therefore, it is worth exploring how to design an insurance marketplace wherein private and public plans can compete fairly.
Fair competition will require separating the oversight of the public plan from that of the managers of the marketplace or exchange(s). It will also require that all rules of the marketplace—benefit package requirements, insurance regulations, and risk adjustment processes—apply to all plans equally, whether public or private.
More than 30 state governments offer their employees a choice between traditional private health insurance products and a plan self-insured by the state. In other words, the state bears the insurance risk of the self-insured product and selects its managers. These managers cannot profit from denying care. This experience combined with historic competition between public and private plans in both the Medicare program and California Public Employees Retirement System (CALPERS) serves as proof-of-concept: plans operating with politically appointed managers can compete with plans run by private managers if the rules of engagement are structured properly.
Again, state employee plans offer an excellent model for how we could structure a choice of a public health insurance plan because many states offer their employees traditional products as well as option(s) insured by the state. In the case of the self-insured product, the state or a third party administrator (TPA) negotiates provider contracts and performs administrative functions. While the state may pay a TPA (usually the resident "Blue" plan) to handle some tasks, the plan is publicly owned and financed. If claims outpace premiums in a given year, the state pays and is at risk for the difference. Likewise, if the TPA collects more premiums than it pays out in claims, the surplus dollars are usually allocated to a premium stabilization fund or remain with the state's general revenues. The TPA never profits more than agreed upon in the administrative fee.
I believe the type of public plan I describe above can achieve many of the goals of public plan advocates, while preserving fair and effective market competition, negating the risk of excess cost-shift, and avoiding a progression toward a single payer health system. We should move beyond the rhetoric currently consuming this issue and toward a more substantive conversation about the policy choices necessary to find common ground.
For more on how to make public-private competition work, see the recent paper by myself and John Bertko.