What Does a “Public Plan Option” Mean and Why Does Public Citizen Oppose It?
Public Citizen Health Letter
As the health care debate enters the legislative stage and different measures are proposed, we will focus on some of the “hot buttons” that are under discussion. The idea of a “public plan” is one of these. This column is therefore devoted to some of the questions and issues that our readers may have on this issue.
How is a “public plan option” defined?
A “public plan option” is a government-operated insurance plan that would be offered to consumers as part of a scheme to provide universal coverage to the U.S. population. The plan is expected to compete against private insurance plans, and is presented as coverage Americans can buy as an alternative to private insurance.
The plan has been described as similar to conventional Medicare; it would be managed by the federal government, which would pay private providers to deliver care. But there are different variations on this theme, with different eligibility requirements, scope of services, delivery systems and payment modalities.
Who would it cover?
Although presumably everyone would have a choice of plans, this option is aimed primarily at those under 65 years old who lack secure workplace insurance or who would want a plan similar to public Medicare. But there may be restrictions on eligibility, and some proposals limit the option to small employers, individuals and the self-employed.
The number of currently-insured persons who would switch to a public option is a matter of debate and conjecture. Different simulation models yield different estimates, depending on the assumptions on which the simulation is based. Given similar coverage, consumer behavior hinges primarily on the price differential between plans. The Lewin Group has estimated that 70 percent of those with private insurance would switch to a public plan if the latter’s premiums were 30 percent lower. The numbers of those changing from private to public coverage would decrease directly with the cost differential. The Congressional Budget Office’s estimates assume a much smaller gap in premiums, and therefore a lower propensity to switch. These projections are “if…then” kinds of statements with a high degree of uncertainty.
Why have this option?
The political leadership is divided on the type of health care system the United States should have, and having a public health option is seen as a compromise between those who want a market-driven solution under multiple insurers and those who favor uniform coverage with the government assuming responsibility for pooling revenues and paying providers (i.e., a single payer). Operating under government auspices – much like traditional Medicare – a public plan would not have the profit-maximization goal that is part of any entrepreneurial insurance venture. At the same time, it is proposed as one among other plans, allowing the private insurers to operate in a “non-disrupted” system.
The rationale for the public plan, in President Obama’s words, is to give Americans “a better range of choices, make the health care market more competitive, and keep the insurance companies honest.” The public option is therefore seen as a “benchmark” against which the performance of private insurance can be measured, and as a goad to make the insurers reform themselves.
A public health plan is expected to eliminate the insurance industry’s practice of rejecting someone because of age or medical status. Moreover, it separates coverage from employment, and therefore gives consumers greater job mobility.
The current health insurance market is highly consolidated. For all the talk of unfettered competition, a handful of carriers dominate the insurance market: in 40 states, the top three carriers account for 60 to 100 percent of the market. The public option is therefore geared towards giving citizens more choices. In addition, the public option has the possibility of offering consumers a wider choice of doctors; that, rather than the choice of plans, tends to be more important to consumers.
The public plan is expected to spearhead innovations in access, quality control and provider payment, thereby setting the standard for other plans to follow. How it is going to do this, however, is not at all clear.
How would it affect consumers?
Those who are insured, who lack secure workplace coverage or who are dissatisfied with their current plan, would have this option to consider. Moreover, a public plan that is not geared towards profits can presumably provide greater value-for-money. In states where the insurance market is highly concentrated, a public option has the potential of broadening consumer choices.
A recent survey carried out by Consumers Union indicates that two-thirds of the population support a public plan option competing alongside private insurers.
How would it affect providers?
Providers should not be unduly affected by having an additional Medicare-like plan. Indeed, they could gain from the expansion of coverage, as patients who fall into the “bad debt and charity pool” gain insurance. But the possibility of lost revenues is keeping some providers vigilant or downright adversarial. Hospitals are concerned that, if large enough, a public plan could exert pressure to keep costs down. Hospitals are also saying that, were this the case, they would have to charge other insurers more to make up the difference. This type of cost-shifting already occurs now to some extent.
The American Medical Association is on record as opposing a new public plan because it “threatens to restrict patient choice by driving out private insurers.” They are also fearful that cost-cutting may start with them, as they most often act as fiduciary agents on behalf of patients. While the AMA represents a minority of physicians and is no longer as politically powerful as it once was, it remains a vocal lobby and a strong contributor of Congressional candidates.
Not surprisingly, insurers are in the vanguard of the opposition. They fear any option that may dilute their power, shrink their market, reduce their profits and hold them accountable to stricter standards. To the extent the public option would do any of these, it would threaten the current operations of the insurance industry.
What are the implications in terms of cost?
A federal public insurance plan could benefit from a large risk pool (therefore avoiding the volatility of small numbers) and from economies of scale, thereby exerting downward pressure on costs. In addition, the plan would be able to leverage its clout vis-à-vis providers, negotiating rates that are below those of the commercial carriers. This latter possibility worries physicians and other providers who would lose part of their current bargaining power. Opponents of the plan fear that, because the plan would not need to make a profit, it could offer coverage for less, thereby competing advantageously vis-à-vis commercial insurers. As indicated earlier, the full impact of this would depend on the public vs. private difference in premiums.
What effect would it have on quality?
The expectation is that a public plan would be more innovative than the existing private options, which are wedded to tradition and the protection of their bottom line. Some of the innovations aimed at enhancing quality include making better use of electronic medical records and other health information technology, providing incentives for the adoption of “best practices” and paying for outcomes rather than volume.
At present, we know that Americans receive appropriate health care only 55 percent of the time. Many health care services are therefore ineffectual, unnecessary and even downright dangerous. Addressing this quality gap is an obvious way to enhance quality and control costs. At present, however, neither private insurers nor the existing public plans (Medicare and Medicaid) have a good track record monitoring their services to ensure that they reflect “best practices.”
Why is the option so strongly opposed by some including Public Citizen?
Those on the right see the public option as a way to get government more involved in the health care market. Senator Judd Gregg (R- New Hampshire) for example, feels that many Republicans view a public plan as “a stalking horse for a single-payer system.” Because they see any public plan as a way to undermine the private insurance market, they are opposed to the public option. Some see the public plan as an entering wedge for a single-payer system which would provide uniform coverage to everyone. Interestingly, those who favor private insurance are afraid that private carriers would not be able to compete against a government plan, and that the latter would therefore prevail, ultimately becoming the nation’s sole health insurer.
At the same time, the public option is also strongly opposed by those who, like the Public Citizen Health Research Group, advocate for a single-payer system. The argument here is that the public option will not be able to exert enough leverage to control costs and insure quality, would not reduce the massive administrative waste that accompanies multiple payers nor would it bring about the uniform coverage necessary for equality in health care access. Moreover, the virtues of the public option raise the following question: if the public option were to provide equal or better care at lower cost, why not cover everyone at the outset, thereby assuring equality of access, greater accountability and a greater probability of controlling costs? Single-payers advocates feel that the public plan route would be a diversion from the ultimate goals of access, quality and cost control and would require the nation embarking on another major reform effort in another decade.
What does it mean to have all insurance options operating on an “even playing field”?
Private insurers are concerned that a public plan would have intrinsic advantages and be protected against the vagaries of the health care market. Because a large federal plan could have an unfair pricing advantage, they are proposing measures to offset this and create an “even playing field.” They are therefore requiring that all plans, whether private or public, be self-sustaining (its financial base relying on payments and premiums rather than on tax dollars) and that any public plan be required to maintain a reserve similar to that of private insurers. Congressman Charles Schumer (D- New York) has been particularly adamant in arguing that all insurers should be subjected to the same rules, and that those who operate a plan should be independent from those who regulate it.
An “even playing field” can also means that all insurers offer a given benefit package, so that they compete on the basis of cost. This is very different from the way the health insurance market works at present. Most insurers offer a variety of packages at different premiums, and consumers find it difficult to identify what trade-offs they are making when facing different services and price tags.
What does this issue mean politically?
President Obama has made it clear that health reform is one of his priorities. He and his health policy advisors have repeatedly advocated on behalf of a public plan. While they have not described the issue as “non-negotiable,” they are pressing for its inclusion in any legislation to be seriously considered.
The legislative branch is very divided on the matter. Indeed, the issue of the public option has become a surrogate for health reform in general. Republicans regard the inclusion of a government-run plan as a major threat that could jeopardize bipartisan support for any reform legislation. One report describes the issue as a dealbreaker, Republicans contending that “no matter how a public plan is designed, it would inevitably balloon and crush the private market.”
Some Republicans who feel that the Democrats will not concede on the public plan are proposing a compromise based on a “trigger”. This would allow the public option to be enacted only if the private insurers fail to meet certain performance criteria. The debate would then hinge on the criteria for the “trigger” going into effect, and the argument would shift into the arcane language of “insurancespeak.”