Healthy Competition: How to Structure Public Health Insurance Plan Choice to Ensure Risk-Sharing, Cost Control, and Quality Improvement

URL:

Abstract:

The debate over health care reform has increasingly centered on the issue of “public
plan choice”—whether Americans younger than 65 who lack employment-based
coverage should have the choice of enrolling in a new public health insurance plan
modeled after Medicare. The central argument for public plan choice is that such a plan,
offered as a choice within a new national insurance “exchange,” provides an essential set of
security guarantees, ensuring that Americans without insurance from their place of work can
find a plan that offers them quality, affordable health care through a broad choice of
providers in all parts of the country.

For public plan choice to provide such guarantees, however, the public plan must be
properly structured, compete on a truly “level playing field” with private plans, and have the
authority to use its bargaining power as one of many tools to encourage greater value in
health care delivery. The most effective and easily implemented model for the new public
plan is a “Medicare-like” plan that builds on Medicare’s administrative infrastructure and
basic framework of coverage but is separate from Medicare’s risk pool and departs from
Medicare in a number of key respects regarding payment and benefits.

To create a level playing field requires attention to the “three R’s” of workable
public-private competition: rules that are the same for both the public plan and private plans,
risk adjustment that protects plans from being competitively disadvantaged if they enroll a less
healthy group of people, and regional pricing that allows private plans and the public plan to
compete within regions on the same terms, rather than having the public plan compete on a
national basis with regionally based private plans (whose premiums may be lower or higher
in any given region).

Finally, giving the public plan the authority to bargain for reasonable rates is an
essential item on the menu of cost control—and one that the Congressional Budget Office
(CBO) and other budget watchdogs are likely to “score” as producing savings (in contrast
with many other currently favored cost-control strategies). Nonetheless, there are reasonable
concerns about how the new public plan will use its bargaining power—concerns reflected
in current proposals for a price-taking (rather than price-making) public plan that would
have limited ability to secure fair rates. However, a watered-down public plan would be a
grave mistake. Instead, the public plan should include safeguards designed to ensure that
providers are fairly represented and that bargaining for lower prices does not negatively
affect patients’ access to care or shift costs onto private insurers. Indeed, a better alternative
to a public plan without price-setting authority would be allowing private fee-for-servicestyle
plans to piggyback on the public plan in setting their own prices.

Public plan choice is rooted in existing precedents that have shown themselves to
work, rather than speculative convictions about how a delicately balanced new system will
operate. It must be part of any successful reform package. Without public plan choice,
Americans without workplace insurance will be put in jeopardy, private insurers will lack an
effective check on their actions, and the opportunity to place our crumbling framework of
health financing on a secure foundation will be lost.