Biblio

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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.

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This is why it’s time to introduce what we at the Center for American Progress Action Fund call Public Plan Choice, which combines a public health insurance plan and a health insurance exchange to deliver real competition and real choice to all Americans. Public Plan Choice can bring doctors and patients, employees and employers, the insured and the uninsured, and hospitals and taxpayers together in support of a reformed, competitive health insurance marketplace through the creation of a health insurance exchange that includes a public health insurance plan. Public Plan Choice would create a functional health care marketplace to replace the current broken system by:

Increasing meaningful choice. In the face of tremendous consolidation in the health insurance market, employers and individuals have a shrinking set of health insurance options. Private insurers have used this market power to boost their profits. By including a public health insurance plan as another insurance option and creating a health insurance exchange that delivers transparency and accountability to the market, we can assure both viable competitors and real competition.

Promoting effective competition. Public Plan Choice will establish a new health care framework that makes sure insurers provide the best value at the best price rather than one focused on avoiding risk. Public Plan Choice can play a supportive role in effective risk management both as a “safety valve” to assure everyone gets access to needed care and as a champion of a transparent health insurance exchange. To ensure effective competition, all private and public health insurance plans would compete on a level financial and regulatory field.

Creating a publicly accountable innovation leader. Public Plan Choice will create incentives for effective performance just as today’s Medicare program promotes quality care alongside cost containment. Witness steps such as Medicare’s refusal to pay medical care providers for “never events” where a patient suffers a knowable and catastrophic mistake such as having the wrong limb removed. This is something other major insurers are now adopting. Public Plan Choice has the potential to do even more to promote effective use of purchasing power to drive improvements in the health care system through improved accountability and transparency.

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This report from the Commonwealth Fund Commission on a High Performance Health System offers recommendations for a comprehensive set of insurance, payment, and system reforms that could guarantee affordable coverage for all by 2012, improve health outcomes, and slow health spending growth by $3 trillion by 2020—if enacted now to start in 2010. Central to the Commission’s strategy is establishing a national insurance exchange that offers a choice of private plans and a new public plan, with reforms to make coverage affordable, ensure access, and lower administrative costs. Building on this foundation, the report recommends policies to change the way the nation pays for care, invest in information systems to improve quality and safety, and promote health. By stimulating competition and delivery system changes aimed at providing more effective and efficient care, the policies could yield higher value and substantial savings for families, businesses, and the public sector.

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Massachusetts has implemented new and innovative health care reform that provides subsidies for people under 300 percent of the federal poverty level unable to afford coverage. While reform has been very effective at increasing accessibility of insurance to residents across the socioeconomic spectrum, resulting in the lowest rate of uninsurance in the nation, the Massachusetts model is unsustainable, with skyrocketing costs and no systems in place to drive value.

Key problems include:

• Overall Health Care Cost Containment – Since the Massachusetts plan does not contain any mechanisms for reining in the rapidly increasing cost of health care, the plan has limited potential for long-term sustainability.

• Guaranteed Access to Affordable Health Care – The Massachusetts plan does not guarantee that everyone who is insured will be able to afford the health care they need. In addition, with major reduction of the Massachusetts uncompensated care pool, a byproduct of reform, the uninsured remain vulnerable to the catastrophic costs of a sudden acute illness or accident.

• Stability in Health Plan Membership and Continuity of Care – Because the Massachusetts plan provides private health care plans in a stratified system based on income, portability is limited and changes in employment status or income can result in the loss of coverage while enrollees switch plans.

• Meaningful Competition – The Massachusetts plan promotes health insurer oligopolies in the state. It offers no countervailing power through a public health insurance plan to drive competition, offset insurer market power and rein in costs; rather it maintains the status quo that has led to spiraling health care costs.
While Massachusetts continues to be a leader in providing affordable health care to its residents, using it as a model for national reform would not address many of the significant issues facing our health care system. The public health insurance plan option proposed by President Obama and Senator Baucus would compete with private insurance plans on a level playing field, control costs, provide guaranteed back-up coverage for anyone who needs it and set a benchmark for ensuring everyone in America quality, affordable health care.

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President Barack Obama, Senate Finance Committee Chairman Max Baucus and others have proposed frameworks for reforming the health care system that would allow Americans to keep their employer-provided coverage or, if they do not have such coverage obtain it through a public or private insurance plan that is available through a “national health insurance exchange,” where plans would compete with each other for members. Like the public fee-for-service Medicare plan, the new public health insurance plan in this exchange would be managed by the federal government but would pay private health care providers to deliver care.

This report explains why a public health insurance plan that competes on a level playing field with private insurance plans in an exchange offers the best promise for reining in health care costs, encouraging greater efficiency and quality, and providing people with financial security. Moreover, authoritative studies show that the savings that can be achieved by insuring millions of people in a public health insurance plan may be enough to pay for covering the 46 million Americans currently without insurance.

The findings in this report are based on comparing information that is available about Medicare’s public health insurance plan (the traditional fee- for-service program); Medicare Advantage plans, which are run by private insurers; and the Federal Employees Health Benefits Program, which offers private insurance through an exchange only available to federal employees.

This report highlights the proven track record of significant cost savings that have been achieved under Medicare’s public health insurance plan relative to private insurance and ways to improve upon Medicare in constructing a new public health insurance plan for people under age 65.

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A health care system that contains costs and drives value must include a good public plan if the broad goals of reform—universal insurance and improved value—are to be achieved. Private insurance and public insurance have distinct strengths and weaknesses, and thus should be encouraged to compete side by side to attract enrollees on a level playing field that rewards plans that deliver better value and health to their enrollees. Public insurance has a better track record at reining in costs, while preserving access; it has pioneered key quality and payment innovations that have often set the standard for private plans; it is essential to set a standard against which private plans must compete to drive value and can be a source of stability for people. Private plans are a source of new benefit options, and continuing pressure for innovation in benefit design and care management strategies.
According to opinion polling, most Americans want public and private insurance competing side by side so that they can choose the best option for themselves and their families.

Both should have a chance to prove their strengths and improve their weaknesses in a competitive partnership.

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With higher payments and expanded private-plan authority, Medicare Advantage (MA) has caused the market to grow. One in three Medicare beneficiaries with Part D now gets this coverage through MA. Analysis of the sources of and reasons for enrollment growth suggest a troubling report card. Clearly, the Medicare Modernization Act (MMA) has expanded choice and the private-sector role. But it also has added to Medicare’s complexity and costs and has created potential inequities, without apparent improvements in quality. However the debate ends, a stronger system of performance monitoring and accountability is needed to meet Medicare’s essential fiduciary requirements and oversight responsibilities.

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The presidential election has focused public attention on the need for health system reform—to ensure health insurance for all, to make health care more accessible and responsive to patients, and to slow the growth in health care cost. This issue brief sets forth a framework for expanding health coverage that offers Americans a choice of a product modeled on Medicare to those under age 65, made available through a national insurance connector. Coupled with reforms to Medicare provider payment, expansion of preventive health care, and improved information, such a strategy has the potential to achieve near-universal coverage and improve quality and access, while generating health system savings of $1.6 trillion over 10 years

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Chairman Stark, Ranking Member Camp, distinguished Subcommittee members, I am
Glenn Hackbarth, Chairman of the Medicare Payment Advisory Commission (MedPAC).
I appreciate the opportunity to be here with you this afternoon to discuss alternatives to
the sustainable growth rate (SGR) system used in Medicare’s physician payment system.
Medicare pays for physician services on a fee-for-service basis using a resource-based
relative value scale. Each service is assigned a weight reflecting the resources needed to
furnish it. Payment is determined by multiplying a service’s weight by a national
physician payment rate, called the conversion factor.
Currently, as specified in statute, the annual update to the conversion factor is determined
under the SGR, based on an expenditure target that is tied to growth in the gross domestic
product (GDP). The SGR is widely considered to be flawed; it neither rewards physicians
who restrain volume growth nor punishes those who prescribe unnecessary services.
Some critics contend the SGR may actually stimulate volume growth. Other observers
believe that, despite its flaws, the SGR has helped curb the increase in Medicare spending
for physician services by alerting policymakers that spending is rising more rapidly than
anticipated and constraining the ability of policymakers to increase fees.
Slowing the increase in Medicare outlays is important; indeed it is becoming urgent.
Medicare’s rising costs, particularly when coupled with the projected growth in the
number of beneficiaries, threaten to place a significant burden on taxpayers. Rapid
growth in expenditures also directly affects beneficiary out-of-pocket costs through
higher Part B and supplemental insurance premiums as well as higher copayments.

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Per capita health care spending and patterns of medical practice vary widely across the
United States. In this paper, written at the request of the Chairman of the Senate Budget
Committee, the Congressional Budget Office (CBO) examines the amount of geographic
variation in spending, the reasons for that variation, and its implications for evaluating the
efficiency of the health care system. In keeping with CBO’s mandate to provide objective,
impartial analysis, the paper makes no policy recommendations.
David Auerbach and Chapin White of CBO’s Health and Human Resources division prepared
the report under the supervision of James Baumgardner and Bruce Vavrichek. The
report benefited from comments by Robert Dennis, Timothy Gronniger, Douglas Hamilton,
and Thomas Woodward, all of CBO. Several outside reviewers also provided comments:
José Escarce of the University of California, Los Angeles, and RAND; Jonathan Skinner of
Dartmouth College and Dartmouth Medical School; and Douglas Staiger of Dartmouth
College. (The assistance of external reviewers implies no responsibility for the final product,
which rests solely with CBO.)
Michael Treadway and Kate Kelly edited the report, and Christine Bogusz proofread it.
Maureen Costantino designed and produced the cover, with assistance from Alshadye
Yemane, and prepared the report for publication. Lenny Skutnik produced the printed copies,
Linda Schimmel coordinated the print distribution, and Simone Thomas prepared the electronic
version for CBO’s Web site (www.cbo.gov).
Peter R. Orszag
Director
February