The Public Health Insurance Option As A Strong Competitor

Jacob Hacker at Campaign for America's Future laid out the case for a Medicare-like public health insurance option [1]:

A Medicare-like public plan would be much more stable and secure than other approaches. It would provide the broadest possible choice of doctors. It could be offered throughout the nation on the same terms. It would have the lowest administrative costs. And its bargaining power and large risk pool would allow it to offer the most affordable possible premiums and most effectively restrain costs while upgrading the quality of care.

[2]

Health Care: How 'Public' Must A Public Plan Be?

In the days leading up to the America's Future NOW! [3] conference starting June 1, we're hosting an online dialogue featuring conference speakers on the key issues they will be addressing during the conference. Join the conversation by clicking the "Discuss" link below or contribute your own post [4].

Plan to attend [3] the America's Future NOW! conference in Washington.

Joe Paduda disagrees, arguing that the savings Hacker sees from Medicare are overstated. Instead, he proposes a different model for the public health insurance option [5]:

I could go on, but the point is clear - Medicare's supposed administrative and medical cost advantages are not real. That does NOT mean a public plan option isn't viable. In fact, there is a government plan that is kicking the collective private health plan industry's rear end. It's the Veteran's Administration, and rather than Medicare, i'd base a national plan on a dramatic expansion of the VA.

Who's right? Well, both—or neither.

First, I should take issue with one of Paduda's assertions. Medicare does indeed hold down health care costs. Its costs are growing slower than private insurance. [6] Now, that doesn't mean costs aren't growing; they are. If we don't control health care costs, Medicare will indeed break the bank. That's why we need the public health insurance option.

To analyze which type of public health insurance option will work best, I think it helps to understand the goal of the public health insurance option. First and foremost, the public health insurance option should exist to provide people with a place they can go to get quality health insurance if and when their private insurance fails to provide them with what they need. People should always have a choice to get out of the private, monopolistic [7] system if they want.

This choice will lead to increased competition. (I'm not sure why Paduda says it "may" lead to more competition; it seems to me that increased competition is pretty much a guarantee.) The public option should be able to bargain with providers for lower rates, and with less overhead, it will be able to provide services for at least nominally less than private insurance right off the bat. This, combined with an insurance program designed to protect people's health and not a corporate bottom line, will make the public health insurance option a strong competitor. Private insurance will be forced to respond.

This competition between public and private seems to me to be the main driver of lower costs and better outcomes. Private insurers will likely get creative finding ways to out-deliver and undercut public insurance. And public insurance, with access to a vast pool of data and government transparency regulation, will be able to really understand costs in the health care system in a new way, and derive further solutions from that, solutions like the ones Atul Gawande has proposed in this must-read article in the New Yorker [8].

So, in a way, it doesn't matter much if the public health insurance option is Medicare-like or Veteran's Administration-like. As long as it provides people with quality health care and peace of mind, it will be popular. And as long as it is a strong competitor, it can adapt down the line to ratchet down health care costs even further.