Argument: Government will not favor public insurer over private insurers

Issue Report: Public health insurance option


John Holahan and Linda Blumberg. “Is the Public Plan Option a Necessary Part of Health Reform?” Urban Institute: “The Arguments against the Public Plan. Several arguments are being made in opposition to having a public plan option available to the nonelderly population. Government Favoritism and the Level Playing Field. The first is that the public plan will always be favored—that there is no way that Congress would let the public plan fail and would find ways to tilt the playing field in its favor, providing it with advantages not afforded private plans. However, experience with the Medicare program does not support this concern. Indications from the Medicare Advantage experience suggest that, if anything, private plans would most likely be favored over a public plan. For example, Medicare Advantage plans are paid percent more than Medicare fee-for-service in 2009 for the average beneficiary, clear evidence that traditional Medicare has not always been favored (MedPAC 2009). Moreover, there are administrative hassles associated with enrolling in the traditional Medicare program, since the vast majority of enrollees also must join three additional plans—Medicare Part B, a private prescription drug plan, and private Medigap/supplemental coverage—to obtain comprehensive protection. If one joins a Medicare Advantage plan, it is one stop shopping: hospital, physician, prescription drugs, and catastrophic coverage are all provided for one premium (Berenson 2008). Both examples suggest that the political process does not have a tendency to disadvantage private plan options. This argument also presupposes that the federal government would use general revenues to prop up a public plan if it proved financially unsustainable. Private plans must maintain reserve funds, for example, and are subject to premium taxes. A public plan not subject to those requirements could have lower premiums, it is said, making it difficult for private carriers to effectively compete. Additionally, if the public plan was not run efficiently and had high costs after adjusting for risk, making it an unattractive option to purchasers, the argument suggests that the government would inject funds to hold premiums down and increase enrollment. We believe that the public plan will need initial start-up capital but then should be required to build enough of a cushion in its premiums to develop an adequate reserve fund and to repay the government for the start-up funds over time. It should not have the luxury of setting lower premiums and then turning to the Treasury for additional funds to cover its shortfalls. Plus, plans competing in exchanges could be exempt from premium taxes as are Federal Employee Health Benefit Program plans today.”