Argument: Public insurance competes with private insurers, keeps them honest

Issue Report: Public health insurance option


Robert Reich. “Why critics of a public option for healthcare are wrong”. Salon. June 24, 2009: “Without a public option, the other parties that comprise America’s non-system of healthcare — private insurers, doctors, hospitals, drug companies and medical suppliers — have little or no incentive to supply high-quality care at a lower cost than they do now.

[…] Finally, critics say that because of its breadth and national reach, the public plan will be able to collect and analyze patient information on a large scale to discover the best ways to improve care. The public plan might even allow clinicians who form accountable-care organizations to keep a portion of the savings they generate. Those opposed to a public option ask how private plans can ever compete with all this. The answer is they can and should. It’s the only way we have a prayer of taming healthcare costs. But here’s some good news for the private plans. The information gleaned by the public plan about best practices will be made available to the private plans as they try to achieve the same or better outputs.”

Ezra Klein. “Health Care Reform for Beginners: The Many Flavors of the Public Plan”. Washington Post. June 8, 2009: “The second is to apply competitive pressure to the rest of the insurance industry. If the public plan is ruthlessly lowering its administrative costs and garnering a reputation for decent, good-faith service, it will take market share from the private insurers. The private insurers will have to respond in kind to retain their customers. If they fail to adapt, the system could become something resembling a single-payer structure.

But that’s not the most likely outcome. Rather, the theory here is simple: If you can’t replace them, convert them. If the public plan works, then private insurance will work better as well. In this telling, the simple existence of the public plan forces a more honest insurance market: Private insurers need to offer premiums closer to their marginal cost, and they have to cut administrative costs, and they have to work on their reputation for cruelty and capriciousness. The existence of another option changes the market. Individuals will have access to private insurers, but they’ll no longer be stuck with them.”

In a letter to Senators Edward M. Kennedy of Massachusetts and Max Baucus of Montana, the chairmen of two key Senate committees, President Obama wrote: ‘I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”[1]

Jacob Hacker. “The case for public plan”. The Institute for America’s Future: “Third, public plan choice is essential to set a standard against which private plans must compete. Without a public plan competing with private plans, we will continue to lack strong mechanisms to rein in costs and drive value down the road. As a benchmark, a new public plan alongside private plans will help unite the public around the principle of broadly shared risk while building greater confidence in government over the long term. […] Public plan choice will allow Americans to realize the benefits of both public and private plans: flexibility and security, innovation and stability, and market and democratic accountability. And, according to opinion polling, this is what most Americans want: public and private insurance competing side by side so that they can choose the best option for themselves and their families.”

Paul Krugman. “Keeping Them Honest”. New York Times. June 5, 2009: “Without an effective public option, the Obama health care reform will be simply a national version of the health care reform in Massachusetts: a system that is a lot better than nothing but has done little to address the fundamental problem of a fragmented system, and as a result has done little to control rising health care costs.

Right now the health insurers are promising to deliver major cost savings. But history shows that such promises can’t be trusted. As President Obama said in his letter, we need a serious, real public option to keep the insurance companies honest.”

John Holahan and Linda Blumberg. “Is the Public Plan Option a Necessary Part of Health Reform?” Urban Institute: “A public plan would not destroy the private insurance market but would make it more competitive and lead to the benefits associated with competition. Many private plans would remain attractive because of their ability to be responsive to consumer demands and to be innovative in care management. Public plans are attractive because they can offer better access to necessary care for diverse populations, have lower administrative costs, and have strong negotiating power with providers. The presence of both types of plans should make each perform better in a reformed insurance marketplace. Most importantly, faced with competition from a public plan, private alternatives will become more efficient, leading to declines in their own costs. The net effect would be reduced growth in health care costs.”

Reed Abelson. “A Health Plan for All and the Concerns It Raises”. New York Times. March 24, 2009: “The main selling point for a government-run program would be its low cost. It would have a much lower overhead than private plans, with no need to make a profit or spend money on marketing or brokers’ commissions. And, if allowed to flex its muscle, the government would buy medical care at much lower prices.

Bryan Dowd, a health policy expert at the University of Minnesota, is critical of private insurers but does not necessarily favor a government plan. He agrees that the private insurers will never be able to match the steep discounts the government can demand. “If discount-getting is all you do, a large public plan is always going to clean your clock,” he said.

But supporters of a public plan say that its low price would impose greater discipline on insurers by forcing them to keep costs in check and make their policies affordable — something they say commercial insurers have seemed especially unable to do in providing coverage to small businesses and individuals.

“It would transform the market for private insurance,” said Karen Davis, the president of the Commonwealth Fund, a health policy research group. She estimates the average premium for a family of four would run around $9,000 a year under a public plan, in contrast to nearly $11,000 for a typical private alternative. The savings to the nation’s health care bill over the next decade could run into the trillions of dollars, she said.

[…] because the public plan would still have much lower overhead costs, it would encourage private insurers to work harder for customers, said Len Nichols, a health economist at the New America Foundation, a public policy institute that advocates health care changes.

“It puts pressure on the private sector status quo,” he said, but avoids using “the nuclear weapon” of government price controls — which he thinks is so controversial that it could derail the discussion.”

Robert Reich. “Why the Critics of a Public Option for Health Care Are Wrong”. TPM. June 24, 2009: “Without a public option, the other parties that comprise America’s non-system of health care — private insurers, doctors, hospitals, drug companies, and medical suppliers — have little or no incentive to supply high-quality care at a lower cost than they do now.”