Healthcare policy wonk Jacob Hacker took to the stump last week to defend his proposal—favored by President Obama, panned by health insurers—to offer a government-run health plan option to the uninsured and small business.
He took an interesting tack, as evidenced in the title of his policy brief: “Healthy Competition, How to Structure Public Health Insurance Plan Choice to Ensure Risk-Sharing, Cost Control, and Quality Improvement.”
Hacker sees the public plan competing on a level playing field with private plans, resulting in lower costs and improved efficiencies for both.
While a public plan’s strengths would include stability, wide pooling of risk and affordable premiums, Hacker notes, “private plans are generally more flexible” and can serve as a source for innovation in benefit design and care management.
“If the public plan becomes too rigid, for example, more Americans will opt for private plans. If private plans engage in practices that obstruct access to needed care and undermine health security, then the public plan will offer a ready release valve,” he writes.
Hacker may be sincere in this view, and he may even be right. But that can’t be too reassuring to the health insurance industry, which stands to lose a huge chunk of membership to the public option—some 30 million to 100 million members, according to one study.
The key for Hacker is that the public plan, which would be offered along side private plans in a national insurance exchange, must have the ability to use its bargaining power to drive down costs. He shot down as “flawed” and a “serious mistake” a compromise proposed last month by Len Nichols and John Bertko, in which the public plan would have limited bargaining power.
To level the playing field, both the public and private plans available through the exchange would offer community rating, guaranteed issue and standardized benefit design. In addition, payments to the public and private plans would be risk adjusted and pricing would vary to reflect regional cost differences.
All of which would still result in premiums for the public option estimated at up to 30% lower than private plans. That health plans will need to drive innovation to survive in this environment is altogether true. But private insurers will also need to recognize that under this proposal their industry will be smaller, perhaps by a lot.
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