Poor Substitutes — Why Cooperatives and Triggers Can’t Achieve the Goals of a Public Option (NEJM)

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Poor Substitutes — Why Cooperatives and Triggers Can’t Achieve the Goals of a Public Option
Posted by NEJM • September 23rd, 2009

Jacob S. Hacker, Ph.D.

According to a recent survey, a majority of U.S. physicians support health care reform that includes a new national public health insurance plan, which would compete with private plans.1 Polls have shown that a substantial majority of Americans support the public option as well.

Yet the idea has occasioned considerable controversy on Capitol Hill. Senate Finance Committee chairman Max Baucus (D-MT) recently unveiled his draft bill (the chairman’s “mark”), which contains no competing public plan. Instead, it substitutes the largely untested idea of providing federal loans and start-up funds to encourage the creation of decentralized, member-run health care “cooperatives.” Another prominent senator on the Finance Committee, Olympia Snowe (R-ME), has indicated that she would support a public plan only in the event that private health plans failed to offer affordable coverage in a particular region, “triggering” the creation of a public option. President Barack Obama — while reiterating his support for a public plan — has said that he could support both these alternatives if they could create accountability and competition for private insurance.

Could they? Both proposals lack adequate specificity to make the answer clear — Baucus’s plan remains a blueprint in key respects, and Snowe’s proposed amendment is just two paragraphs long (http://finance.senate.gov/sitepages/legislation.htm). But analysis of existing outlines of both ideas and similar initiatives in prior legislation suggest that they could not.

The “public option” is meant to bring greater competition, choice, accountability, and cost restraint to U.S. health insurance. It would do so by offering the choice of a new national, public, nonprofit insurance plan modeled after Medicare to those who lack employer-sponsored coverage or work for very small firms that decide to buy coverage through a proposed national insurance “exchange.” This plan would be subject to the same rules as private health plans and would be wholly self-financing, with revenues derived entirely from premiums, employer contributions, and the same government subsidy payments for lower-income Americans that would be available to private plans.

Today, most local insurance markets are dominated by one or a few insurers and one or two hospitals. To ensure the participation of the dominant providers in such markets, many insurers pay them far more than their costs — which tend to be excessive anyway, owing to inefficiency and excess volume. In this context, giving enrollees in an exchange the choice of a new federally administered, national public plan would achieve three aims: it would provide a backup option for people and small employers without good insurance options today; it would create a benchmark for private insurers, challenging them to improve the value of their product and bargain more aggressively with dominant providers; and, through innovative methods of payment and care delivery that build on approaches used by successful public programs, it would reduce costs over time.2

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http://healthcarereform.nejm.org/?p=1896&query=TOC#

© 2009 Massachusetts Medical Society