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Is the public option essential for meaningful health reform?

Helen Halpin, professor of health policy | October 12, 2009

I would argue that a public option or the choice of a public health insurance plan is essential to meaningful health reform.

The 4 major goals of giving Americans the choice of a single payer plan or a “public option” operating along side a choice of private health plans offered through a Health Insurance Exchange are:

1. To reduce the administrative costs of delivering medical care, which can be realized in a public plan (like Medicare), where there is literally a single payer to providers and administration is simplified at both the plan and provider levels, compared to the high administrative costs (marketing, profits, pre-authorization approvals, claims denials, complexity of benefit design, etc.) in the private, for-profit health insurance industry.  It is expected that administrative costs could be anywhere from 5% to 25% lower in a public plan.

2. To create purchasing power, through the pooling of millions of people who enroll in the public plan, to be able to negotiate lower prices on pharmaceuticals, medical equipment, and other medical supplies and devices, further reducing the costs of delivering medical care.

3. To force the private insurers to compete head to head on a level playing field (i.e., under the same set of rules) with the public plan on both costs and quality, so that the rate of cost increases goes down in both the private and public sectors, and incentives to improve quality increase throughout the system. The level playing field includes requirements that all of the health plans offered in the Exchange (private and public) must enroll any eligible American, not increase premiums or exclude benefits because of pre-existing conditions, not impose annual or lifetime caps on benefits, adopt limits on out-of-pocket costs, not drop coverage, etc.

And last, but certainly not least,

4. To give the American people the CHOICE of under what kind of insurance plan they want to get their health care – a private, for-profit health insurance plan OR a public plan like Medicare.

The real question at this point in the debate is how the public option will be structured, because depending on how it is set up, it may or may not be able to accomplish the goals laid out above.  The key issues are:

1)    Who is eligible to buy insurance through the Exchange?  Most of the bills in Congressional Committees restrict the purchase of health insurance in the Exchange (and thus the option of the public plan) to the uninsured not eligible for Medicaid and those who work in small firms.  There is a strong push by some to open the Exchange to anyone who is not happy with their present coverage.  This decision has huge implications for the ultimate size of the public plan option.

2)    How big will the subsidies be in the Exchange? Most Americans who are uninsured are in the families of the working poor.  They are not poor enough to qualify for existing public programs but do not have incomes high enough to buy private coverage.  Meaningful subsidies must be available to Americans in families who earn less than 300% or 400% of the federal poverty level, otherwise it will not be affordable and many will remain uninsured.

3)    Will it be a national public option and will all states participate? The public option is likely to function most effectively and efficiently if it operates at the Federal level.  We are unlikely to realize many of the benefits of the public option if we set up 50 different plans – one in each state.  However, there are also issues of states’ rights.  The most interesting idea to emerge recently is to give state legislatures the right to “opt out” of the new Federal public plan option.

If a national public option is offered through a Federal Health Insurance Exchange and millions of Americans are given access to it along with meaningful premium subsidies based on their annual incomes, it has the potential to transform the US health care system to one that is more efficient, affordable, accessible, equitable, and offers meaningful choices to high quality care for the American people.

Comments to “Is the public option essential for meaningful health reform?

  1. The public option is critical to health care reform. Congress and the President need to demonstrate real leadership and move forward, not backward, with true health care reform.

  2. Unfortunately the bill that was passed did not come anywhere close to accomplishing this, though that is not to say it wasn’t an improvement.

    We can nevertheless hope that it was a step in the right direction and that further down the road, a public option will be introduced if only to help curb the outrageous administrative cost ratio!

    – Melissa

  3. “Why aren’t we discussing tort reform? The state of Texas recently passed tort reform limiting the amount the courts can award in lawsuits, and it has proven to lower the cost of healthcare while increasing the quality of care. ”

    I’m absolutely agree with him

  4. I believe that a public option should be included in health reform because it gives people a choice. Many insurance companies have monopolies on heath insurance in certain geographic locations. A public option will increase competition and therefore will drive down the price of health care for millions of Americans

  5. “The most interesting idea to emerge recently is to give state legislatures the right to “opt out” of the new Federal public plan option.”

    I think this is the best idea in this article. It would solve so much problem even if, of course, I understand it’s not that easy.

    Cheers, Fred from Sunny Shore

  6. I don’t understand why US leaders don’t take as an example insurance policies from EU countries, where those things are in the most cases (including my country) organize very well and we are all satisfied with them. Or are we really so different?
    From my point of view it is unacceptable that such a high percentage of people is not insured and are having troubles, when they need a medical assistance. I apologize being so negative about this, but it is really strange that in these times there are still “wars” and “battles” in US politics and between people there, what is the best option for all. But in the meantime, every second someone needs a doctor, but cannot afford it…

  7. “Why aren’t we discussing tort reform? The state of Texas recently passed tort reform limiting the amount the courts can award in lawsuits, and it has proven to lower the cost of healthcare while increasing the quality of care. ”

    I agree with him

  8. Health care costs have to brought under control and it amazes me that our leaders won’t even discuss tort reform. Considering half of Congress is made up of lawyers, I guess it shouldn’t be that surprising. However, one of the biggest reasons the cost of healthcare is skyrocketing is the number of lawsuits brought against the industry. Healthcare is business, and like any other business, they don’t just absorb the cost of being sued…it gets passed on to the customer in the form of higher medical costs. Any serious discussion of health care reform needs to include all cost centers, not a few.

  9. Why aren’t we discussing tort reform? The state of Texas recently passed tort reform limiting the amount the courts can award in lawsuits, and it has proven to lower the cost of healthcare while increasing the quality of care.

  10. Every time the government rules in anything the kayos takes over. The only exception is NASA, If the health care as Obama wants, will be a mess. Many doctors will leave the practice and the price will be much bigger than we pay now. The solution would be to give coverage to people that do not have health care but, the government always choses the long run instead of the short cut. Bureaucracy is the name of the game. Will the federal employees will be included in the reform? The American Constitution says the law have to given to everyone. But who cares about the Constituition?

  11. The bigger the pool, the stronger the public option
    Professor Halpin does a good job laying out the rationale for a public option. But I feel point 4 may be the most important: Will it be a national public option with all the states participating?

    As Massachusetts is seeing, and other small-scale public option-like healthcare experiments have shown, at their worst, small public insurance pools die, at their best, they struggle to survive.

    This point has been made many times before: The larger the risk pool, the lower the cost for all. That’s why only a public option that includes most or all the states has any chance of demonstrating the other points Professor Halpin makes about the public option.

    I personally like the so-called “opt-out” public option that’s been rumored to be one approach Democrats may offer. States are automatically included in this flavor of public option, unless they publicly opt out. The bigger, more liberal states like New York and California would likely be joined by many other “red” states. This could create a public option insurance pool large enough to be effective, even if smaller population “blue” states opt out.

    Once the country sees a large public option providing decent, affordable health care to those unable to get insurance through other means, states opting out could experience strong public pressure to opt back in. Of course, this is one reason Republicans are dead set against there being any public option but a weak one.

    The political maneuvering around the healthcare insurance reform debate is perhaps more important than any actual bill that’s passed. In an ideal world politicians would behave rationally and voters would understand all that’s at stake. Unfortunately, what we’re witnessing is the “sausage-making” of pragmatic politics.

    As commentators like Paul Krugman and Ezra Klein have pointed out, that a health insurance reform bill has come this far at all is a near-miraculous event.

    I’m hoping that whatever is finally passed is able to demonstrate to as many Americans as possible that the federal government is not their enemy, and that it can actually do good for people. That might begin to repair the damage done by the Reaganauts claiming government is the problem, not the solution.

    If those with the most at stake, the uninsured, have their lives improved in some measure by the bill that’s finally passed, that alone will be a victory for Democrats, and for the United States.

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