Democrats Weigh the Calculus of Public Insurance
Friday, August 7, 2009
As Congress breaks for its August recess, the debate back home will center on Democratic proposals to create a government-run insurance option, which insurers and Republicans are casting as a step toward socialized medicine.
But the more relevant debate is the one occurring among Democrats, who will have the most say in the outcome: Even if one believes the public option is a good thing, should reformers stake everything on its inclusion?
President Obama supports the creation of a public insurance plan that would compete with insurers on "exchanges" -- state or regional marketplaces in which the uninsured and small businesses could buy coverage with the help of income-based subsidies. This competition ideally would keep insurers honest, as Obama says, and reduce the cost of universal coverage.
Most Republicans in Congress are dead set against a public option, saying it would drive insurers out of business. Some key centrist Democrats in Congress, notably Finance Committee Chairman Max Baucus (Mont.), say Democrats must give up on it if they want to win a filibuster-proof 60 votes in the Senate, and they are instead proposing insurance cooperatives, nonprofit groups owned by their members that are similar to rural utility co-ops. Obama recently expressed openness to this alternative.
"The hard reality is . . . that a public option does not have enough support in the Senate to pass," said Sen. Kent Conrad (D-N.D.).
Other Democrats disagree, saying that reform without a strong public option is doomed to fail, with private insurers reaping a bonanza of new customers while costs continue to escalate and premium subsidies fall short.
"Health insurance by its very nature is a rapacious industry. [Insurance companies] want to make a lot of money," said Sen. John D. Rockefeller IV (D-W.Va.). "We have to have a strong counterbalance to them."
The debate over whether to fight for a public option spans Capitol Hill cloakrooms and the premier progressive think tanks.
Many experts, such as Linda Blumberg and John Holahan at the Urban Institute, say a public plan is essential to fiscal responsibility in a country where health-care spending has soared to $2.4 trillion per year. A public option such as that proposed by House Democrats, with prices initially set at 5 percent above Medicare rates but well below private insurer rates, would inject competition into markets that are now oligopolies: An American Medical Association study found that a single insurer controls more than half the market in 16 states and a third of it in 38 states.
This competition, the thinking goes, would drive insurers to demand that medical providers find more cost-effective ways to deliver care, leading to innovations and the spread of well-integrated networks of salaried physicians in place of the costly fee-for-service approach that predominates today.
As it stands, insurers can pass along rising medical costs in the form of higher premiums. But with a public option in the mix, providers would work with insurers to lower costs to keep the private insurers from going out of business. Providers would probably have little choice but to accept the public option but would not want it to gain too much of the market. Medicare does not offer this competitive dynamic because it covers only the elderly.
"We know [insurers and providers] have the ability to lower costs, but if there's no incentive, what motivates them?" Blumberg said.