A Case for the Public Plan Option

What is the industry afraid of?

May 28, 2009 -- We appear to be closing in on the next generation of health care reform with expectations of action by Congress as early as this summer. One of the most contentious questions is whether the introduction of a new government run, public plan should be included. Would this be the mother of all unfunded entitlements?

Is it just a coy strategy to diminish the private sector over time as has occurred in higher education? Can government and politics be relied upon to control health care inflation? If Medicare is widely considered the untouchable “third rail of politics,” what would this new public plan be?

A few years ago, the reform work of the Oregon Health Assessment Project concluded that choice should include a public option (referred to as the "civic segment"). The same compelling reasons remain:  1) significant numbers of people want a single payer system which a public plan could satisfy; 2) Robust individual choice increases the prospects of member support for the innovative practices of any given health plan, public or private; 3) Arguably, the performance of the private system would be enhanced by this disruption; 4) Perhaps the introduction of a public option would shatter existing cost shifting practices and force all choices to float on their own bottom; 5) There would be a residual need for an organized safety net for those unable to exercise other options; and 6) In the context of alternatives and personal choice, regulation could be far more tolerant and even nurturing of outside the box innovation within all health plans.

If the intent of a public plan is to achieve single payer and ultimately “no choice,” it is a supremely wrong-headed goal. Choice and competition among rivals is usually the road to innovation, service improvement, and customer satisfaction. Choice respects that we are not a cookie cutter population with the same needs or priorities. One health plan designed to serve all can only achieve a highly compromised design with little urgent pressure to improve, outside of its own internal judgments and lethargic action.
A public plan will travel with other characteristics likely uncomfortable to some of its advocates. Demands for fairness would require competitive prices without discriminatory subsidies. Individuals of all stripes would need to be empowered to exercise personal decisions, hastening the migration from public and employer defined benefits to defined contribution, and movement from group to individual insurance. If one is to be allowed the choice of selecting a public plan, why not Kaiser or Blue Cross? Lots of bothersome and unpredictable disruptions to control about how health plans are marketed. Delicious!
Perhaps the greatest skepticism is centered on whether a public plan would be deployed on a level playing field with other private sector alternatives. New York’s Senator Charles Schumer seems to be struggling with this issue. If this box is opened, it is not a huge leap to ask why Medicare and Medicaid as public plans should not be subjected to the same obligations. Employers, providers and private carriers have sought cost-shifting relief for decades.
With a minimum of imagination depending on intent and execution, a public plan could have profound system wide benefits far beyond the option itself. Even more so, it may be an essential provision of sustainable reform, as the oligopolistic nature of the existing private sector needs to be rattled. Without a public plan, reform may be a largely status quo system with more entitled participants --- an outcome that many vested interests seek. Envision all Americans regardless of historical categorization, equipped with the funded ability to make a health plan election consistent with personal preference -- whether it is public or private. Politically conceived entitlement categories could be rendered obsolete, being displaced by an “All American Plan." Imagine that!

Stephen Gregg is a retired hospital administrator and health plan chief of staff. He can be reached at [email protected].

For related coverage on the public health plan option click here.



Recently I asked a national health care economist in Wash DC for any report showing that a "public plan" would help bend the inflating cost curve back to sustainable levels. In so many words, he said "there is none." So this discussion about a "public plan" appears woefully short of documented economic support. And 50+ years of private competition has failed--everyone agrees. In short, an accountable system-wide "single-payer" remains the only pragmatic option to prevent financial meltdown. Witness the agreement of Nobel economist Joseph Stiglitz: single-payers is the "only alternative." As for your comments, as I read them, that single systems don't promote innovation, ask yourself where the MRI came from (England); where the cheapest MRI testing is done (Japan) -- both are single-payer systems. You can make other cross-national comparisons. And dont overlook the "satisfaction" studies showing Medicare has higher patient satisfaction levels over private carriers. I also note your suggestion that Medicare cost-shifts to less capable hospital providers or carriers to be generously without documented support. I would say that forcing providers to pay at or near "cost" is a good thing...especially in an era where 25 of the largest nonprofit hospital providers have recently shown positive earnings of more than $250 million each. One assumes those 25 providers take Medicare patients. Now tell me again why we are discussing anything but single-payer? rand dawson Siltcoos Lake Ore

As I understand it, public polling of "single payer" attracts something in the order of 20% support...if true that is a rather pragmatic barrier. Rather than framing this as "my way or the highway, because my beliefs trump the beliefs of others", suggest thinking be shifted to "how can I demonstrate the merits of a single payer model in a well conceived experiment, independently and impartially evaluated?" That this be the standard applied to any health reform architect, whether you, Kitzhaber, Wyden, or me. In general I worry more about how a "good concept" is corrupted in form and execution, rather than endless debates about content in its hypothetical and unexecuted form.

Stephen Gregg's piece is thoughtful and real world-based. The word "oligopoly" (and sometimes "monopoly") can be fairly applied to a huge portion of the health care industry, and rattling those oligopolies and monopolies is indeed a large part of the need. Although a "public option" in health reform legislation may not ultimately bring costs to a level where all can have access, and we can all live with the cost, it is a necessary step--an experiment that must be run, or we're bloody unlikely to bring costs within reason for our economy. If it fails, then more will agree on the need for a single payer approach or something closer to that.

In my estimation we need a shared commitment to universal access and credible cost containment. Think we could get to the former far more quickly, if we had greater confidence in the credibility of the latter. Having spent a career in health care cost containment, I believe most of our "experts" have always profoundly underestimated the challenge, as evidenced by more recent populist ideas. Seems to me one of our big problems is how much offense about discussing costs is deeply embedded in our culture. As a starter, not sure how we conquer the subject without some attitude adjustment in that regard.

A few decades ago, the "public option"...county / city hospitals and clinics were put out of business because of cost and quality concerns. Many regarded this public form of organization of health care to be a "snake pit" of undesirable characteristics....let alone the financial burden placed on public budgets paying its full freight. If I were the "public plan" czar, we would have to examine the economics of "make or buy"...should we re-start our own public hospitals and retain salaried physicians as a means of "gaining control" over the services rendered. Or do we continue to buy highly discounted services from the private sector? Can we count on our current "best price" positioning as a means of funding service or will this be forced out? History all over again and again...just need new people with old ideas to chase. For those already "sold" on single payer as "the solution", need to find a way to demonstrate, "in vitro", performance. Since I don't understand the logic of placing almost all bets on "administrative efficiency", I don't see the profound change to medical inflation which is where the big costs are. I share the view that if we were to "insure everybody', much of the logic of private insurers selecting risk, reserves, etc is counter-productive. Could easily see an organizational form of community based, self funded risk pools administered by competing admin organizations.

I do not have any proprietary interest in how this plays out. Suggesting competitive "choice" offers better odds for personal satisfaction, cost, and quality improvement over the long haul. Applies to most other goods and services. If I am a physician, hospital, or health plan manager, life is vastly better if you are aligned with me out of personal choice. If choices consolidate overtime, let the evolutionary election of individuals get us there. If "single payer" makes incredible sense to some, find a way to demonstrate its superiority to end users and let it displace the old system, "the old fashioned way". Would like us to engage more "action" and less "talk". Positioning may be more important than the solution. Level the playing field among alternatives; let them innovate, negotiate, and execute to their hearts content. At the end of the day, these options will have a comparable price with all sorts of other intrinsic qualities that may or may not be important to the other guy. As an example, for me, it is essential that I maintain the right to seek out care from the "best" providers within the country if any of my family members are stricken with an esoteric problem. I do not want to trade that away for a "pretty good, most of the time" provider network with a $10 co-pay inducement. I respect others may put less priority on this, which is fine. I am not expecting to be able to go anywhere at any cost...just be able to go elsewhere and get "par reimbursement" from my payer as I can under Medicare. Since we don't have the specifics of a single payer system on the table, its details could range widely in this regard. I would be very amenable to a health plan that varied my personal premium within some boundaries, based on my last three year's claims experience...a practice just not done. If I have a $100,000 heart surgery last year, perhaps my premium suffers...conversely if I have almost no claims, I get a rebate. Not suggesting everyone must play to these rules, but personally would find such a plan, attractive as a matter of principle. No choice, such innovations never occur or take decades to be embraced. Alternatives permit much greater tolerance for innovation, I believe. Innovation is key. People commonly point to the "grass being greener" in other countries relative to value for the dollar spent. We are likely twice as expensive as some of the other countries, because our industry's personal take home pay is that much higher. So when we crave an attack on hospital charges and profits, we need to appreciate that over 60% of their operating costs are payroll and benefits related. To be like the costs of England or Japan, we likely need to pay our nurses, doctors, administrators, and housekeepers at similar levels...system or no system. We are perhaps the most expensive country in the world when it comes to health care, because our folks are the most highly compensated, across the board. At the end of the day, the "system" must successfully engage this reality to control costs. The movement to "regulate" insurance premiums within a largely unregulated delivery system is foolishly inadequate, if not plainly stupid. If you have bought into "prevention" being a reliable strategy to control health care costs, I have a bridge to sell you. In my estimation there is a ton of incredibly phony stuff being thrown around and if accepted we deserve what we get. Feels like an "emperor wears no clothes" routine where most of us stand entranced by populist and unproven pretense, such that reality can be denied. At the bottom line, if your opinions are the "best" solutions, let's find a way for you to provide a "proof of concept" that holds water. Rigorous "experimentation" is core to the scientific method. We would not allow a new drug to be imposed on the nation without carefully constructed clinical trials. If you were to truly innovate and offer such a system, wouldn't you want an initial enrollment made up of "early adopters" fully supportive of the profound changes you have structured into your solution? Doesn't that require voluntary election?