Reform Debate Snags on Creation of Public Plan

Stakeholders are united in their support for healthcare reform, but the proposal to create a public, government-run health plan has become a major point of disagreement, with private insurers asserting that they could not compete with such a plan. Critics of the public option say it will move the country toward a single-payer system by eroding private enrollment and exacerbating cost shifting, but defenders say competition will be beneficial and that individuals and businesses could still choose private insurance if they prefer. Statements made by advocates of single-payer healthcare, however, have cast doubt on whether supporters of a public plan are sincere about preserving the private system.

As a candidate, President Obama said he would favor single-payer healthcare if he were designing a completely new system, but he now supports a public/private hybrid that includes a new government-run plan to compete with private insurers. The president says that healthcare reform and economic recovery are inextricably linked, and Kathleen Sebelius, his appointee as Health and Human Services (HHS) secretary, has also endorsed a public plan.

Additional support for a public plan is being provided by an organization called Health Care for America Now (HCAN), which lists a public insurance option as one of its principles for reform. HCAN says its principles are supported by >190 members of Congress, and the group has >850 member organizations in 46 states. Howard Dean, MD, former chairman of the Democratic National Committee, told participants in a conference during the first week of May that, “What makes it real reform is if there is a public insurance option.” Dr. Dean added, “If there is no public insurance option…then this is not reform at all.” Nudge Toward Nationalization For some healthcare reformers, creation of a public insurance option is not enough. In a video segment from a speech she delivered to an audience of single-payer supporters, Rep. Jan Schakowsky (D–IL) recounted a conversation with a health insurance executive who expressed his concerns about a public plan. Rep. Schakowsky said his assertion that a public health insurance option would put the private insurance industry out of business was correct. “The goal of healthcare reform is not to protect the private health insurance industry,” she said, “And I am so confident in the superiority of a public healthcare option, that I think he has every reason to be frightened.” The congresswoman from Illinois also said that supporters of a public plan are, in fact, committed to single-payer healthcare but are willing to support a public plan because it will act as an intermediate step that sets the stage for single-payer healthcare.

“Many of you here today are single-payer advocates, and so am I,” Rep. Schakowsky said. “And those of us who are pushing for a public health insurance option don’t disagree with the goal. This is not a principled fight. This is a fight about strategy for getting there, and I believe we will.” In an interview with Managed Care – First Report (MC-FR), Greg Scandlen, senior fellow and director, Consumers for Health Care Choices, Heartland Institute, reacted to Rep. Schakowsky’s remarks. “She essentially said that this is an excuse for a method of getting to single-payer,” Mr. Scandlen said. “That was one of the few honest things that have been said in this debate.” Also asked to comment on Rep. Schakowsky’s statement, Robert Zirkelbach, spokesman for America’s Health Insurance Plans (AHIP), told MC-FR, “If that is the strategy, we think that they should be up front about that. We need to have an open discussion as part of healthcare reform. And if a government-run plan is in fact simply a step toward having the government take over the healthcare system, we think they need to be out-front and say that. “The American people have made it very clear they want a public/private approach to healthcare reform, and that they do not support a government takeover of the healthcare system,” Mr. Zirkelbach continued. “If this is simply a step in that direction, that is something that not only will have significant negative consequences on the healthcare system, but it will not be what the American people want.” At a recent hearing on health reform held by the House Committee on Ways & Means, HHS Secretary Sebelius addressed concerns about a government takeover. “I can assure you that those 2 principles—Americans keeping their health coverage if it is satisfactory and serves them and their families well, and having a choice within an insurance exchange for a public plan option—are not mutually exclusive. It isn’t either-or,” she said. Although policymakers such as Secretary Sebelius and Sen. Charles E. Schumer (D–NY) have said they will create a level playing field and do not wish to see private insurers phased out, they assert that competition from a public plan will force private plans to control their costs while maintaining quality.

Despite these assurances, Mr. Zirkelbach expressed insurers’ misgivings. “Anytime someone can be both the player and the referee, there is reason to be concerned that there won’t be a level playing field,” he told MC-FR. “And over time, as budgets get tight and funding is limited, there is going to be significant pressure to hold down costs.” Mr. Zirkelbach said that contrary to assertions about the superiority of public health insurance, it is private insurers that are finding solutions to improve healthcare. “Right now in the private health insurance system, health plans have implemented a variety of innovative programs to improve patient care, to coordinate care for patients with chronic conditions, to promote prevention and wellness, and innovative pay-for-performance programs that are having positive impact on patient outcomes.

Those types of things are not being done in public programs today,” he said. Referring to the Medicare program, Mr. Zirkelbach noted that the federal government simply sets the prices they pay for services while private payers must reimburse at higher rates. “Hospitals and doctors don’t negotiate with Medicare,” he said. “The only reason that system is able to sustain itself right now is because those costs are being made up through the private system. And if there is a government-run plan, that would only exacerbate the cost shift.” Crowd-out Because of the vagueness of reform proposals, including details on the structure of a public plan, the Lewin Group, a policy research and management consulting firm, released a paper in April titled “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options,” which estimated the impact that different types of public plans would have on the market.

The group estimated that if a public plan at Medicare payment levels were offered to all employers, about 131.2 million people would enroll and about 119.1 fewer people would be enrolled in a private health plan—a two-thirds reduction in private enrollees. Under this design, the Lewin Group estimated that hospital revenues would decline by 4.6% ($36 billion) and physician net income would decline by 6.8% ($33 billion). Limiting public plan eligibility to individuals, small employers, and those who are self-employed, the group estimated that about 42.9 million would enroll, with 32 million fewer insured by private plans. Estimates of how many people would switch to the public plan were lower under the assumption that a public plan would reimburse at private payer levels. Under this plan structure, hospital revenues would increase by $11.3 billion as a result of treating individuals who were previously not insured. Net physician incomes, however, would see a $3.0-billion decrease.

Private Payer Concessions While consistently opposing creation of a government-run health plan, AHIP has been offering its own series of reform proposals. The most recent proposal is a cost-cutting plan in which the organization was joined by the American Medical Association, American Hospital Association, Pharmaceutical Research and Manufacturers of America, Advanced Medical Technology Association, and Service Employees International Union. Predicting that growth in health expenditures could average 6.2% for the next decade, the groups pledged to decrease the annual growth rate by 1.5 percentage points, which they said would reduce the projected rate of growth by 20%. Hoping to forestall creation of a public plan, AHIP’s comprehensive reform proposals include new regulations, ending the practice of charging different premiums to insure men and women, and covering all individuals including those with preexisting conditions in conjunction with an individual mandate that compels all Americans to enroll in a health plan.

Mr. Scandlen told MC-FR that by conceding too much in the hopes of averting creation of a public plan, private insurers are “committing suicide.” He characterized AHIP’s proposal for increased regulation as politically naïve and short-sighted. “Every time I’ve seen a group do that kind of thing, the other side takes their concession and does not deliver the return. “But AHIP is not alone,” Mr. Scandlen continued. “All of these people are calculating that if they can get a seat at the table they can carve out something. They’re being extremely foolish. It never works that way.” Rejecting the characterization of these proposals as concessions, Mr. Zirkelbach told MC-FR that, “This is a part of ongoing policy work that started 3 years ago. Back in 2006 our board of directors made a decision that we were going to be a proactive participant in healthcare reform.” House Democrats have pledged to pass a reform bill by July 31, and as discussions about healthcare reform continue, Mr. Scandlen believes legislators are deliberately being vague about their proposals to avoid getting bogged down in debate. He also predicted that Congress will leave “tough decisions” to a federal agency, but told MC-FR, “That’s where the whole thing collapses….I don’t see any way that it survives the implementation stage.” — Charles Boersig