The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Obama Search for a Public Health Plan Compromise a Good Omen

Posted by Alan on April 15, 2009

One of the most contentious issues in the current health care reform effort wending its way through Washington, D.C. concerns whether the government should offer a health plan in competition with private carriers. To oversimplify the controversy: supporters argue it will help bring prices down and keep private insurers honest while opponents argue it will unfairly compete, driving private health plans out of business. Both sides are preparing for a no-holds barred fight over the issue. (For more on this topic, please see earlier posts here and here).

The Associated Press is reporting today that President Barack Obama will be seeking a compromise on the issue. The Associated Press describes Nancy-Ann DeParle, director of the White House Office of Health Reform, as stating that “a public plan could be designed to address concerns about the federal government overreaching in its role.” One example given by Ms. DeParle is that “a public plan could pay hospitals and doctors rates that are similar to what private insurers pay — addressing fears that government would use its powers to dictate low rates that private plans can’t compete against.”

Because the government plan could be operated without the need to make a profit and would have lower administrative costs, Ms. DeParle argues such an arrangement could still work to lower the cost of health care coverage. However, there are already non-profits in the health care system. Many Blue Cross Blue Shield plans are non-profit and so is Kaiser Permanente. The Obama administration will need to demonstrate that they will be more non-profit than the other non-profits.

Whether the government can run a health plan more efficiently than private enterprise (whether for-profit or non-profit) has yet to be seen. That didn’t seem to be the case with California’s experiment, the Health Insurance Plan of California. And since government programs tend to look at distribution costs for savings, putting the focus on reducing administration costs doesn’t necessarily bode well for health insurance agents. Whether these savings are real or a mirage will be the topic of much debate. Agents will have a chance to argue their value to the system and statistics of all kinds will be plentiful. But the good news is that there will be a debate.

It’s still early in the debate. What I take away from Ms. DeParle’s comments is that the Obama Administration is aware of the dangers posed by a government-run competitor and are open to a constructive dialogue on the issue. That’s a hopeful sign. In a previous administration (one that rhymes with “Clinton”) there was little talk of compromise. The Obama Administration’s approach doesn’t guarantee common ground will be found, but it’s willingness to try to find it is as significant as it is welcome.


11 Responses to “Obama Search for a Public Health Plan Compromise a Good Omen”

  1. Private plans would not be able to compete and an entire industry and all who work in it may fins themselves jobless. Now is not the time to put hundreds of thousands on the street.

  2. The push for a public plan is losing steam, and for good reason. How can a private plan compete against a public plan that is not held to the same financial realities?

  3. Ravi said

    I question whether we’ll be able to truly compare the efficiency of private versus publicly administered programs…

    for example when one looks at overhead in the public offering will they consider:
    costs for directors (congress), management (congressional staffers along with dept. of HHS or CMS or whatever new agency), billing and collection (IRS), vendors (private sector solutions for claims administration or clinical management trials), consultants (studies by Lewin Group e.g.), unfunded liabilities (projected deficits)?

  4. J Sugden said

    Does anyone in Washington notice the glaring inconsistancy of a country that supposedly espouses free markets, deciding to compete with private insurance carriers? Will we soon offer “AmeriGas” to compete with high gasoline prices and keep petro companies honest or “Uncle Sam’s Discount Foods” to compete with private grocery chains?

    That philosophical question aside, if a public plan is established, there will be “unfair” competition in the area of cost accounting. Any public option will be able to hide much of its operating expense by liberally drawing from other public resources to cover expenses that would normally appear on any private company’s P&L. The government plan may be able to offer lower premiums even if they replicate private insurer allowances to providers. However, if government constrains itself by following its current hiring and supervisory practices, they may find it very difficult to deliver the level of service that today’s customers require. It’s easy to delivery post office or DMV quality service when you have no competition but when competing with private carriers they may find themselves at a disadvantage. Note to carriers: Tune up your service models and compete on service to policiyholder and providers not just price. Get the providers on your side and every doctor will discourage use of a public plan in favor of a higher paying, faster paying private alternative.

  5. Alan, holding political flip-flops to a minimum perhaps agents can take a collective sigh for now. In balancing hope with reality one might say there’s a chance for a seat at the table. The previous (and present) administrations have spent millions on trying to solve 1. Escalating medical & premium costs 2. Adverse selection by carriers 3. Underinsured or uninsured. Little progress has been made. Gov’t run insurance, whether competing with private or not, Item 2 and 3 will be replaced with health care rationing and a gov’t employee at the other end of the phone who has limited empathy for the 50 year old cancer victim who begs for their 3rd stem cell procedure. I’m all for insuring everyone. I wonder if it means I’ll being paying more for less.

  6. Squibcakes said

    I question whether we’ll be able to truly compare the efficiency of private versus publicly administered programs…

    for example when one looks at overhead in the public offering will they consider:
    costs for directors (congress), management (congressional staffers along with dept. of HHS or CMS or whatever new agency), billing and collection (IRS), vendors (private sector solutions for claims administration or clinical management trials), consultants (studies by Lewin Group e.g.), unfunded liabilities (projected deficits)?

    Today’s widespread touting of public program efficiency does not consider most of these absolutely true costs.

    When you do that, and also create an apples to apples cost picture based on demographic differences between Medicare and the Private Sector, you get a picture that is vastly different.

    The best measure of efficiency will be these total costs compared to quality outcomes based on national standards.

    • Dave Wood said

      Heya Squibby, good post, just want to add that the IRS claims that it only collects around 85% of the revenues it claims its owed. Now I am a small business owner for the last 17 years and if I lost even 5% of revenues, I WOULD BE OUT OF BUSINESS.

      The NY Times ran a great series of investigative articles on Medicaid in NY and found that ten percent of the claims it looked at were blatantly and obviously fraudulent. Had they went a little deeper the number would surely be 20 percent or so.

      This entire plan Obama is proposing is nothing more than a single payer plan, THROUGH THE BACKDOOR. That is, over time he hopes the NATIONAL plan will take more and more of the market, and put out the private plans leaving only the govt. plans and WHALAA, single payer deluxe.

      If only this was done thirty years ago, when we could afford it! Sadly, we cant even afford a million bucks for a grant these days. How long will the world keep propping up the dollar, and keep buying these T bills? Obama may leave us with more expensive health care, and lots of debt.

      Read more on my website and read about the TWO BILL SOLUTION

  7. I find it interesting that the analysis of how this would work is looking at State Employee Health Plans that offer a self-insured option (e.g. the public plan) and a fully-insured product (e.g. the private plan). Unfortunately, both plans are paid for with general fund revenues – and should be considered publicly funded.

  8. phil kirkpatrick said


    Minor errors aside, your post is very valuable reading to a 45 year veteren in this business and your postings are as relevent and analytical as anything I have seen. Please continue.

    Phil K

  9. fan said


    Your content is good and should be more widely read. I urge you to use a spell and grammar checker (e.g., MS Word) as there are a lot of errors in your posts (every one I’ve read). I fear folks will dismiss you as not worth their time based on these things (yes, people do that). This will take a little of your time but is worth it.

    • Dave Wood said

      A real free market health insurance market would surely result in REAL competition, which results in lower prices and better service. But we dont have that now.

      In fact the Bush Justice Dept. by its own definition had a “high concern” for antitust activity in 36 states, in the health insurance business. Consolidation has resulted in the largest private insurer (usually Wellpoint Blue Cross/Blue Shield) having over 50% of the market in 21 states. In only 12 states does any other health care insurer come to within 20% market share to Wellpoint Blue Cross/ Blue Shield.

      Understand that in this business, the large insurers have immense power in the market place. They have the largest networks, the largest marketing power, the most advertising, the most money to give to the brokers and middlemen. A no name start up has no chance. The prices are set by the big boys and even if another insurer decided to offer lower prices, they would not outlast the big boys in a price war.

      The truth is we do not have a very competitive market place for health insurance.

      This whole notion that Obama’s new govt. plan will or will not ruin the private insurers gig is folly.

      We all know that the Feds. are inept managers, who can’t make decisions quickly, and cannot impose discipline. Do you really believe they will out compete the private insurers?

      If they did, the private insurers will simply wait until a Republican Congress and or President is elected, then they will get their reforms handed to them to balance the playing field.

      The entire structure we currently have regarding health care today is inefficient, wasteful, unfair, and a total disaster. Why settle for tinkering with it.

      We currently ENJOY the worst of both worlds ie. we have inept giant Federal and state programs that are out of control and will surely bankrupt the states, AND we have a private insurance market that lacks true competition and innovation. We make the insurers create a new company in each state they operate in so they can abide by STATE laws. INSANE!

      The solution is the TWO BILL SOLUTION (google it) and read how we can get the best of both worlds for real….

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