The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Public Health Plans and Level Playing Fields

Posted by Alan on June 11, 2009

Whether comprehensive health care reform should include a government-run health plan is receiving a lot of attention of late. As well it should. Several issues before Congress have the potential of creating substantial, negative unintended consequences, but few as much as a pubic health insurance plan.

Advocates of government-run plans insist, as The Huffington Post reports President Obama did at a town hall meeting in Green Bay, Wisconsin, on Thursday, that “If the private insurance companies have to compete with a public option, it will keep them honest and it will help keep their prices down.”

However, as I’ve written before, a government health plan can have severe consequences to private carriers. Current government programs like Medicaid and Medicare pay doctors and hospitals less than their actual costs. They make up the difference by increasing what they charge private health plans. But Medicaid and Medicare don’t compete directly with private carriers. The government-run health plan advocated by President Barack Obama and many Democrats would. The cost shift their would result in an ever increasing pricing gap betweent he public plan and private carriers. Eventually private carriers would become uncompetitive and leave the market.

President Obama hears these concerns, but rejects them. In Wisconsin, The Huffington Post reports him as saying, “So, what you’ve heard is some folks on the other side saying, I’m opposed to a public option because that’s going to lead to government running your health care system. Now, I don’t know how clearly I can say this, but let me try to repeat it. If you’ve got health insurance that you’re happy with through the private sector, then we’re not going to force you to do anything.”

People can keep their private coverage if they want. Well, maybe. If the public plan behaves like Medicare, then this argument becomes a bit disingenuous. Medicare pays roughly 19 percent less than the actual cost care. Senator Edward Kennedy has proposed a public plan that pays providers 10 percent more than Medicare. This underpayment would force even more dollars to be shifted to private insurance companies. Not a recipi for those private plans you have the right to stay in to last very long.

President Obama is optimisitc a compromise can that avoids this inevitable result can be found. “And I think that we can come up with a sensible, commonsense way that’s not disruptive, that still has room for insurance companies and the private sector, but that does not put people in the position where they are potentially bankrupt every time they get sick.” Maybe he can. If so, it would be nice for him to describe what this compromise might look like.

Senator Kent Conrad a proposal that might work. He calls for creating non-profit, co-ops, owned and operated by local residents and small businesses. They would receive federal dollars to get launched, but otherwise would receive no favored treatment and would have to be self-supporting.  However, House Speaker Nancy Pelosi opposes such an approach according to the New York Times’The Caucus blog. At the same time, however,  Speaker Pelosi claims to want a public health plan to compete fairly in the marketplace. “It should be actuarially sound. It should be administrative and self-sufficient. It should be a real competitor with the private sector and not have an unfair advantage. When you say the words public option if that is the term about we will be using, you have to say right next to it, level playing field.”

The interesting conundrum this raises is, if a public plan is going to be just another option competing on a level playing field, why create it? Yet if it is given an artificial advantage it distorts the market in harmful ways. If a goal is to preserve the private market, this is problematic.

One option being discussed, according to the New York Times, is to introduce a public plan only “if people were not able to get insurance through private companies. This approach, called a trigger on Capitol Hill ….”  At least this approach makes some sense. If the private market in an area is dominated by one carrier, the government would introduce competition.  Competition does keep the participants honest. If it’s lacking in a community, a case can be made that the government can and should provide it.

Whether this limitation on public plans would satisfy its advocates or its opponents is yet to be determined. What is clear is that we’ll be hearing a great deal more about public plans, level playing fields and fair competition in the months ahead. Whether what eventually emerges is compatible with any of these concepts remains to be seen.


4 Responses to “Public Health Plans and Level Playing Fields”

  1. KenK said

    Question #1: Is Medicare the “Gold Standard” business model that the Democratic left plans to use for this public alternative health insurance option? If yes, then we should all be worried, with Medicare projected to be insolvent in 8 or 9 years. It makes more sense to fix the Medicare business model and take the appropriate steps to make the private insurers function like the public utilities they should be rather than the abusive profit-thirsty cartel they currently are. Senator Conrad’s proposal could fit in nicely under these circumstances.

  2. thefoff said

    I just posted my response:

  3. BobbyG said

    See my current post in progress at

  4. A public plan assumes they will be more efficient at administering health benefits than the current system. Where is the data to support that assumption? A level playing field will put more pressure on the government’s plan by demanding the same managerial efficiencies that are required in private business. Regardless of how you measure the efficieny of the current insurance companies, it is still much better than the post office.

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