The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Obama Administration Showing Flexibility on Public Health Insurance Plan

Posted by Alan on June 24, 2009

President Barack Obama wants health care reform. He sincerely believes we need to fix what’s broken in the current system because it is the right thing to do and as a necessary step to get America’s economy moving forward again. He has put forward what elements he wants to see as part of comprehensive reform package, but instead of plopping a finished product in the lap of Congress (as the Clinton Administration did during their botched health care reform effort), he is asking Congress to take the lead in developing legislation (imagine that, letting legislators legislate). He and his allies have made clear they are willing to discuss almost any idea. The mantra they repeat often is that “everything is on the table.”

Almost. President Obama has also repeatedly made clear that acceptable health  care reform must adhere to three core principles. As they are described on his Organizing for Health Care web site, reform must:

  • Reduce Costs — Rising health care costs are crushing the budgets of governments, businesses, individuals and families and they must be brought under control
  • Guarantee Choice — Americans must have the freedom to keep whatever doctor and health care plan they have, or to select a new doctor or health care plan if they choose
  • Ensure Affordable Care for All — All Americans must have quality and affordable health care

Don’t misunderstand. He has clear ideas on how these principles should be achieved, but he is not insisting Congress do things his way, only that they do them.  This approach was clear in President Obama’s Tuesday press conference when he was asked about the health care reform. His response to the first question on health care reform laid out his approach to the issue.

He began by emphasizing the need for reform. “So the notion that somehow we can just keep on doing what we’re doing, and that’s OK, that’s just not true. We have a long-standing critical problem in our health care system that is pulling down our economy. It’s burdening families. It’s burdening businesses. And it is the primary driver of our federal deficits.”

President Obama then focused on the need to control costs. “It means that we look at the kinds of incentives that exist, what our delivery system is like, why it is that some communities are spending 30 percent less than other communities, but getting better health care outcomes, and figuring out how can we make sure that everybody is benefiting from lower costs and better quality by improving practices. It means health  I.T. It means prevention. So all of these things are the starting point, I think, for reform. And I’ve said very clearly, if any bill arrives from Congress that is not controlling costs, that’s not a bill I can support. It’s going to have to control costs. It’s going to have to be paid for.”

President Obama next turned to the need to expand coverage to more Americans. “[W]hile we are in the process of dealing with the cost issue, I think it’s also wise policy and the right thing to do to start providing coverage for people who don’t have health insurance or are underinsured ….”

He then went on to describe the rationale for including a public health plan as one of the health plans available to American consumers. “As one of those options, for us to be able to say, here’s a public option that’s not profit-driven, that can keep down administrative costs, and that provides you good, quality care for a reasonable price as one of the options for you to choose, I think that makes sense.”

The President explicitly rejected the complaints of health insurance carriers who claim a public plan will drive them out of business. “But just conceptually, the notion that all these insurance companies who say they’re giving consumers the best possible deal, if they can’t compete against a public plan as one option, with consumers making the decision what’s the best deal, that defies logic, which is why I think you’ve seen in the polling data overwhelming support for a public plan.”

President Obama’s answer makes sense if the public health plan were just another non-profit competitor. In many parts of America for-profit health insurers compete vigorously with non-profit carriers. Sometimes they win. Sometimes they lose. But the competition between them is fair.

What the president’s answer ignores is the possibility — indeed, the likelihood — that competition between private for-profit and non-profit insurance carriers on one side and a government-run health plan on the other will not be a fair contest. The government, which would both regulates the market and,  under several proposals being promoted in Congress, run the public plan, might tilt the playing field in its own favor (take, for example, the Affordable Health Choices Act introduced by Senator Edward Kennedy and other Democrats on the Senate Health, Education, Labor and Pensions Committee.)

What is nice to see is that President Obama seems to appreciate the balance that must be struck if a public plan is not to undermine the private market. “So there are going to be some ground rules that are going to apply to all insurance companies,” he said. “I take those advocates of the free market to heart when they say that, you know, the free market is innovative and is going to compete on service and is going to compete on, you know, their ability to deliver good care to families. And if that’s the case, then this just becomes one more option.”

Interestingly, the President was not the only Administration member speaking about health care reform on Tuesday. Peter Orszag, the Director of the White House Office of Management and Budget appeared on the Diane Rehm show on National Public Radio. In responding to a question about health insurance profits, he observed that “One of the questions that will be in play during the reform process is whether additional competition, for example, through a public plan option, or a co-op or a non-profit, would be beneficial.”  (For those listening to the podcast, this comments begins at about the 29 minute, 18 second mark). He then goes on to say that co-ops could address a lack of competition in “a growing number of local markets.” (emphasis added).

This is an very significant statement. The health insurance co-ops being discussed in Washington are not government-run. The government provides seed money, either in the form of grants or loans, but once it’s up and running, the co-op is owned and operated by its members. They would be community based and would have to abide by the health insurance laws of their state.  Here is a senior official of the Obama Administration, one of its leading voices on health care reform, describing health insurance co-ops as comparable to a government-run public plan when it comes to providing competition.

Taken together, the President and his OMB Director are saying:

  • Competition in the health insurance marketplace should be preserved as it is beneficial.
  • The purpose of a public health plan is to increase competition in the health insurance marketplace.
  • Health insurance co-ops increase competition as much as a government-run plan.

For those who care about fair competition, please note that it is far more likely co-ops will compete on a level playing field than a government-run plan would — especially if co-ops are concentrated in local markets that need a new competitor.

None of this is to say that a government-run health plan will not be part of the final health care reform package. It does, however, underscore the point I tried to make in my previous post: the final outcome of the health care reform debate is far from settled. The Obama Administration is showing flexibility — and will need to in order to get comprehensive legislation passed. Now is not the time to panic. Now is the time to get involved.


7 Responses to “Obama Administration Showing Flexibility on Public Health Insurance Plan”

  1. I totally agree with you that the matter is far from settled yet. But I must say that it is a good sign that they are bringing the discussion to the house and not shoving something down our throat. Even though this may take a bit longer but we need to find an outcome through consensus.

    @mikeoli: If the state of Utah has dumped the plan, why don’t you suggest it to another state. Find a way to make it work. I really do believe that we can make healthcare much more afforable by cutting the costs, and cost can only be cut if such systems are developed and adopted.

  2. It still ignores that a public plan and so called health exchanges will drive many agents and their support staffs out of the market. The only way for the private sector to compete is to reduce overhead in the way of the agent. No one really seems to want to talk about this intended consequence.

    I imagine insurance companies will start offering plans for less if you don’t use an agent. I wonder who will be the first to do it…

  3. OCH said

    Paul Taylor is the CEO and general counsel for Ozarks Community Hospital. Ozarks Community Hospital is a small health system headquartered in Springfield, MO. He has written the OCH White Paper on Healthcare Reform which is being distributed nationwide. Copies of his position paper can be downloaded at Discussion of healthcare issues featured in the white paper will follow on

  4. Dave Wood said

    I agree with Ted, the startling thing about Obama care is that it is sadly very well thought out.

    In fact Obama originally came out with his plan in May 07 during his campaign. Edwards was the first, then Hillary with a short version of her total plan, and Obama had a pretty detailed plan.

    Obama then crossed the nation speaking with every Tom Dick and Harry about health care. Obama had countless meetings and discussions and clearly knew this was THE domestic issue we faced. This was BEFORE the subprime meltdown and nobody knew of the coming economic storm. Obama and others knew health care was the DOMINANT domestic issue.

    Obama has a well thought out plan that attempts to not cross the health insurance industry, the drug industry, the small business industry, the unions, the providers, and the moderate Democrats. Which explains whey the bill STINKS.

    The main problem I have with Obama care is that the entire structure of our so called system is flawed, inefficient and unfair. Obama seeks to TINKER with a flawed system. Adjust this, reform that, leaving in most of the inefficiencies, waste and fraud.

    The American people need to be told that if they dont clean up their act, ie diet, smoking, drinking, poor exercise habits, health care is certain to get more expensive.

    There is already a shortage of general doctors, and a shortage of nurses nationwide. What happens when 10 million Americans get health insurance? What happens when the cost for getting sick goes down for the current uninsured, as Obama care will allow them to enjoy health care coverage and thus pay less?

    Does anyone have any faith that these new Federal programs will actually work? Will they become just another giant mess just like all the other giant Federal programs.

    The IRS admits it only collects 84% of the moneys its owed. Medicare admits at least 10% of ALL its claims are fraudulent. Can Congress run these new program effectively? Probably not.

    What we need is a state based sytem that caters to the demands of local people in smaller groups. Arizona may want a totally different approach than California. Arizona has a ton of elderly and illegals. California has high taxes and a younger population. Why blanket the whole nation with Obama care?

    • Paul said

      No one needed “countless meetings and discussions” to know that healthcare would be the dominant domestic issue. The recession didn’t prompt this and neither did electing a democrat president and legislature. The reason is simply because politicians can’t ignore it any more. Medicare is running out of money… and fast. Whoever took office was going to see this come to a head as Medicare goes bankrupt in their second term without some type of action to fix that unaffordable entitlement program.

  5. Ted said

    Here’s an idea that the legislators could consider – if they are really the ones who will write the final legislation as you suggest. It is a bit tongue in cheek perhaps, but mostly accurate. You can remove 28 million insureds from the rolls of the uninsured (that’s 12 million more than the Senate plan does), and you can do it for a third of the cost. See:

    The basic theory is to subsidize the coverage for those under the age of 34. That demographic makes up 60% of the uninsured population according to the Census Bureau. By re-introducing these insureds into the system, it will curb cost shifting and help to stabilize rates across all health care sectors (private and public).

    Use some of the ideas from the Senate bill such as putting limitations on underwriting prejudice and removing rate-ups or declines due to pre-existing conditions. Further – go ahead and require “shared responsibility.” Offset premium subsidies by income, and it really would work.

    I’m not necessarily recommending this approach – my point actually is that the health care reform issue warrants more review than it has gotten. I prove that because I can beat the proposed plan with my eyes closed! I can insure more people for much less than the Senate bill does with a very simple plan. Further, my approach stabalizes rates, promotes freedom of choice in health care and breathes new life into the current private system.

    The bottom line is that the proposed bill just isn’t very well thought out. I am one of the few who has read through it. (To be fair, I also have 20+ years experience in health insurance). The proposed bill is fat, confusing, expensive, grows government, will limit choice, raises taxes and clearly sets the stage for rationing (see it for yourself on pp. 70 of the Senate bill). Yet after all that, it still leaves 30 million uninsured! Too expensive, too off target and too rushed! We need to spend some more time thinking this through and consider more alternatives before we ready fire aim!

  6. mikeoli said

    I am a health insurance agent in Utah. I sit on the board of the Utah health underwriters as webmaster for and I was heavily involved in designed a web connector to help Utah residents by pulling private and state sponsored insurance mechanisms together. It had a low budget of around $150k that virtually guaranteed health insurance coverage through either the private or state programs. Better yet all the local carriers agreed to split the costs. Our state insurance task force committee rejected the idea. They elected to go for a Massachusetts type connector program that isn’t working well when you actually dig deep and check facts of where they are now. Our state approved H.B. 188 with a zero fiscal note attachment! My point is, I have been a fly on the wall in countless legislative meetings, insurance board meetings, hospital board meetings, the list goes on. The problem is conflict with the market demanding profit in all sectors of the system. Tough order to fill and keep costs down? You are absolutely right when you claim that healthcare is now unsustainable. I have been crying that a long time. Nobody listens.

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