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Doctors and patients, employees and employers, the insured and the uninsured, and hospitals and taxpayers are all stakeholders in the health care reform debate now beginning in Washington. They may disagree on any number of reform measures, but they all agree on one basic fact—the U.S. health insurance market is broken. Lack of competition in this critical marketplace means poor transparency and accountability, resulting in costly health care that harms our national health, bleeds our personal finances and the federal budget, and hinders our economic competitiveness. None of this is acceptable amid the worst slide in economic growth in 60 years.
Fortunately, our nation’s health insurance market can be fixed with a big dose of what fixes most sectors of our economy—healthy, well-supervised competition. One of the best ways to introduce this much-needed competition is for the federal government to offer a public health insurance plan that can compete with private insurers within an insurance “exchange” that ensures public and private health insurance plans compete equally and transparently in the public marketplace.
There’s no question a public plan within a public exchange is necessary. A recent American Medical Association survey found that a single private health insurance company controlled more than half the market for insurance in 16 states and a third of the market in 38 states. Within our broken market, insurance companies “compete” by reducing their exposure to policyholders’ pre-existing conditions, focusing on risk reduction instead of affordable, quality, patient-focused health care.
This is why it’s time to introduce what we at the Center for American Progress call Public Plan Choice, which combines a public health insurance plan and a health insurance exchange to deliver real competition and real choice to all Americans. Public Plan Choice can bring doctors and patients, employees and employers, the insured and the uninsured, and hospitals and taxpayers together in support of a reformed, competitive health insurance marketplace through the creation of a health insurance exchange that includes a public health insurance plan. Public Plan Choice would create a functional health care marketplace to replace the current broken system by:
- Increasing meaningful choice. In the face of tremendous consolidation in the health insurance market, employers and individuals have a shrinking set of health insurance options. Private insurers have used this market power to boost their profits. By including a public health insurance plan as another insurance option and creating a health insurance exchange that delivers transparency and accountability to the market, we can assure both viable competitors and real competition.
- Promoting effective competition. Public Plan Choice will establish a new health care framework that makes sure insurers provide the best value at the best price rather than one focused on avoiding risk. Public Plan Choice can play a supportive role in effective risk management both as a “safety valve” to assure everyone gets access to needed care and as a champion of a transparent health insurance exchange. To ensure effective competition, all private and public health insurance plans would compete on a level financial and regulatory field.
- Creating a publicly accountable innovation leader. Public Plan Choice will create incentives for effective performance just as today’s Medicare program promotes quality care alongside cost containment. Witness steps such as Medicare’s refusal to pay medical care providers for “never events” where a patient suffers a knowable and catastrophic mistake such as having the wrong limb removed. This is something other major insurers are now adopting. Public Plan Choice has the potential to do even more to promote effective use of purchasing power to drive improvements in the health care system through improved accountability and transparency.
Some opponents of a public health insurance plan and a transparent insurance market exchange argue that better insurance regulation could do just as much to increase consumer protections and make transparent, affordable, comprehensive health insurance available. Yet the marketplace would still remain an oligopoly driven by risk segmentation. History teaches us that health insurers will simply act in their own self-interest, absent some regulatory or market-driven limitation.
A U.S. health care system without a public health insurance plan and exchange also would remain overly dependent on government enforcement to achieve the goals of health reform—goals such as wellness programs and rules to ensure coverage for all. Public Plan Choice means market competition would be the driving force for change. Without Public Plan Choice, there is every reason to believe that market consolidation will continue, and that insurers will continue to miss opportunities to have the same innovation.
In the pages that follow, we will demonstrate how the choice of a public health insurance plan and health insurance exchange will create new market-driven incentives for private insurance plans to innovate in ways regulatory enforcement will not. First we will present our Public Plan Choice program in detail, then demonstrate how it can generate genuine competition, and finally how it can ensure continual accountability and transparency in our health insurance markets. In the end, we believe all stakeholders involved in receiving or providing health care realize this new health insurance marketplace we envision is a goal well worth pursuing.
Public Plan Choice defined
Promoting choice among health insurance plans to reform a dysfunctional health insurance market is an idea that has been around for decades. The Heritage Foundation has long advocated health reform modeled on the choices in the Federal Employees Health Benefit Program, which provides health insurance to federal employees. Stanford University public policy professor Alain Enthoven has been advocating a similar, though structured, health purchasing arrangement for almost as long through “managed competition.”
The concept gained new life and bipartisan support in Massachusetts in 2006 when that state introduced health reform in an effort to cover all those under the age of 64 (when Medicare coverage kicks in). The Massachusetts plan relies on a so-called “connector” that connects consumers to a choice of health plans to help create a more rationale marketplace for the purchase of health insurance.
Then, in the 2008 presidential contest, competing health reform plans among the Democratic candidates, beginning with former North Carolina Senator John Edwards, were thoroughly debated. These plans—building on work done by academics such as University of California professors Jacob Hacker and Helen Halpin (who worked separately) and at the Urban Institute—proposed to add a public health plan option as a competitor in a new health insurance exchange. This idea has been part of President Barack Obama’s ideas to improve health care coverage in our country, revive our economy, rein in health care costs, and boost innovation.
Key to the Massachusetts reform and President Obama’s health reform proposal is the establishment of a connector (Massachusetts) or exchange (Obama’s campaign plan) that offers a range of health plans side-by-side and that meets standards about who they must serve, what services they must cover, and how much they can charge. Put simply, the rules will specify the benefits that insurers must offer and require insurers to accept everyone who applies at a similar premium, regardless of an applicant’s health status. The operational features of this public health insurance plan and exchange would include: health insurance plan and exchange would include:
- A health insurance exchange that offers private insurance plans and a public health insurance plan—all of them competing on a level playing field.
- A public insurance plan operated by public employees separate from existing public and private plans.
- Comprehensive and affordable coverage, with guaranteed access to health insurance and other consumer protections offered by all plans in the exchange.
- A service delivery model that provides choice among insurance providers, better care coordination, and fair and efficient payment processes for patients and physicians alike.
- A health care system that promotes innovation rather than risk segmentation.
- An option for individuals to keep the coverage they have today if they so choose.
Public Plan Choice—the combination of the exchange and a public health insurance plan offering within it—offers an opportunity to create both competition and a new competitor in the health insurance marketplace, strengthening the exchange’s incentives for all health insurers to be more efficient and responsive to individuals. Through fair competition on a level playing field, the insurance marketplace is made more functional.
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