Long-term, Health Beat still expects that President-elect Barack Obama will reform healthcare. Originally (before the economic melt-down) he said that he hoped to roll out reform by the end of his first four years in office. Now, as Maggie indicated yesterday, he seems to be signaling that full-scale reform will have to wait until his second term. But there are steps that he can take to begin paving the way for reform in 2009.

For one, he needs to give Americans a chance to understand why a public sector health care plan, open to all Americas under 65 years of age, would be a good idea.  This plan would serve as a voluntary alternative to private insurance. People who didn’t want to enroll in the public plan could stick with their private insurer or move to one contracted with the National Health Insurance Exchange—the new government organization which, in addition to managing the public plan, would help to connect people with plans that adhere to certain government-specified regulations.

This so-called “public competitor” model, in which the government (a) introduces a new health care plan to compete with private insurers, and (b) tightens regulations on the health insurance market, has made its share of enemies on both the Left and the Right. Staunch single-payer advocates bristle at a reform package that still includes a role for private insurers, while conservatives view an expansion of the government’s role in health care as evidence of “socialism.”

Given the orthodoxies at work on both sides here—More government! Less government!—these complaints aren’t surprising. But both camps should understand that the National Health Insurance Exchange (NHIE) is a means of giving both single-payers and free-marketeers a health care system close to their cherished principles—without making health care reform an unnecessarily daunting and divisive endeavor.

Calming the Conservatives

The reasons why Obama’s plan gives right-wingers heartburn should be
pretty obvious. Conservatives are uncomfortable with the creation of a
new government-run program that resembles Medicare-for-all. They also
don’t like the idea that NHIE would tightly regulate its affiliated
plans by (a) requiring them to offer benefits at least as generous as
those provided by the public plan and (b) prohibiting them from
discriminating against sick people in terms of coverage or charges.

But none of these developments would be the harbinger of “socialized
medicine,” or even the death knell of the private insurance industry.
In fact, a recent policy brief
from the Urban Institute concludes that right-wing fears of a public
competitor “driv[ing] out strong private competitors are misplaced.”

One reason why a public plan won’t blow away private insurance is
because the government plan probably won’t be as administratively
efficient as single-payer advocates assume. It’s true
that, today, private insurers spend much more on administration. This
difference is due to the fact that private insurers take on
administrative functions that the government doesn’t, such as
advertising, lobbying, and underwriting (figuring out how much to
charge people with different conditions for coverage).

This suggests that a public Medicare-style plan for everyone would be
much more efficient than private insurance. And indeed, it is likely
that the public plan would be more efficient than many inefficient
insurance companies who know how to make a profit only by
“cherry-picking” patients (and shunning the sick). No doubt, if forced
to play on a level playing field, they would soon be out of business.

But the reality is that there are many administrative costs that all
insurers, even the government, must incur: claims processing, salaries,
care management, premiums collection, and so on. And the more people
that a plan covers, the more these costs increase. Yes, they would eat
up a smaller share of a public program’s expenses than they would a
private one; but an inclusive, universally inclusive public program
will still be administratively expensive because our provider system
would still be fragmented.

In contrast to nations where most doctors work for the government, our
system would continue to be made up of thousands of solo
practitioners—not to mention small hospitals. The paperwork involved in
reimbursing them for claims will continue to make administrative costs
higher than in, say, Canada.

Moreover, today, some private sector plans do a better job than
Medicare in containing costs and lifting the quality of care by using
electronic medical records to evaluate which drugs and treatments are
most effective. Insurers like Kaiser Permanente, the nation’s largest
non-profit managed care plan, then use that information when deciding
what to cover. Medicare would like to do that, but politics (i.e.
lobbyists representing those who profit from less effective treatments)
has, to date, made this impossible.

Politics will continue to be the wild card which makes it difficult to
predict how efficient a public plan will be. Since it’s a
government-run program, the NHIE model would ultimately be susceptible
to politicians. This adds a ubiquitous uncertainty to administrative
decisions. Holahan and Blumberg point out the fact that in July,
Congress blocked
an already scheduled reduction in Medicare physician fees as an example
of how politics—for better or worse—can dramatically overhaul health
care administration, even when the government has already agreed on
particular rule. (Note: Health Beat applauded that particular
Congressional decision. But we didn’t cheer when Congress decided to
give Medicare Advantage insurers’ windfall bonus. You can’t count on
politicians to always do the rational thing). In politics, there are no
guarantees, even when the government itself has seemingly decided on a
course of action.

Still, wary conservatives are right that the NHIE would reshape the
current health insurance market. But what they’re missing is that these
changes actually have the potential to make a warped market fairer and
bring it in line with the notion that value to consumers should decide
success.   

Today, insofar as there is competition amongst health insurers, it’s
all about minimizing risk—that is, scrambling to pick up only the
healthiest, and thus most cheaply insurable, customers while rejecting
the sick. This is not competition centered on customer satisfaction.
The goal seems to be: provide as little coverage as possible to the
fewest number of people who need it least.

But the public and NHIE affiliated plans wouldn’t discriminate on these
grounds. They would set a new standard of expectations and services in
health care, redefining competition in terms of quality and efficiency.
Those insurers who can’t keep up would go out of business.

Reigniting this spark of competition would help to shake up a highly
consolidated market. The Urban Institute notes that, according to the
Federal Trade Commission, thirty-four states have health insurance
markets sufficiently consolidated amongst small number of providers so
as to be “deemed highly concentrated and therefore of anti-trust
concern.” Similarly, in 2006 an American Medical Association study
that analyzed 294 metropolitan health insurance markets found that “in
95 percent of the [health insurance markets across the nation], a
single insurer had a market share of 30 percent or greater, and in 56
percent of the markets, a single insurer had a market share of 50
percent or greater.” Translation: the health insurance market in the
U.S. is “highly concentrated” with “few competing health insurers.”

A small group of organizations that charge ever-higher premiums for
dwindling services to disgruntled customers—this is not the free market
ideal. Many right-wingers like to offer high-deductible health care
plans and health savings accounts as their remedy to this situation.
But public preferences strongly suggest that we shouldn’t take this
bait. Americans don’t want this so-called consumer-driven medicine: In
2004, a Kaiser Family Foundation survey found that 56 percent of
Americans saw such plans as “very unfavorable,” and 79 percent said
that such plans made them feel “vulnerable.” A 2007 Employee Benefits
Research Institute/Commonwealth Fund survey found that “64 percent of
individuals with comprehensive health insurance were extremely or very
satisfied with their health plan, compared with 35 percent among [high
deductible health plan] enrollees and 47 percent among [health savings
accounts] enrollees.” One could even read Obama’s victory over McCain
as due in part to voter preferences for a comprehensive, rather than a
consumer-driven, health care paradigm.

So instead of forcing consumer-driven medicine down the throats of
Americans, why not develop a public program that would force insurers
to compete in terms of efficiency, quality, and consumer satisfaction?
That’s not socialism; it’s getting a broken market to work again.

Soothing the Single-Payers

All of this may sound ghastly to single-payer advocates. They tend to
think that any room left for non-governmental health care will
ultimately swallow reform attempts and doom us to a system as mucked up
as our current one. On the one hand, you can see why they’re worried,
given how private insurers have comported themselves over the past few decades. 

But allowing some role for private and non-profit insurers isn’t the
same as leaving the current health insurance industry free to continue
playing games. The competition outlined above would be strictly
regulated so as to provide an even playing field. One important rule
would be to prohibit all private insurers—even those not affiliated
with NHIE—from rejecting patients based on pre-existing conditions.
Another would be a requirement that all private insurers charge
everyone in the same community—old, young, sick, healthy—the same price
for coverage. Further, all insurers should be required to offer
coverage comparable to the public plan, thus insuring universal access
to basic coverage and barring high-deductible and other
bargain-basement plans from the market. The idea is to structure
competition so that insurers aren’t trying to shirk their
responsibilities as health care administrators, but rather trying to
deliver their services as efficiently and effectively possible.

This might not be enough for some single-payer folks who have an
ideological objection to seeing health care coverage offered by anyone
but the federal government. But these people need to realize this: the
international health care systems that they so often cite as models for
change all incorporate a role for private and non-governmental
insurance. In the Netherlands,
consumers have the choice of fourteen private insurance companies and
can pay extra for additional coverage on top of government-mandated
benefits. In Germany,
non-profit organizations called sickness funds deliver health coverage
and wealthier citizens have the option of opting out of these funds and
purchasing private insurance. The same is true in the UK,
where more than 11 percent of residents elect to purchase supplementary
private insurance to escape waiting lists for elective surgery.
Similarly, in Canada supplemental private insurance for vision, dental,
and prescription drugs is responsible for 12 percent of total health
expenditures.

The systems above perform better than our own while still allowing
entities outside of the government to have a hand in administering
health care. You can imagine a similar hybrid system in the U.S., with
a public plan that provides the bulk of services supplemented by
private insurers. Ultimately, health care doesn’t have to be administered exclusively by the government in order for a system to perform effectively. America’s problem isn’t the presence of non-governmental insurance—it’s our particular breed of unregulated, non-governmental insurance.

Yet even in our mess of a system, some plans perform pretty well—better
even, than some of the European systems. Consider the example of Kaiser
Permanente. In 2002, a University of California study concluded that
Kaiser provided a better value
for patients than Britain’s National Health Service (NHS). In
comparison to the NHS, Kaiser patients had greater access to doctors
and specialists and had shorter hospital stays. Kaiser also places more
emphasis on preventative care and puts doctors on salary rather than
fee-for-service schedule.

Researchers concluded that, taken together, these facts made Kaiser
care of higher quality and more cost-effective than that of the NHS.
"The performance achieved by Kaiser underlines that we still have much
further to go in terms of modernising the NHS,” said a British NHS
spokesperson at the time. As a result of the Kaiser-NHS comparison, the
NHS recently
“embarked on the development of a twinning arrangement with Kaiser
Permanente, to share information and developments to help the
organisations learn from each other.”

Yes, that’s right: a much-vaunted single-payer system feels that it has
something to learn from an American health insurance plan. This isn’t a
boast. It’s just a recognition that single-payer is not panacea, nor is
private or non-profit health care inherently evil and ineffective. So
long as everyone is playing by the appropriate rules, it’s helpful to
have different entities experiment and innovate, helping each other
refine their performance for maximum efficacy. A public competitor
system allows for the Kaiser/NHS-type symbiosis to play out within our
own borders and, over time, build constructive relationships that
benefit the public good.

One final word of comfort to the single-payer crowd: all of this
assumes that the public plan won’t be so well-designed and surprisingly
efficient that it actually does blow all private competitors out of the
water. But maybe it will. Maybe millions of Americans will choose the
public plan over private alternatives and private insurance withers
away—even as a supplementary option—thus effectively moving us toward a
single-payer system. This isn’t a foregone conclusion by any means, but
it is within the realm of possibility, and it’s something that the Left
should keep in mind as it rails for all-or-nothing single-payer
reform—something that would be almost impossible to institute from
scratch in the United States, because so many Americans want to keep
the private-sector insurance that they have today.

Yesterday’s election was heralded as a victory for unity and
post-partisanship—a rejection of radical extremes and an embrace of
common sense change. Many grumble that such language is just a cover
for excessive compromise in health care, as well as in politics. But
the public competitor model is more than just a mindless appeal to the
middle. It’s a way forward that gives both sides of the debate
something much closer to their ideals than either seems to realize.