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The Public-Plan Option: A Roundtable With Stuart Butler, Jacob Hacker, and Len Nichols



April 30th, 2009
 
by John Iglehart and Chris Fleming

Editor’s Note: If Congress creates a new national insurance exchange as part of comprehensive health reform, should a public plan be offered as one of the choices for consumers? That contentious question was the subject of a Health Affairs Blog Roundtable including Stuart Butler, vice president, domestic and economic policy studies, at the Heritage Foundation; Jacob Hacker, a professor of political science at the University of California, Berkeley; and Len Nichols, director of the health policy program at the New America Foundation. The transcript of the Roundtable, moderated by Health Affairs Founding Editor John Iglehart and Health Affairs Communications Manager Chris Fleming, appears below. A shorter post discussing some of the highlights of the Roundtable is also available.

CHRIS FLEMING: Obviously, the question of whether to provide a public-plan option has become one of the most, and probably the most, contentious question in the health reform debate today. It raises all sorts of issues, including matters of cost control, the proper role of government in the system, whether you can create a level playing field between public and private plans.

You all have staked out very different positions on this issue. Jacob, you’ve proposed a single public-plan option modeled on Medicare. Stuart, you’ve argued against a public-plan option, and Len, you and John Bertko have put forward a “modest proposal,” as you termed it, somewhere in the middle, envisioning a number of public-plan options modeled on the self-insured plans that some states offer their employees.

I’d like to start out with a very general question: What exactly is the market failure that a public plan is needed to address, that can’t be addressed in a marketplace of private plans with suitable regulation, perhaps with guaranteed issue, community rating, etc., and with mechanisms like risk adjustment? Some might point to the Federal Employees Health Benefits program as a system where competing private plans have seemed to work fairly well.

Jacob, why don’t we start with you?

JACOB HACKER: The central argument for having a public plan competing as a choice within a new national insurance exchange is that it provides a set of essential security guarantees. It ensures that Americans without insurance from their place of work can find a plan that offers quality affordable care through a broad choice of providers in all parts of the country. The central premise of having such a plan is that the private insurance market, even if regulated, is not going to have enough pressure on it to provide such affordable quality care without a public plan competing with it.

So I see the public plan as a benchmark for private plans, showing them how to provide good coverage at a reasonable cost with transparency and stability, and I also see it as an essential backstop that’s there for those who are not well served by private insurance plans. My vision is of a system in which the public plan and private plans are competing on a level playing field to give consumers what they want and deliver value, so that both the public plan and the private plans are able to maximize their strengths and improve upon their weaknesses. I believe it’s a win-win bargain for that reason.

LEN NICHOLS: Whatever those of us who have always had good insurance, and advanced degrees, and good employers think, there are a lot of people who don’t trust private insurance to follow the new rules that I think all of us would agree are going to be necessary to make insurance markets both efficient and fair. That lack of trust is a real phenomenon, and the public plan provides a kind of a safety valve, if you will, for people who are mistrustful of private insurance. As John Bertko and I said, in the long run if the rules are enforced appropriately as I expect them to be, the need for such a safety valve may diminish, but in the short run it’s real, and we have to take it very seriously.

Secondly, to back up what Jacob just said about the benchmark: The benchmark function is very important in general, but it’s particularly important in year one, when we would have a lot of changes and a lot of new stuff. People who worry about the lack of transparency historically in private insurance would be reassured by a bid from an entity that was designed to break even, to not earn a profit. One would expect that premium bid to be actuarially fair if — and again, I think we all three would agree — the playing field among these plans is as level as possible. Bertko and I tried to lay out the conditions under which that playing field could indeed be made level.

STUART BUTLER: I view the emergence of the public-plan idea as a nuclear minefield on the road to getting agreement on universal coverage. I think there’s been a lot of progress already made in ways of assuring people there will be available plans. They’re looking at risk-adjustment mechanisms, they’re looking at an insurance exchange with certain rules, and so on. I think progress has been made with insurance companies towards guaranteed issue, and so on. These are all steps going in the right direction.

And then along comes this idea of a public plan. I think there are a number of major concerns about it. One is that I just do not believe that you could, in fact, construct what Jacob and others describe as a level playing field within this kind of system. If you have a government entity setting the overall rules of competition and you also have a public plan that is in some way run directly by government, I think it’s inconceivable that you would in fact have a level playing field.

This is even more true if you add some of the things that Jacob has suggested, such as making the public plan a default plan, so that if you don’t choose you end up in that plan. I know enough about behavioral economics to know what the end result of that would be: the growth of the public plans. Inertia, and also the way in which the options are presented by the government running the whole system, would very quickly, in my view, lead to a marketing advantage for the public plan.

I think also it’s important to sort out a little bit more clearly what we actually mean by a public plan. I’m very impressed with Len Nichols’ work, and I think it really does show what you would actually have to do to have a level playing field and a public plan within it. In my view, Len’s version of a public plan is a public plan in name only. It’s precisely the kind of arrangement that is organized through the federal employee system.

On the other hand, you could set up something modeled after Medicare, with Medicare-style payment rates and the assumptions that there will be cost shifting and that there won’t be the kinds of networks and normal marketing operations that you would have if there were real competition. If you set up that kind of system, then you’re going to have a very, very different result, with the public plan essentially using its controls and its favored position, and the fact that it can shift costs to other plans, to drive out other competitors. You really have a situation here of envisioning a level playing field that can’t really exist, and also a big question about what the definition of this public plan is — it’s very different to different people.

LEN NICHOLS: On the argument that it’s impossible to actually make a level playing field, that’s precisely why John Bertko and I reminded people of what state employee plans do today. That’s not exactly how we would design it because, as Stuart said, we’re actually more careful about defining what it would take to make the playing field truly level. And I think he would agree, we have laid out how you would do that. He then calls it a public plan in name only.

Well, 34 states have a self-funded option that competes directly with commercial options for which insurers bear the risk. The key thing about a self-funded option from the state’s point of view is the state is bearing the insurance risk. And the reason that matters goes back to why the public plan has such political resonance, aside from the wonkish battle we’re having today. It has political resonance because a lot of people fear that private insurance managers have an incentive to stint on care, and deny them care on the margin, and they fear this less when the government holds the insurance risk.

State employee plans have public managers in charge. They may decide — in fact, most do — to contract with private entities to pay claims, and contract with providers, and do some disease management and stuff like that, like everybody else does. But the key thing is the manager has no financial incentive in restricting care, and therefore people are reassured.

Thirty-four states have this public-private competition, and in many states this competition has been going on for 15 years. Last time I looked, state governments are not interested in subsidizing a state-run plan just for the fun of it. They’re doing this because they think it adds value to the competitive offerings they give to their workers, and they’re not interested in paying more than they have to. I think it must be the case that they think it’s meeting the market test of reasonable and effective competition.

So I think Stuart’s overly pessimistic about the ability to structure a level playing field, as proved by 34 states, including California, Kansas, and others.

JACOB HACKER: Let me come back to Stuart’s assertion that the public plan is a nuclear element of the debate. If it is indeed radioactive, I think it’s radioactive in the same way that we use radiation to treat a cancer. The cancer is our system of private health insurance that has for too long worked assiduously to provide people with less for more, and at the same time done a very poor job of controlling costs while shifting a lot of risk onto individuals and trying to avoid insuring the sickest of Americans. That’s why this is on the agenda, and I think Len is exactly right: there’s a lack of basic trust in the ability of private insurance, even heavily regulated, to do this. But I don’t see the public-plan option as in any way an impediment to achieving a strong package of reforms. I do think it’s controversial, but I think that most of the central elements of reform are controversial, including new requirements on employers and the need for new public financing for reform.

It’s important to emphasize what it is that the public plan delivers, and to do that we should go back to the arguments that were made for why Medicare, the public health insurance program for the elderly and disabled, should include private plans. The idea was that the private plans would deliver essential values that the public plan didn’t. And while there are real problems with the playing field within Medicare, problems that I would argue need to be rectified when we think about a new national program, the argument for having public and private plans compete with each other in Medicare applies at least as strongly to the nonelderly population.

The public plan should be Medicare-like, but it should not be the Medicare program. It needs to have a broader set of benefits and a separate risk pool. We have to improve the way in which it pays providers. But it should be built on the basic infrastructure and the basic model of Medicare, and it should be operating alongside private plans within a larger exchange that is run not by this new public plan, but by an independent administrative agency.

The problems of independence, that Stuart rightly brings up, are problems that apply to private plans as well. We know that private plans will try to rig the system in their favor; they’ve certainly tried to do that in the Medicare program. We need political independence and executive and administrative authority, regardless of whether there’s a public plan in the mix. I am strongly committed to the view that this playing field should be level, and believe that it can be made level.

The public plan will have some inherent advantages. It will have very low administrative costs. It will likely be one of the few plans available that will offer a broad choice of providers. It won’t have to pay profits. But I don’t think that those advantages are illegitimate, because the private plans will also have advantages. They’ll have the advantage of being private plans, they’ll have the advantage of being able to construct tight networks of providers, and they’ll have the advantage of greater ability to innovate and to do things with their flexibility that a more stable public plan cannot.

It’s that tension, that competition, between the public and private that I think is the key to achieving the goals of reform. The most important of those goals is the ability to restrain the rate of cost increase over time, and that’s where private insurance today has proved most inadequate.

Len and I disagree to some degree about the extent to which the public plan, however envisioned, should be at the center of the cost control strategy. But for setting up the system and for making sure that we can afford it at the outset, I don’t think we would disagree that it’s really important to have the public plan there.

To summarize: I believe we can create a level playing field, I believe the public plan is a controversial element of the reform package precisely because it’s so valuable, and I believe that it’s doable, both politically and administratively. What stands between us and achieving serious reform is a dialogue that’s constructive rather than destructive about how this public plan should be set up.

CHRIS FLEMING: I would be very curious to hear from Len and Stuart whether either of you feel like Jacob’s plan does succeed in presenting a level playing field, based on what he just set out. Also, if I’m correct, Jacob, you also have a mechanism through which the private plans could essentially piggyback on the provider payment schedules of the public plan — is that right?

JACOB HACKER: That’s correct, and let me just say two things on that because I didn’t actually address Stuart’s concern about default enrollment. I present that as an option that reflects my belief that having the broadest choice of providers, the least restrictive plan, would be of real value for those who haven’t chosen another plan. But this was not principally a means of increasing enrollment in the public plan so much as protecting the interests of those who don’t designate another plan, and we should make every effort to make sure that people affirmatively elect the plan of their choice. It does seem a little strange to randomly enroll someone in a private HMO, say, if they don’t state their preference for another plan.

Regarding the point about private plans being able to piggyback on the public plan, I’m building here to some degree on work that Joe White has done on all-payer rate setting, which has been a rather neglected subject in the current debate. The argument is that those plans that are paying doctors on much the same basis that even an improved Medicare-like plan would pay should be able to piggyback on those rates. That’s actually the situation with private fee-for-service plans within the Medicare Advantage program today. The big advantage is that the private plans would not feel as if they were put at a competitive disadvantage because the public plan might, for example, be paying rates closer to Medicare’s.

I should be clear, though, that I’ve never argued that the public plan should necessarily pay Medicare rates. I’ve said that it should be paying rates that elicit voluntary participation on the part of providers, but I do think that we should be building off of the basic structure of payments that Medicare already has, especially on the hospital side, and I think that it’s really up for debate and compromise about how close to private rates those payments would be. I am not convinced that there is as much cost shifting from Medicare onto to private plans as many critics say, and I think there’s a real need for countervailing power in the market vis-à-vis providers who have grown much more consolidated over the past 10 or 15 years and have been able to keep rates very high, especially for specialty care. There is a need for better bargaining leverage to help keep costs down over time.

LEN NICHOLS: There are two dimensions of level playing field that really matter. One is governance, and that speaks to Stuart’s original concern about how the government can never essentially referee its own fair fight. I can imagine a world in which the government could fail, but I note that state governments seem to be doing it.

I agree, though, that we’ve got to be more careful on a much bigger scale, like the kind of reforms we’re talking about here. That’s why John Bertko and I laid out many more “firewalls” between the public plans and the people who are responsible for operating the market — i.e., the exchange. In my view, that would be boards of fairly prominent citizens. There would be many of them around the country, because you want them to be organized locally to reflect different market conditions. Those boards would have accountability to the people who live near them, to try to make sure the market is working in a way that today it is not, especially for individuals and people buying through small groups.

The boards can be, in my view, sufficiently distinct and independent from the managers of the health plan — or plans if there are many around the country following roughly federal guidelines — because the health plan manager is a competitor in the yard of the board, and the board then decides: What are the rules of that competition? There are lots of examples of how you could make that work, so I don’t share Stuart’s pessimism that it’s impossible for “government” to do this. Government would have every interest to do it because after all, at the end of the day, what the government wants is to have a program that works for the people, since that’s how you get re-elected.

The second dimension of a level playing field is what kind of market power the public plan might have vis-à-vis the private plan, and I think here is where Jacob and I differ. We have a different strategy of achieving cost-growth reduction over time. My strategy is based upon using Medicare as a leading catalyst within the Medicare program, like we did when we switched to paying hospitals through diagnosis-related groups (DRGs) in the mid-1980s. We got very good quality and cost-saving results when we did that. Moreover, it turned out that we changed incentives sufficiently that hospitals got better at delivering care more efficiently to the under-65 population, so you had a large spillover effect in the private sector.

I’m talking about kind of taking that lesson and applying it health system-wide, but starting within the Medicare program, and not starting with using the pricing power or leverage in the short run. It basically comes down to how fast do you think we need to do this, and how much faith do you have that that private market will follow a Medicare lead.

STUART BUTLER: We need to explore further the whole question of the level playing field argument. I appreciate very much what Len says. The issue, though, when we think about health reform going through the Congress, is whether it is possible to actually set up the conditions that are essential for what would be considered a true level playing field. Could we, in fact, have a public plan that is absolutely separated from the rules and the agency that oversees the entire system of competition? We’d have to imagine that Congress would do that, and that Congress would allow the public plans to succeed or fail in a true competitive situation.

Or, would Congress ensure in some way, through support, through subsidies, through access to the Treasury, that the public plan would in some way be protected or advanced? When we have a situation where the federal government feels that a company like GM has to be supported to maintain competition, and to reflect political necessities, could we imagine that Congress would ever set up a public plan that is truly on a level playing field competing with other plans? I just can’t imagine that. And if that doesn’t happen, then it opens up the prospect of a public plan of the kind that Jacob envisions — more like Medicare — over time systematically pushing out the other plans in the so-called competition.

If you set up something more like Len proposes, I continue to say that you really have something that is public in name only. Yes, the state plans may have managers from the government sector, but they are, as he says, privately run through PPOs, through Blue Cross typically, or other insurers. It’s the same in the FEHB program: We have large national plans that are private plans.

We were making very good progress towards real competition in which the public would know that there were safe-harbor plans available, such as we have in the FEHB program. However, the suggestion of a specialized public plan of the kind that Jacob proposes has destabilized and got in the way of what was a very productive conversation and a movement towards real agreement.

LEN NICHOLS: I’m glad and very heartened to hear Stuart say that we were making good progress. I guess what I’m curious about is why he believes that Jacob or anybody else suddenly injected this public plan into the debate. This has been in the debate since John Edwards revealed his health plan in the primaries in 2007. Indeed, all the major Democratic candidates — Obama, Clinton, and Edwards — had a public plan as an element of their overall package. All three of those packages centered on competition in a new exchange marketplace, the centerpiece of which was private insurance competition, but with this public plan competing. So I don’t see this as new, Stuart.

What I did see, and the reason I wrote my paper, was that after the election the public plan was seized upon to try to drive moderates away from the table, in both parties but especially the Republican party. I thought, “This can’t be the issue that kills health reform. There’s a heck of a lot more important stuff to argue about than this,” and that’s why Bertko and I offered the model we did.

Stuart, I think you would agree that our model, if it could be passed and protected, would be a level playing field. You’re skeptical that Congress would do so, but look at the Post Office. FedEx and UPS and Pitney Bowes and others were allowed to compete quite effectively, and indeed devastatingly, with the Post Office. With some hue and cry and a little bit of complaint, we let those private entities take larger and larger shares of our postal business because it’s more efficient and the people demanded it, and that’s what we do in this case.

JACOB HACKER: There is another precedent that I’ve already mentioned, which is the public Medicare program competing with private plans. Again, that system is not designed on the basis of a level playing field, but if anything, the tilt in that playing field is in favor of the private plans, which is why the Congressional Budget Office has estimated that the private plans are paid about 13 percent more than they should be if they were receiving the same amount that the traditional Medicare program pays on behalf of beneficiaries.

So I think this is a pressing problem that you raise, Stuart, of how to create an independent oversight board, but I think it holds at least as much with regard to private insurance companies as it does with regard to any new public plan. In 16 states, the dominant insurance carrier accounts for at least 50 percent of private enrollment. Those entities are going to be seen as too big to fail in the same way that a large public plan might.

To me, the question of how to create the level playing field is really one that we can address. Len and I agree on 90 percent of what such a level playing field constitutes. We agree that the public plan should not be getting subsidies from general revenues. We agree that both the public plan and the private plan should have to abide by the same rules governing enrollment and rating and marketing. We agree that there should be risk adjustment, and we also agree that the public plan should be priced regionally — that is, it should be competing against private plans that are regionally based on a regional foundation so that its premium is based on the local cost of delivering the benefits of the public plan.

That said, I think that we should not forget that the model that you hold up, Stuart, the FEHB program, while it has done much good for federal employees, has not had a particularly impressive record of restraining costs over time. Its cost-control record is very similar to that of private insurance, and the private insurance cost-control record has, over the past 15 years, been quite inferior to Medicare’s. I am not arguing that there is one true path to reform. I’m arguing for having a public plan competing with private plans and upholding the values that a public plan distinctively delivers. That way, consumers can have a broader range of choice and a security guarantee, and we can get that creative tension that will help allow both the public plans and the private plans to better restrain costs and deliver value over time.

JOHN IGLEHART: Given the characterization of a public plan as politically explosive, at least in the minds of a lot of folks, particularly Republicans, where is the ground for compromise? I’m wondering whether Stuart’s idea of some kind of a reconfigured or strengthened FEHB program could represent middle ground, and if not that, what would?

STUART BUTLER: Len is right that the idea of a public plan is not new. What’s happened since the election has been that as the idea of reform has gained traction and we have begun to really look at these different options, more and more scrutiny has been placed on what exactly is this public plan — what do we mean by it? It had been a vague idea, with some politicians supporting certain visions, and sometimes going down to defeat.

What we’re seeing now is that with increasing scrutiny, the worries about what this would mean have begun to emerge, and the differences have begun to emerge. In particular, people are looking at things like the payment rates issue and whether Medicare is, in fact, systematically pushing costs onto other plans and other parts of the health care system. If you’re envisioning a public plan that can pay significantly less than other plans through direct rate regulations as we have in Medicare, and if that same plan can essentially push costs off, or if it has any kind of open door to the Treasury so that over the long haul it does not have to balance its premiums with actual costs, then as the Lewin Analysis shows, it’s a real worry that there would be a large and systematic enrolment shift to that plan. That is very different from the idea that Mr. Obama put forward of everybody who is happy with their existing coverage being able to keep it. That’s one concern.

On the other side of the same coin, when one looks at something like Len Nichols’ and John Bertko’s view, as I said, it becomes less and less distinguishable as a truly public plan in any meaningful sense. It becomes something that has the same rules, the same approach, and so on, and it isn’t really what one would normally think of as public in any real sense.

So we’ve got to determine what it is that we are talking about here. Then to answer your point, John, I think there is a lot of opportunity for compromise when you look at the FEHB program structure and what lessons it offers, in terms of looking at adverse selection and providing a risk-adjustment mechanism. You can think through how you would structure an exchange system either nationally or with some combination of a national and state approach, with the idea of perhaps even looking at some national plans within that arrangement, as we have in the FEHB program, where there is negotiation with a private plan to ensure certain kinds of benefits and arrangements and information.

I think we have a lot of opportunity to find a compromise that actually does achieve the stated objectives of a public plan: to give people a sense of a true safe harbor and certainty, with sufficient regulation that people know what they can get in any market. I think we can make a lot of progress in achieving the stated goals of a public plan in that way, without incurring the enormous pushback that the fear of Medicare-style planning in particular engenders widely across the industry and among people who are really concerned about reaching the same ultimate goals of universal coverage.

LEN NICHOLS: It’s fascinating — I hear Stuart quite clearly on the fear that a public plan could drive out competition and, as I’ve written, I think there are features that could lead to that. I don’t think that’s what anybody intends, but I do see the fear, and I get that. I think we’ve got to be mindful of that.

Stuart just said that the plan John Bertko and I put forth would work, but it’s not really a public plan. Maybe we need to get away from public and think about function and what we really want here. I think that might be a more productive way to focus the discussion going forward. I would submit that, in the long run,in terms of the functions Stuart mentions, private plans could behave in ways we want them to. My fundamental point is that in year one, a lot of people don’t trust private plans, and that matters.

Stuart doesn’t trust the government to run a fair playing field. Well, we have to make darn sure that happens, so I would say let’s focus on function and focus on structures that will constrain behavior to guarantee function. Let’s not spend so much time on defining what is and is not “public,” because if you’re saying that anything that satisfies the level playing field is not public, then you’re assuming that public by definition is a not a level playing field.

JACOB HACKER: Let me jump in here and say that the pushback that is coming is not coming from Americans as a whole. In fact, a survey that was done by Lake Research Partners in January of this year found that overwhelming majorities of Americans — some 73 percent, including 63 percent of Republicans — thought that it was a good idea to have a choice between a public and a private plan. The overwhelming reason that people supported this was that they felt it would control overall health care costs for everyone. They preferred that argument by more than a 2-to-1 margin to an argument that the public health insurance plan would reimburse doctors and hospitals at lower rates, causing a shift in costs.

We should recognize, as Len has been emphasizing, that this is on the agenda in part because it’s something that Americans care about. We should also recognize that a lot of the criticism of the public-plan idea is rooted in fear rather than in a rational look at the nature of this policy.

The Lewin Group’s report that Stuart cites has provoked a lot of hand-wringing and attention, but in fact, as I have pointed out, the Lewin Group modeled a proposal that bears very little resemblance to the proposal that is on the agenda now, or that Barack Obama endorsed during the campaign. It’s a proposal without an exchange offering private plans alongside public plans. It’s a proposal that doesn’t have a play-or-pay requirement that larger employers buy into the exchange by paying a payroll tax, and it’s a proposal that envisions that all private health insurance, including employment-based plans, would be re-rated, thus increasing the costs for employers. So it’s no wonder that those estimates came up with a relatively large public plan.

To me, the grounds for compromise is really on how this public plan would operate, and in particular there is a great deal of concern, with legitimate basis, about the rates that the public plan would pay for services. It seems to me that it’s reasonable to have a discussion both about the way in which the public plan would pay for services — there are legitimate criticisms of Medicare’s payment structure — and the level of payment for services.

This is the classic kind of debate that we would have in a legislative discussion, and I would welcome it. If we seek compromise, though, it has to be a healthly compromise. I agree with Len and Stuart that we should think about this public plan not as an end in itself, but as a means to an end. Stuart doesn’t think that we need the public plan to achieve that end, and Len thinks that we will need at least some form of public plan. My argument would be that it’s very, very hard to envision us maintaining good behavior on the part of insurers, maintaining security for enrollees, and restraining costs over time without having a true public plan in the competitive fray.

STUART BUTLER: Len is absolutely right: The correct way to achieve compromise in this area generally is to focus on what are the desirable functions and goals. In that regard, I think it’s important to look at various options to reach those goals, and I’ve laid out some already today: One might look at the FEHB program structure with its very interesting arrangement of private HMO plans and national plans, the soft negotiations, and so on.

However, I’m concerned with the idea that Len put out that you’ve got to do something significant and somewhat different in the first year to get a buy-in. I’m worried that if you do that, you set up an entity in the first year that will end up like the person who came to dinner and never left. Congress would be unlikely to set up something in one year and then allow it to decline after a year or two.

I also think that we’ve still not really settled the issue of control. For any exchange that has a “public plan,” the governance of that plan and its interaction with the overall governance of the competitive system is critical. I’m not as confident as Len seems to be that the Congress would actually set up an absolute wall of separation. It’s not in its history and our experience. I particularly don’t think that the leaders on the House side are prepared to do that; they have a very different vision of what the end result should look like and what the role of a public plan over the long haul should be. I really do think they intend the public plan to push out other competitors. They don’t see a stable long-run situation with a modest public plan merely keeping the rest of the plans on their toes.

CHRIS FLEMING: Does how one feels about a public plan, particularly the kind of proposal that Jacob has advanced, depend a lot on how one comes out on this debate about cost shifting? The providers say that if we have a Medicare-type plan that has these low, below-cost payments, then they’re going to have to cost-shift, and there will be fewer and fewer places to cost-shift. On the other hand, the Medicare Payment Advisory Commission has just come out and said no, in fact, the causality runs the other way: A lot of times provider costs are not fixed — hospitals, for instance, can get a lot more efficient — and it’s the high reimbursement on the private end that allows costs to become bloated, and then that ends up causing the low Medicare margins rather than the other way around. So is it true that how one might come out on this public-plan debate depends in part on how one comes out on the cost-shifting issue?

JACOB HACKER: I think the public-plan debate involves more than the cost-shifting discussion. The public plan offers a source of stability, security, and transparency, as well as being a check on private insurers to ensure that they do not aggressively try to select healthy people or hide coverage exclusions or other problems in the fine print of their policies.

I do think, as I said, that the area that is most ripe for compromise regarding the public plan is the way in which the public plan would pay for services, including the rates that it pays. As you said, Chris, there is a real debate over the extent to which Medicare is shifting costs to private payers. One of the difficult features of reform is that reform will involve making tough decisions: Whether it’s private insurers making them or a public plan, we’re going to have to try to make American medical care more efficient and more focused on value, and that’s always going to be controversial. My view about the political steps needed to get to reform is that to the extent that there is ability to find adequate money, it’s always a good idea to try to make sure that you have the initial payments set up in a way that’s generous enough that people feel eager to be part of the new system.

There’s a tension, though, between that goal and the fiscal constraints we face, and over the long term there’s no question that there’s going to have to be a much greater focus on efficiency and value. I do not believe that without a public plan in the mix, we’re going to have that long-term cost control, and that is where Len and I probably differ most dramatically. But we both differ from Stuart in believing that there’s a place for a public plan in reform that is independent of the cost control agenda. It’s really there to make people feel secure that reform will protect their interests.

LEN NICHOLS: Chris, you asked what the source is of one’s view of a public plan. I think it has more to do with which set of fears you think are most important. I think that Stuart, quite rightly and with a lot of reason, is worried about government growth. However, Jacob and I wake up in the morning and we’re more worried about the people who can’t get care, and about the cost that is driving more people to not get care over time, and we’re willing to take a bigger risk with the expansion of government because we think, in fact, the risk is not as great as Stuart sees it.

The way we structure all the elements of reform in a political compromise should be about what we can you do to reduce one set of fears without exacerbating unduly another set. I think it’s fair to say we know how to make a level playing field. Stuart is skeptical that government will do it. I point to state governments and say, “I think that’s proof enough, but if not, then here’s what I’m willing to offer up as safeguards and firewalls.” I think then we all have to assess whether that is good enough.

Then we have to assess Jacob’s point: How do we get cost control so that we can make high-quality health care more affordable and accessible to more Americans? That really is at some level the über-discussion — I agree with Jacob on that. If we don’t do that, nothing else matters. We differ about how to do it, but if, in exploring alternative ways to do it, we minimize the fears on both sides, that is what will end up being successful.

STUART BUTLER: I agree with that. It is an issue of finding the most likely way to reach a certain goal with a minimum risk. That’s indeed central to this conversation and why we differ.

To raise your point about payments and the shifting of costs, the one risk there that I would be concerned about is: “If you have an overarching governmental entity with a public plan, can you imagine that there won’t be a systematic shift of costs from one sector to the other?” Which way it goes may depend on who occupies the White House or controls the Congress, but the concern that there’s going to be a systematic shift of costs and risk is very real.

The second broad risk is that if you set up a public plan, particularly one that has some agency involvement or a link to government in some other way — what I would call the definition of a public plan — you have to worry that over time that plan is going to be favored in some way by the governmental entity that governs the whole system. That’s my concern — I believe that is exactly what would happen over time.

LEN NICHOLS: So maybe we agree, then, that ultimately constant vigilance is going to be required, whether you’re watching the private sector perform or the government perform. We all would agree, I think, that if the three of us were on the board, we could probably keep the eyes in all the right directions — not that I’m volunteering for the position!

JACOB HACKER: I know we all agree on the pressing need for reform. I certainly hope, as does Len, that the issue of the public plan can be dealt with in a civil way that reflects the concerns expressed on both sides of the debate.

But I do want to reiterate that I believe that this is not an incidental issue. It is controversial because the public plan is very central to the ability to control costs, deliver value, and improve quality over time. The responsibility on both sides is to not foment fear but instead to focus on the central issue of how we make sure that Americans have affordable quality care.

CHRIS FLEMING: Thank you, everyone.

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