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Selling A Public Plan To The Skeptics

It’s been two years since political scientist Jacob Hacker, one of the nation’s most influential health care experts, briefed the leading Democratic presidential candidates on what has become his signature idea: Creating a public insurance plan into which Americans could voluntarily enroll. All three candidates--including Barack Obama--went on to embrace the idea as part of their schemes for universal coverage. Democratic leaders in Congress have followed suit.

But not everybody likes the idea. Various elements of the health care industry--from insurers to doctors to drug-makers--have argued that a public plan would use huge its pricing power to drive private carriers out of business, underpay the providers of care, and eventually create a single-payer system by default. Even congressional Republicans seemingly sympathetic to reform have suggested that the inclusion of a public plan is a non-starter.

On Wednesday, Hacker responded to those criticisms. He did so in Washington, at a press conference sponsored by the Institute for America’s Future, a think-tank that has nurtured the public plan idea and whose sister advocacy group, the Campaign for America’s Future, has been among its most dedicated supporters. And he did so by presenting a paper with some new arguments worth considering.

The effort to reach and persuade skeptics was evident in the rhetoric. Some proponents of the public plan option have described it, quite brazenly, as a first step towards a single-payer system. (I’m pretty sure I’ve done that on a few occasions.) But the title of Hacker’s paper is “Healthy Competition” and the emphasis, throughout, is on how a public plan might co-exist with private competitors--each one improving the other, based on their varying strengths and weaknesses.

If a public plan is too rigid, for example, more Americans will opt for private plans. If private plans engage in practices that obstruct access to needed care and undermine health security, then the public plan will offer a ready release valve to those dissatisfied with their private plans.

Still, the focus of the paper is on what a public plan could do that private plans couldn’t--starting with innovation:

a new public health insurance plan for the non-elderly (and Medicare, through its association with the new plan) can and should be centrally involved in obtaining  better information to improve physician and patient decisions, as well as insurer decisions about coverage, pricing, and benefit structure. Because of its broad and national reach, the stability of its enrollment, and the unparalleled opportunity for data collection and use, the new public health insurance plan is the player in the system that will have the largest incentives to make these investments.

Hacker also emphasizes a point he, and other public plan advocates, have made before: That a public plan is an essential backstop to private plans, since--even with the best regulations--some private insurers might find ways to avoid covering sick people or addressing their needs properly. In other words, a public plan is essential to make sure private plans don’t keep conducting business the way many of them do now.

But it is on cost control where, Hacker says, the advantages of a public plan are most apparent. It’s not just that public insurance plans operate with lower administrative costs. It’s also that public plans have more bargaining leverage--and, to some extent, are more willing to use their bargaining leverage--than private insurers. A recent report from the Lewin Group backs up this claim: It found that a public plan, using government bargaining power, could reduce premiums dramatically--by around 30 percent.

The arguments on innovation and cost control may be aimed at certain policy-makers--think nerdy-chic--known to care a great deal about those issues. But they are also a response to a paper, published in the last few weeks, by two other influential health care experts, John Bertko and Len Nichols (who in the past has also briefed key policymakers, including Obama). That paper, published through the New America Foundation, sketched out a public plan option based loosely on existing state employee insurance plans. The key distinction between their proposal and Hacker’s was that theirs would not give the plan--or plans, as it were--government leverage to set payment rates.

The rationale for the Bertko-Nichols plan was, in many ways, political: If a public plan can’t operate the way that Medicare does, it wouldn’t threaten doctors and hospitals the same sort of pricing power--nor would it threaten the insurance industry with extinction. Such a scheme would not have the same ability to control costs, innovate, or even provide the same measure of security. But, as my colleague Harold Pollack wrote recently, it might be the best alternative politically.

Public plan proponents aren't ready to make that concession. And in the new paper, Hacker argues that a real public plan shouldn’t arouse so much fear and suspicion.

For one thing, he says, it’s not clear that Medicare really underpays doctors and hospitals. Citing a paper from Health Affairs and studies from the Medicare Payment Advisory, Hacker suggests that evidence of “cost shifting”--that is, doctors and hospitals charging private insurance more in order to make up for low Medicare payments--is wildly overstated.

But Hacker also suggests that a new public program can include safeguards to protect providers. In particular, he would have the public plan include a “stakeholder advisory group,” giving doctors and hospitals a “regular seat at the table” in the discussion of payments. Such arrangements are common in other countries, where providers negotiate with insurers (or the government) as a group.

Hacker would also create a system of “triggers.” If, say, the percentage of doctors seeing public plan beneficiaries suddenly dropped--indicating that the plan wasn’t paying sufficiently high rates--the plan would have to take some sort of action to fix the problem.

Detailed proposals like these always take some time to digest, so I hesitate to render too definitive a verdict on the substantive merits. But most of what Hacker is saying makes sense to me. (Disclosure: I know Jacob very well, given his long work on health care issues; the same goe for Len.) It seems beyond doubt that a public plan with government bargaining power could dramatically lower the cost of medical care--and do so without harming either access to or quality of care.

It’s pretty telling, I think, that the insurance industry’s rallying cry against a public plan is, in effect, that a public plan would work too well--that it would draw away business by offering consumers a better deal. I can see why that's bad for insurers. But isn't it good for consumers?

But whether Hacker’s paper--and the arguments within--make a difference politically, is another story. The insurance industry isn’t going to stop protecting its interests. Doctors and hospitals may not consider institutional safeguards much of a guarantee. Conservatives aren’t suddenly going to drop their skepticism of the public enterprise.

Can advocates of a public plan create enough political pressure to overcome those obstacles? This new paper will help. But there’s much work to be done.

--Jonathan Cohn