Thursday, May 14, 2009

Balance is the Key to Life (Part I): the Public Plan

elephant-balance Just about everybody in the health policy world has made their thoughts known about the inclusion of a public plan in health reform. Some pertinent links include:

And finally, there are numerous thoughtful roundtable discussions, but an especially enjoyable one was hosted by the Diane Rehm show earlier this week. It included: Russell Mokhiber, Founder of "Single Payer Action," Len Nichols, director of the health policy program at the New America Foundation, Julie Rovner, health policy correspondent for National Public Radio, and Stuart Butler, Vice President, Domestic and Economic Policy Studies, The Heritage Foundation. [One can listen to the one hour broadcast here].

In the conversation, I got a good chuckle when, in response to the health care industry meeting with the President and pledging $2 trillion in savings, Julie Rovner attributed a quote to Michael Cannon (Cato Institute) where he said that all the industry leaders were at the table “because nobody wanted to be on the menu.” Classic.

Remember the old saying, don’t believe anything you hear and only half of what you see. Well in politics, its zero and zero. Right now, everybody is in posture mode, predicting the collapse of society if we go either one way or the other. But the truth, as usual, is somewhere in the middle. Fact, is we can achieve significant reform either with or without a public plan.

uspsIn the conversation, Len Nichols gave a very fair discussion on comparative advantage and provided an analogy to the U.S. Post Office. He stated that there are things that the private sector does well (like overnight shipping to highly populated areas – see FedEx and UPS) and there are things the public sector does well (like guaranteeing delivery to Podunk, Alaska). Most would agree that the competition has been helpful as it created an incentive for the USPS to adopt innovations pioneered by the private sector (e.g. tracking) and for private shippers to keep costs low. Think about it, one would have to agree that forty-four cents is a pretty cheap price to pay to send a letter anywhere in the country and letters being lost appear to be a think of the past.

If the USPS did not provide this guarantee, we would have to use either sticks, carrots, or a combination of the two to make sure the private sector filled this void completely. There is a lot of hassle and tweaking involved in this scenario as the shipping industry would find it easier to improve their finances by extorting/lobbying the government with threatened withdrawals rather than improving their service and operations. In response, the Federal government could just agree to pay the shippers 10-20 percent higher than their typical costs and be done with it. Does any of this paragraph sound familiar?

Mr. Nichols go on to say in a recent blog post:

More than 30 state governments offer their employees a choice between traditional private health insurance products and a plan self-insured by the state. In other words, the state bears the insurance risk of the self-insured product and selects its managers. These managers cannot profit from denying care. This experience combined with historic competition between public and private plans in both the Medicare program and California Public Employees Retirement System (CALPERS) serves as proof-of-concept: plans operating with politically appointed managers can compete with plans run by private managers if the rules of engagement are structured properly.

But two thing are sure. First, any public plan would need to build off of the strengths of Medicare/Medicaid (e.g. stability/security, nationwide coverage, transparency, consistency of benefits, low overhead, and innovative provider payments – yes, the government can innovate) as noted in a post by E. Richard Brown at the Health Affairs blog. But just as important, any public plan should improve upon the weaknesses of Medicare/Medicaid (e.g. political interference, fiat-driven payments, and “any willing provider” provisions).

As an example of how this could be done, the State of Vermont recently expanded its Medicaid primary care case management program into a public corporation (think USPS) that operates like a health plan with professional managers, where the state pays it a risk-adjusted premium, it manages care, and transfers any “profits” back into public health programs.

So where does this lead us? Hopefully in one or both of the following two directions, either a model much like the USPS where a public plan becomes an integral part of the health care system or a model like the Federal Employee Health Benefits Program (FEHBP), which is basically a highly regulated insurance exchange where the Federal government sets minimum standards and approves a variety of private health insurance options that span the entire country.

new-balanceIt is important to note that even though the public plan discussion gets the most “airtime” in DC right now, it is only part of a very intricate puzzle. But it does signify that our country is trying to find a “new balance” when it comes to health insurance coverage, which is a good thing. ~BAA

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