The House Public Plan: Yes, It's Worth It

The public plan is also critical to reform as a cost and quality benchmark, one that is particularly crucial if private premiums accelerate upwards. The insurance industry has threatened that premiums will skyrocket if an individual mandate is not tough enough. It may be an idle threat, but if a final reform bill ends up looking more like the Senate Finance bill than the House bill, it might not be. In most local markets, competition is likely to be anemic, and regulation of insurers inadequate. There will be little to prevent insurers from raising rates as they have threatened.

Having a public plan in place should also help keep down the rate of growth of health insurance premiums over time. Over the past twenty years, the public Medicare plan has had a substantially slower rate of growth than private insurance. The CBO report on the House bill states that private insurers are better at controlling utilization than a public plan would be. But, to date private insurers have failed to prove their value at cost control and demonstrated they have strong incentives to delay and deny needed care rather than drive efficiencies in the system.

And remember: If the private plans continue to misbehave, drive up costs excessively, and otherwise engage in practices that are detrimental to our health security, Congress can later decide to strengthen the public plan and give it greater leverage to rein in costs and serve as a check on private insurers. Creating a public plan down the road is not realistic; that's one reason we seriously doubt any proposal to trigger the public plan would really work. Strengthening an existing public plan would be a far more likely prospect, especially if the public plan is proving its value in the market, as we believe it will.

What’s more, as far as payment and delivery system innovations are concerned, the public plan is really the only tool available for testing and implementing reforms in the market for the non-elderly. Private plans are notorious for keeping their innovations private--when they have them--and have little financial incentive to improve health care if it will not increase their bottom line. Yes, we can continue to rely on the public Medicare plan to test innovations. But working families have somewhat different needs, and it seems appropriate to pursue delivery and payment reforms more broadly, through both Medicare and a public plan focused on those younger than 65.

In short, it’s no time to be despondent about the fate of the public insurance option. For sure, pegging rates to Medicare and obligating Medicare providers to accept these rates would be far preferable, and a public plan with negotiated rates may do less to keep the insurers honest and drive down costs. But it’s still immensely valuable to give Americans an out--another choice--to let the insurers feel the heat of not being the only game in town. The fierce and continuing opposition of the insurance industry suggests that they think that a public option will prove a serious counterweight in an increasingly consolidated private market. The overwrought pessimism of the pundit class should not aid them in their cause of protecting themselves from a public-spirited competitor.