Fighting the Wrong Health Care Battle

Princeton, N.J.
New York Times, November 29, 2009

AS the health care debate enters its decisive stage, liberals in Congress should be ready to trade the public option for provisions that will actually make the reforms succeed.

Discussion of the public option — a government insurance plan that would be offered to individuals and small businesses buying coverage through new insurance exchanges — has been dominated by ideological politics. Conservatives claim it would amount to a government takeover, while liberals imagine that it would radically alter the insurance market by providing better protection at lower cost.

As it now stands in Congress, however, the public option would do neither. According to the Congressional Budget Office, it would enroll less than 2 percent of the population and probably have higher premiums than private plans. For progressives to say they will block reform without a public option is not just foolish, but potentially tragic if it results in legislative deadlock.

An earlier version of the public option, available to the entire public, might have realized progressive hopes and conservative fears. By paying doctors and hospitals at Medicare rates (which are 20 percent to 30 percent below those paid by private insurers), the public option would have had a distinct price advantage. But by severely cutting revenue to health-care providers, it would also have set off such a political crisis that Congress would never have passed it.

Instead, the bills in Congress now call for the government plan to negotiate rates with providers, as private insurers do. That limitation exposes a defect in the idea. The government plan may well have to charge higher premiums because it is likely to attract more than its share of the chronically ill and other high-cost subscribers. It could go into a death spiral of mounting costs.

But giving the exchanges the necessary authority to regulate private insurers could solve many of the problems that motivated the public option in the first place. Strengthening that authority and accelerating the timetable for reform are what liberals in Congress should be looking for in a deal.

The basic aim of reform is to create a more efficient and equitable system for health insurance and health care and to provide subsidies so everyone can afford coverage. Those who obtain insurance individually or through small businesses now get a rotten deal in the market. Out of every dollar in premiums they pay, nearly 30 cents goes for administrative overhead (as opposed to about 7 cents in large-employer plans). And those in poor health may be denied coverage for pre-existing conditions or be charged astronomical rates for insurance.

By creating a single, large “risk pool” for individuals and employees of small businesses, the exchanges should give those vulnerable groups the advantages of large-employer plans. The bill would also ban pre-existing condition exclusions and require insurers to offer coverage to everyone in the exchange at the same rate regardless of health (albeit with some adjustment according to age).

For these reforms to succeed, there needs to be effective regulatory authority to prevent insurers from engaging in abusive practices and subverting the new rules. The bill passed by the House would provide for that authority and lodges it in the federal government, though states could take over the exchanges if they met federal requirements. The Senate bill would leave most of the enforcement as well as the running of the exchanges to the states.

Yet many states have a poor record of regulating health insurance, and some would resist passing legislation to conform with the new federal law. Under the Senate bill, the federal government can step in if a state failed to set up an exchange. But it’s hard enough to get reform through Congress; to try to repeat that process in 50 state legislatures would be asking for trouble and guaranteeing delay.

Accelerating the timetable of reform ought to be a priority. Although the legislation calls for some important interim measures, the Senate bill defers opening the exchanges and extending coverage until 2014. By comparison, when Medicare was enacted in 1965, it went into effect the next year.

For Congress to put off expanding coverage to 2014 would be asking for a lot of patience from voters. It would also give the opponents of reform two elections to undo it. President Obama would have to run for re-election in 2012 defending a program from which people would have seen little benefit.

To speed the process, the legislation ought to give states financial incentives to adopt the reforms on their own as early as mid-2011. A state like Massachusetts, which already has a working exchange, could move expeditiously to qualify for federal money. The final deadline for the federal government’s expansion of coverage should be no later than Jan. 1, 2012.

Let the moderate Democrats who oppose the public option say they stopped a government takeover. Liberals should be prepared to give up what is now a mere symbol for changes in the bill that would deliver affordable insurance more effectively and quickly to the millions of Americans who desperately need it.

Paul Starr, a professor of sociology and public affairs at Princeton, was a senior health policy adviser in the Clinton administration.