The Public Plan Tussle

The tussle over the public plan in the health care debate has reached, in my opinion, a point of insanity. I would love to see a public plan compete with the insurance companies. However, these companies worry about it and have drawn a line in the sand. In return though, they will give up the old risk calculation and rating systems for community-based rating. And more importantly, we can create insurance exchanges.

I am not the only one who thinks this. Both Ruth Marcus, a thoughtful and slightly left of center columnist for The Washington Post, and the more liberal, but practical blogger at The Post, Ezra Klein, both point out that the insurance exchange, and a proper implementation of a well-designed system, is where we should focus. Klein, who does support a public plan, and talks greatly about its virtues, also raises concerns about how it is designed. If designed poorly, it may not turn out so well. Marcus in her column points to political reality, Congress has not made great choices with Medicare or Medicaid, and let the plans grow out of control. The only way for a public plan to work, is to have the ability to set rates with the full-force of the State behind it. Nothing seems to come out of the plan designs, and nor could I see Congress or an Administration from tampering with it.

My personal feel is that this is an issue that can essentially go out (a change from my views a few months ago). Looking at data it is far more important to force community-based ratings, and exchanges, similar to the Massachusetts Connector, to appear rather than focus on this public plan, which is a source of political sound and fury. Creating these larger pools with strong regulatory power of the government behind it is the most important part of the reform effort.

Many will point out of course, that Massachusetts's Connector, where people pay with their own money, is not popular. However, many of those who fall in the category where they do not qualify for subsidies, often have employer sponsored insurance (ESI). Indeed, the Commonwealth, with its pay-or-play employer mandate (which may violate the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406 as amended) continues to encourage ESI. Add in the notion that having people just sign up at work is easier than making them shop (a sort situational inertia) and the tax breaks by excluding ESI from income, you result in a system that does not really encourage the use of the exchanges. People just stay with what they are familiar with, and may even choose plans that are more expensive that many not suit their needs because they get this tax subsidy, when instead the exchanges themselves may provide possibly better benefits at lower rates.

Anyone who thinks that ESI as we have set it up is a positive policy should look to what happened this week in a state that has built its labor structure on ESI, Hawaii. The Hawaii Prepaid Healthcare Act, HRS Ch. 393, is essentially the only existing employer mandate, as Hawaii passed its law before ERISA and thus got grandfathered into the system. However, the State of Hawaii, Department of Education, and the main teacher's union, HSTA, recently had to find ways to close a budget gap. With little notice, teachers got a new plan, and many could not choose. Perhaps some may have wanted to pay more to keep something similar to the older plan, or perhaps cared about provider networks. However, with ESI, no one has that choice, and you take it or leave it (unless you work for a large employer, like the Federal Government that gives a wide array of insurance choices).