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Is a 'public plan' the fix for health insurance?

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President Barack Obama and many congressional Democrats support the idea of giving Americans a menu of insurance options which would include a government-run plan resembling the Medicare program for older and disabled Americans.

Three House committee chairmen have published a 850-page draft of a health insurance redesign that includes a public plan. In their draft, the public plan would be offered alongside private-sector insurance plans through a government-run marketplace called the Health Insurance Exchange.

People buying in to the Exchange — those with incomes up to $43,000 for individuals or $88,000 for families of four — would get subsidies, called "affordability credits," to purchase coverage.

Details on how a public plan would work won't become definite until a compromise House-Senate bill emerges later this summer.



Who's who in the health care debate

A look at the key players shaping the national debate over health care — including the legislators and policymakers at the center of it all.

falsefalsefalsefalsefalsefalsetrueH6falsetrue1But a group of 120 House Democrats announced this week that they’ll vote down any insurance overhaul that does not include a public option. Any bill would need 218 votes to pass in the House; with most of the House’s 178 Republicans opposed to the Democratic plan, this group of 120 Democrats is decisive.

Underscoring the political stakes in the battle over the public plan, the Democratic-allied group, is running ads to put pressure on two Democratic senators who’ve indicated they may not support a public plan: Sen. Mary Landrieu of Louisiana and Sen. Kay Hagan of North Carolina.

Both Landrieu and Hagan won election last November and thus don’t face voters again until 2014.

Referring to Hagan, executive director Justin Ruben said, “Our 115,000 members in North Carolina — many of whom volunteered for or donated to her campaign last year — believe the public option is the heart of true health care reform. We'll run ads in North Carolina and D.C. asking that she advocate for the public option and support the president in truly solving the nation's health care crisis.”

So here are some questions and answers about the public plan:

How might this public plan help me and my family?

In his press conference Tuesday, Obama said a public plan would be “an important tool to discipline insurance companies.”

He said he supports a public plan “that's not profit-driven, that can keep down administrative costs, and that provides you good, quality care for a reasonable price.”

He added that if a public plan “is able to reduce administrative costs significantly, then you know what, I'd like the insurance companies to take note and say, hey, ‘if the public plan can do that, why can't we?’”

John Holahan, the director of the Health Policy Center at the Urban Institute, a non-partisan Washington think tank, said “having a competitor to private plans, under a fair set of market rules, will provide more choice and place substantial cost containment pressure on the health care system.”

But opponents of a public plan say it will undermine private sector insurance, eventually leaving nothing but taxpayer-provided and government-run insurance.

Stuart Butler, a health care analyst at the Heritage Foundation, a conservative think tank, said at a forum sponsored by the Alliance for Health Reform that it would require “a staggering leap of faith to assume that the Congress and the United States government will somehow operate like a sort of benign umpire in the system, when it actually is also a team owner.”

Health care economist Victor Fuchs, a professor emeritus at Stanford University, said a public plan, which he calls “a government health insurance company” was not necessary to solve the problem of needing to subsidize people who are too poor to purchase insurance.

And he said a public plan would not necessarily have low administrative costs.

Writing in the May 28 edition of the New England Journal of Medicine, Fuchs said supporters of a public plan "often point to Medicare as a model, noting its low overhead and high beneficiary satisfaction. But a new company would face a very different situation from that of Medicare, which has a captive audience and doesn't have to sell insurance and administrative services in competition with other companies."

How would a public plan be different from the existing taxpayer-financed plans, Medicaid for low-income people, and Medicare for people age 65 and older?

The plan would serve a younger and healthier population than Medicare serves.

Unlike Medicaid, the plan would serve middle-income people and perhaps even some wealthy people.

And public plan advocates say that unlike both Medicare and Medicaid, the plan would not be paid for by the taxpayers.

But the intention of public plan proponents is it would become self-sustaining — that is, financed by the premiums paid by the people who enroll in it.

But Holahan said in an interview with Wednesday that “the public plan is probably going to get sicker than average people” signing up for it. “There are an awful lot of people who have had health problems and have had bad experiences with insurance companies. And they will probably gravitate toward the public plan. So the public plan has some things going against it, too.”

Holahan told the House Ways and Means Committee in testimony Wednesday that because it would attract sicker than average people “the public plan could have somewhat higher premiums as a result.”

He also said, “A public plan should be compensated if it ends up with populations with higher medical needs.”

Would the public plan be subsidized by the federal government?

Obama acknowledged in his press conference Tuesday that “there can be some legitimate concerns on the part of private insurers that if any public plan is simply being subsidized by taxpayers endlessly, that over time they can't compete with the government just printing money.”

But proponents such as Holahan and Roger Hickey of the Democratic-allied advocacy group Campaign for America’s Future, say the public plan will be able to sustain itself through the premiums that enrollees would pay.

Holahan said, “You would want to set premiums so that you build up a reserve cushion.” He also said the premiums should over time also pay back all the start-up capital that the federal government initially invests in the plan.

While not a subsidy of the public plan itself, the House bill's "affordability credits" will be a subsidy for those who will be purchasing through the Health Insurance Exchange.

If one of the problems Congress is trying to solve is the uninsured, why not simply expand the existing Medicaid and Medicare programs to cover them? Why go to the trouble of setting up an entirely new program?

Some of the health insurance plans being discussed in Congress would expand Medicaid and Medicare, but not to cover all the uninsured.

Advocates of reform say the existing programs would make unwieldy vehicles for a universal program.

“Medicaid is a problem because it is dominated by states, has always had funding issues, doesn’t pay providers well, and doesn’t have a good public image,” said Holahan. “It does more good than people give it credit for, but it doesn’t have a good reputation among doctors and probably not among hospitals as well.”

As for Medicare, Holahan said, its benefit package is different than that which would have to be provided to serve younger and middle-aged people.

And Hickey said, “Frankly, the people who designed the public plan didn’t want to worry the Medicare beneficiaries that somehow their system would be burdened with a whole new crop of people.”

What would be the political consequences if Obama signs an insurance reform bill without a public plan as part of it?

“There would be a large amount of disappointment with the Congress if they failed to incorporate a public plan,” said Hickey. 

In a poll conducted last week by the New York Times and CBS News, 72 percent of respondents supported the concept of a government-sponsored health plan.

But 63 percent of respondents also worried that their own health insurance would get worse if the government provided health insurance coverage for all.

Holahan said a failure to pass a public plan would signal that Congress was unable to enact any far-reaching reforms in the health insurance system.

“The rate of growth in health care costs is too high,” said Holahan. “This (public plan) is one way to bring it down. It isn’t enough by itself, but if you can’t do this, then I don’t see how you’re going to take on a lot of other things.”