Why The Public Health Plan Is Not A Trojan Horse

trojan2.JPGFormer Health and Human Services Secretary Michael Leavitt argues that a new Medicare-like public health care plan is a “trojan horse” for “government-run” health care. He fully explains the metaphor:

The story of the Trojan horse is familiar. After years of fruitlessly trying to enter the city of Troy, the Greeks boarded their ships and pretended to sail away. They left behind a huge wooden horse, which the Trojans claimed as a symbol of their victory and dragged into their mighty fortress. But the horse was full of Greek soldiers, who waited until midnight and then opened the gates for their invading army. Advocates for government-run health care are similarly pretending to sail away from “Medicare for all” or “universal coverage,” leaving before us the notion of a “public option.”

Single-payer advocates huddled in a horse, waiting only to break-out and force every American to enroll in a new public option? No…. that’s not quite it. What will actually happen, Leavitt contends, is that the public plan will do such a good job of keeping costs low that more Americans will abandon their current plans — under which they saw premiums increase by 117% over the past ten years — and choose to enroll in the new public option.

And this is supposed to be a bad thing?

Yes, because with a ‘public option’ that uses “Medicare-like reimbursement rates”, employers would bolt…the Lewin Group estimates that 118 million Americans would lose their private health insurance…no private insurance system would be able to survive, and the United States would have a government-run system like Medicare,” Levitt explains.

But why are private insurers so vulnerable to competition? Under some conceptions of the public plan, the new program could use its purchasing power to bargain with providers, but reimbursement rates that are too low would drive away providers and, by extension, consumers. The public plan would fold. In an environment where private plans are forced to compete with a new efficient public program, inefficient, over-bloated insurers will go out of business, but private plans with good networks of providers or better services will continue attracting new enrollees. In other words, the public plan may have the advantage in administrative efficiency and setting rates, but the private plans will most certainly find a niche to fill.

Also, as public plan architect Jacob Hacker explains over at The Treatment, Lewin’s findings do “indicate that the savings from having a public plan compete with private plans could be huge…[but] it has virtually no bearing on the question of how large enrollment in the public plan would be” under health care reform.

That’s because The Lewin Group study that Leavitt cites, “looked at a hypothetical proposal in which employers could buy into a national public plan by paying the plan’s premium. What’s more, in the hypothetical proposal that the Lewin Group examined, new rules would be imposed on employment-based health insurance that would vastly increase the cost for some firms of providing coverage….By contrast, all the proposals that are actually on the agenda today have employers buy into an “exchange” that has both a public plan and private plans as a choice within it. Moreover, all these proposals have at least large employers enroll their workers in the exchange by paying a payroll-based contribution, not the public plan’s premium.”

According to Lewin’s analysis of something that’s actually been proposed (i.e. Hacker’s proposal), “the public plan ends up with much lower enrollment in the public plan than projected in the Lewin Group’s new analysis (90 million versus over 131 million)”; “around 38 million people in the exchange would choose private plans instead of the public plan.”

When considering health reform, policy makers have a choice to make: restructure the health insurance market so that it provides affordable and comprehensive health benefits to all Americans, or protect the monopoly of private insurers and continue redistributing as much income as possible to the private insurance industry. I think we know where Leavitt stands.