The Role Of Private Insurers In Public-Private Competition

Today, the House Energy and Commerce Committee and Health Subcommittee and the House Education and Labor Committee convened hearings on the Tri Committee’s draft proposal for health care reform. The plan, which was released on Friday, contains a fairly robust public insurance option that will compete with private insurers and abide by the same marketing, operations, and rating rules. As the New York Times details, under the bill, “the public plan would be run by the Department of Health and Human Services and would offer three or four policies, with different levels of benefits. The plan would initially use Medicare fee schedules, paying most doctors and hospitals at Medicare rates, plus about 5 percent. After three years, the health secretary could negotiate with doctors and hospitals.”

In anticipation of the hearings, House Republicans released “top 10 facts” about the House health care plan, suggesting that a public health insurance option would result in a government take over of the health care system and lead many Americans to lose their existing coverage. “The House Democrats’ plan could force more than 100 million Americans out of their current health care plan and onto the government rolls,” one “fact” states, citing a Lewin study “published earlier this year.”

But during today’s House Energy and Commerce hearing, Health Care For American Now (HCAN!) National Coordinator Richard Kirsch explained that a public plan can in fact fairly compete with a private option without crowding out private insurers:

If I could, and this is this level playing field thing drives me crazy. Private insurance companies have a 158-170 million customers…. The choice of a level playing field, the public health insurance option is going to start at an enormous disadvantage because it doesn’t have all those things in place. When the private insurance companies whine that they can’t compete with the government, I have to begin to wonder, do they really believe the polls that 93% of Americans don’t trust them and that’s why they can’t compete.


Indeed, as public plan architect Jacob Hacker — who also thoroughly debunks the Lewin study analysis here — has explained, “I think the private insurers certainly will be have a great role in providing more integrated coverage options than the public plan would provide. So any types of network plans that involve the restricted network of providers, ranging from very tightly integrated staff-model HMOs to more loosely integrated practices, it strikes me as an area where private plans would have an enormous advantage,” Hacker explained.

Private plans would also have a “brand advantage” (in the same way that a lot of people rather have the branded drug than the generic) and “could play an important role” as fee-for-service alternatives that look like the public model but provide “better customer service, nicer marketing and better brochures, but they might also be doing other things in terms of quality improvement or care management that the public plan wasn’t.”


Kaiser Health News is reporting that “America’s Health Insurance Plans and the Blue Cross Blue Shield Association, the two largest insurance industry groups, released a letter today that ‘laid down a marker on health care, warning in stark terms that a proposed government insurance plan would dismantle the employer coverage Americans have relied on for a half century and overtake the system.'” From the letter:

We do not believe that it is possible to create a government plan that could operate on a level playing field. Regardless of how it is initially structured, a government plan would use its built-in advantages to take over the health insurance market.

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