Hybrid Health Care System: The Search for Common Ground

As the debate intensifies over the wisdom of including a publicly financed health plan to compete with private carriers serving the individual and small group market, it’s only natural that a search for a compromise intensifies, too. As noted in previous posts, Professor Uwe Reinhardt has promised to unveil a proposal that would enable a public health plan to compete with private offerings without destroying them.  And President Barack Obama’s Director of the White House Office for Health Reform, Nancy-Ann DeParle, has expressed confidence compromise is possible.

One place they’ll be looking to for examples is the experience states have in running government financed plans in competition with private carriers in coverage programs offered to state workers. For example, last month Lee Nichols and John Bertko of the New America Foundation examined what could be learned from these state programs in a policy paper entitled “A Modest Proposal for a Competing Public Health Plan.” The authors consider the polarized debate on the topic of a public health plan unnecessary. “It is possible to structure a new insurance marketplace so that public and private health plans compete on a level playing field,” they claim.

Examining state employee programs like California’s Cal-PERS, Mr. Nichols and Mr. Bertko conclude that the solution is to separate “oversight of the public plan from that of the managers of the marketplace or exchange(s). It will also require that all rules of the marketplace – benefit package requirements, insurance regulations, and risk adjustment processes — apply to all plans equally, whether public or private.” They also call for a system-wide approach to containing medical costs and warn against “relying heavily on the public plan’s potential market power” to bring down those costs.

The New America Foundation report does a good job of summarizing the positions of those in favor and opposed to creating government-run health plans. For that reason alone it’s worth reason. But the paper is also noteworthy for being among the first to offer a solution that, while not wholly satisfactory to partisans on either side of the issue, at least proves that common ground is possible.

Their emphasis on the need for a level playing field between the private and public health plans is especially critical. And the hardest to assure. Even if a program starts off with good intentions, over time the temptation to tweak the system in order to favor the government program could become overwhelming for lawmakers. If how Congress and the Pentagon deal with defense contracts is any indication, it won’t be long before a public health plan becomes a political toy for lawmakers to play with.

I have other concerns about the report. For example, like many others, the authors treat state employee health plans as fair equivalencies of the individual and small group market. But that’s a questionable assumption. The general public is far more diverse, dispersed and expensive to reach than state employees. There’s a reason why carriers who excel at serving large group clients flounder when they enter the small group or individual marketplace. It’s not just that the dynamics and challenges of the two segments differ, but so do the needs and expectations of the insureds.

Comprehensive health care reform is too complicated, controversial and complex for the partisans to harden their positions this early. There are going to be a host of issues to work through; creation of a hybrid system is merely one of them. By putting forward a compromise solution, instead of simply taking sides in the debate,  Mr. Nichols, Mr. Bertko and the New America Foundation have made a valuable contribution to the health care reform process. Assuming, of course, that the partisans on either side of the issue are able to consider compromise in the din of the debate.