"All Public Plans Not Created Equal"

Lindsay Beyerstein:

Progressives are demanding that Obama’s healthcare reform package include a public plan, aka a government-administered health insurance option for all. A good public plan would cover more people while cutting costs and improving care. The key committees in the House drew up a bill with a public option, but the Senate is much less friendly to the idea. The real test of a healthcare reform plan is whether it can pass the Senate, as the House Dems have the votes to pass whatever health reform bill is put before them.

But not all public plans are created equal. There’s a fine line between competing with insurance companies and coddling them. In the American Prospect, sociologist Paul Starr identifies potentialpitfalls for a public plan. Since his days on the campaign trail, Obama scored political points by framing public health insurance an alternative to employer-based private coverage. It sounds non-threatening: If you like your coverage, keep it. If not, go public.

There’s a catch, of course: Employers would get to choose to offer private health insurance as a benefit or go with a public plan.

Insurance is a boring form of legalized gambling. The whole system depends on healthy people paying into the system to cover a small minority of sick people. The higher the ratio of healthy people to sick people, the more widely the risk is spread and the cheaper the insurance will be.

Insurance companies love the employer-provided health insurance model because it’s a built-in sicko filter. You’re not even on their radar unless you’re young and healthy enough to have a job. Employers with older, sicker employees pay more for private insurance. Starr predicts these employers will be more likely to drop their private health insurance if a public plan is available.

As a result, the sicker workers will join the unemployed and the elderly on the public plan, leaving the lucrative low-risk customers for the insurance companies. But the public plan needs a base of healthy payers in order to function as a self-sustaining insurance program.

Maybe we could overcome this obstacle if government were willing to use all its leverage to drive down costs, but most the proposals don’t do that. Unless the government gets tough with vested interests, the public plan could end up subsidizing inflated healthcare costs while the private insurers make even more money.

How did employers end up providing insurance in the first place? Currently the tax system encourages employers to pay their employees in overpriced insurance instead of cash. Employees save on taxes if their employer pays for their policy, rather than giving them an equivalent cash raise. Some influential senators want to offset the cost of healthcare reform by taxing healthcare benefits worth more than a certain amount–about $17,000 per family per year, according to one proposal. So, if your health insurance was worth $17,500, you’d pay zero tax on the first $17,000 but you’d be taxed as if you’d earned that extra $500 in wages.

Organized labor vehemently opposes taxing benefits because they say it would amount to a big middle class tax hike. Even so, as Josh Holland explains for AlterNet, if the money went to fund a good public plan that drove down costs through economies of scale, the net result could be more money in the pockets of working people. Wages have stagnated but labor costs have risen, partly because employers are paying ever-increasing rates for health insurance. If employers can cover their workers for less, that’s money freed up for cash raises.

All sides in the healthcare debate claim to love competition. Opponents of public options warn that government solutions will hurt healthcare by undermining the free market. However, as Josh Marshall of TPM observes, the status quo is not a free market but an oligopoly:This won’t come as the slightest surprise to those versed in health care policy issues. But I fear it’s only barely permeated the health care reform debate in the country, certainly in Washington. And that’s this: the opposition to a so-called ‘public option’ comes almost entirely from insurance companies who have developed monopolies or near monopolies in particular geographic areas. And they don’t want competition.

Steve Benen of the Washington Monthly agrees that despite their high-minded pro-consumer rhetoric, the health insurance industry opposes both choice and competition.

This week the Senate Health, Education, Labor and Pensions Committee (HELP) is circulating draft legislation for a nationwide, government-administered plan which would sustain itself with premiums, after an initial infusion of cash to get the program off the ground.

Under the HELP bill, unlike the House’s healthcare plan, fees for healthcare providers would not be indexed to those offered under Medicare. Instead providers would be paid the average rate for a particular service based on the higher rates currently offered by private insurers. You’re probably wondering: How are we supposed to save money if we lock into the same high fees that caused the problem in the first place? Good question! Medicare rates are lower because the government uses its massive bargaining power to get the best possible deal for the taxpayer. It’s the CostCo principle: Buying in bulk saves money. But once again, special interest groups are refusing to let the government save our money.

Meanwhile, Sen. Kent Conrad of Senate Finance Committee is pushing for a private non-profit insurance-buying co-ops instead a public plan. The idea is that larger buying pools will be able to negotiate better deals on health insurance for their members. But if the goal is to leverage the bargaining power of a group, why stop at a co-op of just a few hundred thousand people? Why not put everyone into one huge, government-administered co-op for the best possible prices. Because, we’re told, that would be single payer, or a stalking horse for single payer, and everybody in Washington knows that you can’t pass a bill like that. The insurance companies and health care providers want to keep rates high.

Finally, Al Franken has officially won the Minnesota senate race. When Franken is seated, the Democrats will have 60 votes in the Senate, in theory a filibuster-proof majority. However, as Marie Diamond points out at TAPPED, the Democrats need every single senator present and voting to force cloture and break a filibuster.

With Robert Byrd and Ted Kennedy in failing health and Blue Dog Democrats in failing loyalty, the Dems can’t take a filibuster-proof majority for granted on any given day, even when Franken is seated.