Health Care for America Now (HCAN) is pushing a superficially attractive health reform model that has a long record of failure – akin to prescribing a placebo for a serious illness when effective treatment is available. They would offer Americans a new public insurance plan and a menu of private ones, with subsidies for coverage for low income families.

This approach reprises the format of Medicare’s ongoing privatization. Despite promises of strict regulation and a level playing field that would allow the public plan to flourish, private insurers would (as they have done in Medicare) predictably overwhelm regulatory efforts through crafty schemes to selectively recruit profitable, lower-cost patients, and avoid the expensively ill. Like the Medicare Advantage program, originally touted as a market-based strategy to improve Medicare’s efficiency, the HCAN plan would evolve into a multibillion dollar subsidy for private insurers whose massive financial power (amassed largely at government expense) would prove a political roadblock to terminating the failed experiment.

Unfortunately, proposals like HCAN’s that cede a central role to private insurers can only add coverage by adding costs. They promise savings from computerization and chronic disease care management. Yet the Congressional Budget Office has warned that there is little or no evidence for such savings.

The HCAN proposal forgoes most of the $350 billion annually in administrative savings possible under single payer national health insurance (NHI). Administrative waste is a natural byproduct of the private insurance firms that would retain a central role under HCAN’s plan. Private plans’ overhead is 12-fold higher than under NHI; the excess is squandered on marketing, underwriting, utilization reviewers and profits, and for the billions paid to executives. And the multiplicity of insurers envisioned in the plan precludes paying hospitals a global, lump sum budget; such budgets would save additional billions by obviating the need for most hospital billing and much of the internal accounting needed to attribute hospital costs to individual patients and payers.

HCAN’s proposal duplicates key elements of health reforms that have passed (and then failed) in multiple states: Massachusetts in 1988; Oregon in 1989; Tennessee, Minnesota and Vermont in 1992; Washington State in 1993; and Maine in 2003. In each case, rising costs scuttled the reform effort; none had a durable impact on the number of uninsured. The 2006 Massachusetts law, which incorporates many of the features of HCAN’s plan, is already threatened by rising costs, despite offering skimpy coverage and leaving many uninsured. And Massachusetts, with its low rate of uninsurance to begin with, and a large fund devoted to care of the uninsured, offered the optimal conditions for trying such a plan.

HCAN’s proposal tries to avoid a head-on collision with private insurers, but the result is a plan that cannot achieve universal coverage or make care affordable. For physicians, offering a placebo in place of effective treatment is a serious ethical violation. Hence, while we salute the good intentions of the members of the HCAN coalition, we must warn against their proposal.