The Best Way to Save Obamacare
By Jacob S. Hacker
The New York Times, October 27, 2016
The Affordable Care Act has faced a rocky six months. First, major national insurers scaled back their participation, leaving about one in five people buying coverage through health exchanges with only one plan to choose from. Then this week, the Obama administration announced that exchange plans would post an average premium increase of more than 20 percent (though most enrollees would be insulated from the full increase by subsidies for their coverage).
As someone involved in the debate over the Affordable Care Act from the start, I don’t find these unhappy events all that surprising. From the outset, I’ve argued that without a public option — a Medicare-like plan that would be available to all Americans buying health insurance — insurance competition would dwindle and premiums would skyrocket. Now that they have, it’s time to do now what we should have done then: take the simplest route to a more stable and affordable health care system.
Critics of the public option are convinced it’s a one-way ticket to single payer (the government alone provides coverage). History suggests the opposite: The public option isn’t a threat to a system of broad coverage through competing private plans. Instead, it’s absolutely critical to making such a system work.
We’re already heading toward single payer in sections of the nation — only it’s a private plan doing the paying. Next year, five states will have only one insurer in their exchanges, the online marketplaces set up to allow uninsured Americans to buy subsidized coverage. Nine more states will have just two insurers.
The diminishing number of choices doesn’t just hurt consumers; it also makes it harder for regulators to use antitrust tools to push back against this consolidation. Who wants to be the official accused of causing an insurer to leave the exchanges? It’s a perverse equation: As the number of insurers goes down, the leverage they have over regulators goes up.
These problems are what motivated proposals for a public option in the first place. Major parts of the country lacked enough insurer competition to keep costs in line, especially with rapidly consolidating providers. And the proposed alternatives to a public option, like the insurance “co-ops” eventually included in the 2010 law, did not have the bargaining power and reach that a Medicare-like plan would have (and most of them have since gone out of business).
The argument by public-option supporters wasn’t that it would or should replace private insurance. It was that having a public plan as a benchmark and backup was essential to make competition among private plans work. The models we have of successful competing health plans have a public or quasi-public option. That’s true in Medicare, where private plans operate alongside the traditional program. And it’s true in the federal employees’ health system, where a majority of enrollees choose Blue Cross-style nonprofit plans that are overseen by the government to ensure they remain viable.
Having a public plan alongside private plans won’t merely ensure that everyone has a choice. It will also pull more people into the system, creating a broader pool for all the plans. In polls conducted in 2009 and 2010, substantial majorities of Americans said they would feel better about being required to have coverage if they had the choice of a public plan.
A public plan is attractive in part because it can offer a broader network of providers. As exchange plans increasingly move toward very narrow networks, this would be another enormous draw — especially for more affluent consumers who have so far shunned the exchanges.
The public plan can also improve the overall system. Medicare has pioneered innovations in reimbursement, and it has improved hospital quality by imposing new penalties for readmissions. A public option could build on these breakthroughs and extend them to Americans under Medicare age.
The biggest advantage of the public plan, however, is its greater ability to restrain prices. As rapidly as the insurance market is concentrating, medical providers are consolidating faster, driving up prices and creating huge differentials even within regions. Medicare hospital reimbursements vary much less — and they’re typically much lower. As a result, Medicare has experienced slower per-person cost growth than private plans, particularly in recent years.
On the other hand, private plans are much better poised to develop integrated systems that closely monitor outcomes for a smaller circle of providers. Just as in Medicare, public and private plans can complement each other as they compete.
The public option is an ambitious policy. But it’s not hard to explain or advocate for — Americans love Medicare — and it has the potential to build powerful grass-roots support. Pressure from a coalition of left-leaning groups led by the Progressive Change Campaign Committee (a group that fought for the public option in 2009) has encouraged 33 Senate Democrats, including the party’s leadership, to call for a public option. President Obama has started advocating for it again, and Hillary Clinton has embraced it.
Republicans have actually shown how it can be done. Changes in Medicare pushed by President George W. Bush in the 2000s created more competition between public and private plans and guaranteed a fallback public option for prescription drug coverage.
This year, Senate Republicans, providing another lesson, passed legislation that repealed the Affordable Care Act through the budget process, which isn’t subject to a filibuster. (President Obama vetoed it.) If that’s possible under the budget rules, creating a public option should be, too — especially since it could reduce the deficit by tens of billions of dollars a year.
If things keep going as they are, Americans are certain to demand greater regulation of private plans to make them operate more like public plans. Instead, we should make them compete with a public option.
Jacob S. Hacker, a professor of political science and director of the Institution for Social and Policy Studies at Yale, is an author of “American Amnesia: How the War on Government Led Us to Forget What Made America Prosper.”
By Don McCanne, M.D.
Jacob Hacker deeply believes in a better America for all of us. As a political scientist, he understands the difficulties of moving the process in that direction. During the health care reform process, he recognized the lack of political feasibility of enacting a single payer Medicare for all program, but, with good reason, he decided that a public option – offering the option to purchase Medicare instead of private insurance – was feasible. In fact, it almost happened. Since so many problems still exist six years after enactment of the Affordable Care Act (ACA), we should listen to Jacob Hacker to see what he has to recommend.
First, let’s go back and look at the process that led up to ACA. The dysfunction in our system had become unbearable – runaway costs, too many uninsured and underinsured, preventable financial hardship and physical suffering continued – something had to be done. The policy and political communities understood the superiority of single payer Medicare for all, but the politics were polarized. It was decided that the feasible approach would be for the Democrats, who were in control, to lead by supporting the Republican proposal of building on the existing system. Although the progressive community initially was disappointed, they decided that the only feasible approach was to join the (ACA) bandwagon, especially when it included the public option that many thought would eventually transform into a single payer system once the public realized how much better government insurance was compared to private insurance. Although the process emasculated the public option, one Senator was able to block it altogether.
Fast forward to today. After six years, the feasible approach has not turned out so well. Yes, many more now are covered, but little realized how much insurers could still innovate, for their own benefit, in a more regulated environment. To make premiums affordable, plans had to be offered with a lower actuarial value – accomplished by increasing the deductibles and offering credits and subsidies for lower income individuals (which left middle income individuals more exposed to medical debt). But many did not realize the rapidity and intensity with which the insurers would jack up the deductibles. And now the policy of high deductibles is corrupting the part of the market they were trying to protect – the employer-sponsored plans. Also they wanted to protect the “gains” of managed care, which really is not much more than negotiating lower rates for provider panels in exchange for granting them exclusivity. Once again, most did not anticipate the rapid move to ultra-narrow networks that serve the insurers so well while impairing access for their enrollees. Higher deductibles and narrow networks can hardly be described as successes of ACA since most people are worse off.
So now we are again facing the same political dilemma. Do we embark on a process to establish single payer Medicare for all, or do we take the politically feasible route of enacting a public option which would fix our system by requiring private insurers to complete with a vastly superior public plan, or so they would have us believe? Well, the decision has already been made. The progressive community is already totally on board with the public option. The tragedy is not so much that on this path we will end up with a public plan that will be only one more feeble player in the dysfunctional market of private plans, but rather that we will, once again, have walked away from single payer, perhaps for decades, because of this meme about lack of political feasibility.
So let’s look more closely at what Jacob Hacker has to offer in his truly sincere effort to cure our health care system.
* From the outset, I’ve argued that without a public option — a Medicare-like plan that would be available to all Americans buying health insurance — insurance competition would dwindle and premiums would skyrocket.
The insurance industry’s control of Congress would prevent a public option that could out-compete the private plans. Our traditional Medicare program is already being out-competed by the private Medicare Advantage plans because Congress has continued to support policies that give the private plans an unfair advantage while rejecting measures that would provide the much-needed expansions in the currently deficient package of Medicare benefits. That’s why Medicare must be improved before we consider it as a program for all of us.
* Critics of the public option are convinced it’s a one-way ticket to single payer (the government alone provides coverage). History suggests the opposite.
Currently we are being inundated with threats from the conservatives that if we enact a public option it will lead to the left’s dream of a single payer system. Yet the progressives have jumped on board precisely because they believe a public option will lead to their dream of a single payer system. Yet Hacker now says that history suggests the opposite. He says that the public option is not a threat to a system of competing private plans. Will the progressives really be satisfied with perpetuation of the current dysfunctional system as long as the few who buy their plans through the exchanges will be able to choose a feeble public option?
* We’re already heading toward single payer in sections of the nation — only it’s a private plan doing the paying. Next year, five states will have only one insurer in their exchanges.
Yes, so many plans have pulled out that there is only one private insurer left in many of the exchanges. But it is sad to see Hacker characterize these lonely private plans as single payer when the highly dysfunctional multi-payer system remains in place. He understands the single payer model better than most, yet his passion for the public option model drives him to play rhetorical games that glibly dismiss the true meaning of single payer (though he may actually be threatening the conservatives with this bastardized form of “single payer”).
* The diminishing number of choices doesn’t just hurt consumers; it also makes it harder for regulators to use antitrust tools to push back against this consolidation.
Politicians and the policy community are fixated on market competition as a means of controlling costs, yet Nobel laureate Kenneth Arrow half a century ago explained to us how markets do not work in health care. The United States has relied more on markets than other nations and we have the highest costs that has only brought us mediocrity. A publicly administered single payer system is much more effective at controlling costs throughout the system.
* A public plan is attractive in part because it can offer a broader network of providers.
Can it? Since the public option is just another player in a market of private plans, it would be funded by premiums rather than taxes. As the provider panels are increased the premiums would have to be increased since they can no longer offer exclusivity, making the public option less competitive, not to mention that broader panels would be attractive to patients with greater needs. Death spiral?
* Medicare has pioneered innovations in reimbursement, and it has improved hospital quality by imposing new penalties for readmissions. A public option could build on these breakthroughs and extend them to Americans under Medicare age.
Current Medicare innovations such as ACOs, MACRA, MIPS, and APMs have not proven to be very effective and are causing grief amongst the health care professionals. Besides, private insurers also adopt Medicare innovations, but only those that have been proven to be effective.
* The biggest advantage of the public plan, however, is its greater ability to restrain prices.
If the differential between public and private prices is too great, providers will reject the public programs in favor of the private. Many physicians will not accept Medicaid payments because of the low payment rates, especially specialists. Having a ticket to a public option is not very helpful if there is no one there to care for you.
* Pressure from a coalition of left-leaning groups led by the Progressive Change Campaign Committee (a group that fought for the public option in 2009) has encouraged 33 Senate Democrats, including the party’s leadership, to call for a public option. President Obama has started advocating for it again, and Hillary Clinton has embraced it.
Point made on the contention that the progressives are jumping on board.
* This year, Senate Republicans, providing another lesson, passed legislation that repealed the Affordable Care Act through the budget process, which isn’t subject to a filibuster. (President Obama vetoed it.) If that’s possible under the budget rules, creating a public option should be, too.
If a public option can pass only by squeaking it through in the reconciliation process, that doesn’t say much for expecting broad support in a divided Congress and a divided nation.
* If things keep going as they are, Americans are certain to demand greater regulation of private plans to make them operate more like public plans. Instead, we should make them compete with a public option.
Uwe Reinhardt has frequently said that a system of competing private plans – like they have in Switzerland – can work if they are very heavily regulated. Yet an OECD/WHO report on the Swiss system revealed that they still have many of the problems that we have in the United States. So keeping private plans in the system is still a problem. Instead of making them compete with a public option, we should get rid of them and establish our own single public plan.
Feasible? Is it really better to just give up and perpetuate uninsurance, underinsurance, high costs, high deductibles, narrow networks, inequities, financial hardships, impaired access, and more physical suffering and even deaths? What’s not feasible about trading all that in for a system that works?