We strongly believe all Americans should have health insurance, and we are very pleased that health care reform that extends coverage to all Americans, reins in costs and improves quality has become a national priority. Blue Cross and Blue Shield companies support most of the proposals under consideration, including extending coverage to everyone, comparative effectiveness research, delivery system reforms to promote better care for patients, incentives to emphasize a greater focus on prevention and wellness, and greater adoption and use of health information technology, Unfortunately, the creation of a new government–run health plan would only serve to undermine what we all agree are the ultimate goals of health reform.

We believe a new government plan is unnecessary to achieve comprehensive reform and would lead to serious unintended consequences for millions of Americans. A new government plan would exacerbate the cost shifting that already inflates employer premiums by nearly $1800 per family per year and would decimate the employer coverage currently enjoyed by more than 160 million people today. The Commonwealth Fund estimates over 100 million individuals would be shifted into a government-run plan (when it is fully implemented) in addition to the 90 million individuals currently in Medicare and Medicaid.

A government plan option also would undermine the ability to achieve delivery system reforms that are greatly needed to address rising costs since the government would not be effective in developing innovations to improve quality and rein in costs in the face of constant political pressures. In contrast, private plans regularly innovate and can quickly and effectively implement changes that reduce costs and improve quality. For example, Blue Plans have created Blue Distinction centers of excellence, which through quality improvement have 26 percent lower readmission rates for cardiac patients. Private health plans also lead the way in implementing chronic care management programs while Medicare lacks coordination and care management programs despite the high prevalence of seniors with multiple chronic illnesses.

We believe health reform should build on today’s employer-based system. Comprehensive reform that requires all consumers to have coverage and assures that they can obtain it regardless of health status – as we proposed this week – meets the objectives offered by proponents of a government-run program. It would expand coverage and rein in costs without the creation of a new, expensive, unnecessary government entity. We look forward to working with all stakeholders to make meaningful reform a reality this year.

When John Bertko and I wrote our vision for a competing public insurance option, our goal was move the debate over a choice of a public health insurance plan past the rhetoric and toward a more substantive conversation about policy choices. Judging by the blog posts here and around cyberspace, and the commentary in the print and broadcast media, I think we have succeeded in that goal. I hope others are as happy about that as we are.

After reading the National Journal discussion and listening to feedback from other colleagues, I think it would be helpful to offer a couple of additional comments to clarify the nature of our proposal and expand on our short policy paper.

I want to make clear that what makes the model we propose a “public” health insurance plan is the fact that the government (a public entity) is bearing the insurance risk and managing the plan, not the private sector. Under this approach, no manager would have a financial incentive to stint on patient care to enhance the bottom line. Managers would be evaluated by patient satisfaction and market share, not profit or surplus margins. Instead of a chief executive reporting to shareholders or even a non-profit board, the plan managers would report to a governmental body or policy official (e.g., Secretary of HHS, Governor(s)). Thus, the plan managers would report ultimately to the American people.

In our paper, John and I identify conditions under which public and private plans could compete on a level playing field. Apparently, these conditions were persuasive. Some have even asked, “If all the rules are the same and the public plan cannot leverage Medicare to dictate prices, what is the point of a choice of a public health insurance plan?”

My answer to this existential question is two-fold. First, many of us who do health policy analysis for a living have never known what it is like to live without health insurance. Nor have we been totally dependent on what an insurance company bureaucrat may tell us at any given moment about what is and is not covered. Therefore, we tend to discount and underestimate the profound loss of trust many Americans feel toward insurers, for-profit and non-profit alike.

While obviously slanted in many ways, Michael Moore’s movie, SICKO, nevertheless drove home this point. In the movie, Kaiser Permanente (KP) was treated as if its operating principals were indistinguishable from aggressive underwriters like Golden Rule. What health policy professionals know to be true about the commitment to quality care of KP and other impressive non-profit integrated health systems (e.g., Billings Clinic, Denver Health, Virginia Mason, Geisinger, Intermountain Health Care) is not particularly relevant here. In the minds of many consumers and proponents of a competing public insurance plan, there is no difference among insurers.

Perhaps it would be easier to understand this confusion if you took note that George Halverson, CEO of KP, is the chairman of the board for America’s Health Insurance Plan (AHIP). AHIP has over 1,300 members. Most of these members are not non-profit integrated health systems, nor are they large national firms (like Aetna and United) who primarily perform 21st century information processing and care management for large self-insured employers. While current insurance industry practice, especially in the infamous non-group market, is largely a result of poorly designed laws, regulations, and incentives, the current business model of many insurers – aggressive risk selection and strategic denial of valid claims – has nevertheless caused much human suffering. Therefore, our model of a public plan provides reassurance that coverage decisions are not being influenced by profits or shareholders. This should satisfy the concerns of many public plan advocates.

In addition, I do believe that a public option competing on a level playing field could provide a useful benchmark for consumers and engender competition. Imagine this scenario. Both public and private plans are operating under the same rules, the governance structures of the exchange and the marketplace are isolated, and the public insurance plan is required to charge premiums that cover its claims (it is not being subsidized by general fund revenues). Yet, private plan bids are substantially higher than those of the public plan. This could be because private plans are trying to inflate “administrative loads” beyond what is necessary to actually run the enterprise in order to create profit opportunities. Under this scenario, the public plan would give consumers a benchmark against which to judge the private plans’ administrative efficiency. This would challenge private plans to achieve increased value and efficiency within their products to attract customers and earn public trust.

I freely admit that it is incumbent upon me and other reformers to devise and articulate a cost-growth containment strategy for the long haul. Stay tuned – this is why I created Health CEOs for Health Reform. But buying power is not what makes a plan public and a private-only market is not a prerequisite for competition. We can achieve many of the goals of public plan advocates, while increasing transparency and competition and approaching cost-containment in a more systemic and less unilateral way.

Quintus Fabius Maximus was a Roman general famous for his tactics. He was nicknamed “the delayer” because, rather than seek a direct confrontation with Carthage, he pursued a piecemeal strategy of harassment, creating a war of attrition rather than a contest of might. Today the adjective “Fabian” is used to describe strategies that use small steps and “avoid decisive contests.”

Today advocates of single-payer, socialized medicine know they have lost the public debate. President Obama didn’t even bother to invite them to his health reform summit, until they whined and threatened protests. The most hardcore advocates continue to fight a losing direct confrontation, but more devious single-payer proponents have taken to waging a Fabian campaign.

The Office of Management and Budget’s brilliant Dr. Ezekiel Emmanuel, brother to White House Chief of Staff Rahm Emmanuel and Hollywood super-agent Ari Gold, spoke at a recent event at the Brookings Institution. When pushed on the challenge of getting 60% of payers on board with health reform, he let slip, “maybe there needs to be fewer payers.”

Is it any wonder that groups who individually support single-payer are forming coalitions to hide behind, and drawing a line in the sand, saying that health reform absolutely must include a new public entitlement plan? Experts at the Lewin Group estimate that a new public plan would engulf the private sector, funneling 120 million people on to the government dole. We know that this is not due to the public sector being better competitors – it’s due to the documented, cheating cost-shifting public programs engage in. When all the private plans die, there won’t be anyone left to cost-shift to.

Today’s Fabians are single-payer advocates who pretend to be moderate by instead insisting on creation of a new entitlement plan. For them, Hannibal is the American people, who are more than 80% satisfied with their health insurance. They know that they cannot win in a pitched battle, because the American people will oppose them, so their goal is to start a war of attrition between the private sector and a new insatiable, unmanageable, unaffordable government program. Using misleading statistics, inflated numbers of uninsured, deceptive language like “more choice” and “fair competition,” they seek to sucker people who disagree with them into signing off on the demise of choice and competition in health care.

If Americans value being able to choose the level and variety of health insurance product that meets their specific needs, rather than being thrust into a one-size-fits-all government program, they should oppose creation of a new public plan.

What was most impressive about President Obama at the White House Summit on Health Care Reform was his willingness to listen to everyone's point of view. Instead of displaying an us vs. them attitude, which we've encountered during earlier health care reform efforts, he made clear his desire to work this year with all interested parties on meaningful reforms that lead to affordable quality health care for all Americans.

We appreciate such flexibility and look forward to working with the President and the Congress. In addition to stressing prevention and earlier detection of diseases and reducing health care costs, America's pharmaceutical research and biotechnology companies support giving all Americans access to high-quality, affordable health insurance coverage with a strong focus on private health insurance expansions.

We are convinced that the best way to improve both affordability and access to health care is to give America's families a choice between competing private plans that are bound by appropriate rules and consumer protections. To us, it is clear that competitive private health insurance plans are most effective in giving patients a range of health care choices and allowing developers of new health technologies to continue developing important new medicines and other innovations.

The cost of health care can be largely addressed by doing a much better job of preventing and better managing chronic diseases, which account for 75 percent of today's health care expenses. We will not be able to make progress on controlling health care costs until we have learned to more effectively contain such chronic conditions as diabetes, hyptertension, heart disease and pulmonary disorders.

We welcome the opportunity to explain why these proposals would leat to equitable quality health care for all Americans.

What can a public plan do that a private plan cannot do better? Since Medicare is run by Blue Cross almost everywhere, what is it that Blue Cross does for the government that it cannot do better for the private sector? What can UnitedHealth or Aetna do for Medicaid, that they cannot do better for the private sector?

If the answer is nothing, and I believe it is nothing, then what could possibly be the point of a public plan other than to give meddlesome politicians the opportunity to arbitrarily redistribute cost and benefits to different groups under the guise of offering health insurance services?

Updated at 1:18 p.m. on March 25.

I love that Ms. Turner and Ms. Ignagni believe that a public health insurance option, as proposed by President Obama and approved by the American people during the campaign (73% of voters support a choice of a public health insurance option), would compete too well against private insurance, and that's why it should be opposed.

Ms. Turner and Ms. Ignagni argue that the public health insurance option "lowers payments to providers" and "shifts [people] away from employer-based coverage." Oh no! The public health insurance option would lower costs, and what's more, would be so good, people would want to be on it. That sounds just awful, doesn't it?

The cost-shifting argument Ignagni puts forward is just as silly. As the Center for American Progress reports today, the average American family pays $1,100 more each year because the practices of the private insurance industry, which Ignagni shills for (to the tune of $1.4 million in 2006), leave so many uninsured in America and leave the rest of us to pick up the tab. It's classic profits before people.

In reality, the public health insurance option might actually be a lot better at doing the job private health insurance is actually supposed to do - providing people with health insurance. It is likely a public health insurance option would provide better benefits, be more reliable, cost less, and be less of a bureaucratic nightmare than private insurance. And it is likely to be all these things while actually competing on a level playing field. (Conservatives, of course, will say the public health insurance option can never compete on the level playing field. The notion should be dismissed out of hand for lack of imagination and new ideas, though the fact that conservatives have no new ideas is hardly news.) Why shouldn't we give Americans a choice and let them decide for themselves?

The "comprehensive proposal" Igagni has put forward (after her sham listening tour) is nothing but a bailout to a failing industry - private insurance. As Richard Kirsch, Health Care for America Now's National Campaign Director, explains:

The health insurance industry’s vision of health care reform lets them keep charging whatever they want and increase their profits while sticking families and taxpayers with high costs. Remarkably, the health insurance industry’s solution to medical bankruptcy isn’t to give people good health coverage but to have the government bail-out families who go bankrupt because they have lousy health coverage. How can the health insurance industry propose reform which still lets families go bankrupt and expect to be taken seriously?

AHIP’s plan still lets insurers charge higher premiums for older and sicker people and for women. Their proposal pushes high-deductible plans and still lets insurance companies decide whether or not to approve the care your doctor says you need.

Of course, there’s nothing in the industry’s plan that would limit their multi-million dollar CEO salaries or require companies to spend the lion’s share of health insurance premiums on providing health care instead of on administrative costs, fat cat salaries, and skyrocketing profits.

If Congress as serious about controlling health care costs as President Obama is, they will pass health care reform with a public health insurance option, because true competition is the only way to get rid of the waste that runs rampant through private insurance.

Ms. Ignagni, Ms. Turner, and Mr. Butler are simply afraid the private sector, when held up to true competition, just can't cut it. That's no reason not to go forward with offering the American people a true choice.

Our health care system is broken and badly in need of reform. If we are serious about reform, we must ensure that whatever form it takes, it will provide quality, affordable health coverage to all children and everyone in America. CDF has always been in support of creating one seamless and affordable health insurance plan for children that guarantees comprehensive benefits. Giving families the choice of a public health insurance plan would not only benefit millions of children but also the millions of hard-working families struggling under the current system.

In the past eight years, the average total cost of employer-sponsored family health coverage has almost doubled, while wage growth has been low. The private health insurance industry continues to profit while millions of people are losing health coverage every year and working families are struggling to provide for their children. Having a choice of public or private health insurance plans will ensure that Americans always have an option for quality affordable health care—something many do not have today—giving hard-working families peace of mind.

A public health insurance plan would strengthen the private health insurance market; the best way to promote quality and control costs is through competition between private and public health insurance plans. If the private health insurance industry is efficient and competitive, then it will survive and thrive. And this competition will finally put families first by both driving down health insurance costs and by putting them back in the driver’s seat when it comes to their health care decisions.

Regardless of the plan, health care reform must be addressed in 2009. We simply can’t afford to wait; investing in our children and families will yield substantial dividends in the future. Reforming our health care system this year to ensure that everyone—especially all children and pregnant women—have access to comprehensive, affordable, quality health coverage will result in a healthier, more competitive workforce for our nation.

Health care reform measures must include a mechanism for insuring all. However, no insurance requirement, public or private will work unless we simultaneously reform our payment system to pay for value.

Through the consensus process of the Mayo Clinic Health Policy Center involving more than 2,000 stakeholders from patients and families, providers, insurers, employers, medical and pharmaceutical industry, government and academia, we agree that everyone must have guaranteed portable health insurance.

We would suggest that adults be required to purchase private health insurance, that no one can be turned away because of pre-existing conditions, that employers participate by helping pay premiums, that government provide sliding-scale subsidies to those who need help, and that people can choose to keep their existing plans and can purchase more services or insurance if they choose.

Should the government choose to continue a public plan, such as Medicare, it must be changed to pay for outcomes rather than pay for services. Currently, Medicare pays the most to areas of the country that provide the worst outcomes, safety and service, and pays the least to providers who demonstrate better outcomes, safety and service. This must change. And, if the public plan can do this,private insurers are likely to follow suit.

Insuring everyone is a key element in substantive health care reform, but we will not be able to sustain this unless the payment system begins to recognize, and reward, better value.

Impact of an Illustrative Public Plan

President Obama has proposed to create a “public plan” that would compete for business with the private insurance industry, but has provided few details on how it would work. During the 2008 campaign, Senators Clinton and Edwards proposed a public plan administered through Medicare using Medicare provider reimbursement levels. Employers and individuals would have been able to purchase coverage from the public plan by paying a full cost premium.

Premiums would be 30 percent or more less than premiums for comparable private coverage due to low payment levels and administrative costs. Consequently, there would be a mass shift of enrollment from private coverage to the public plan. We estimate that, about 119 million people would shift from their current coverage to the public plan, which is a two-thirds reduction in the number of people with private coverage (currently 170 million people).

Medicare premiums would be lower than private premiums because of the exceptional leverage that Medicare has with providers. Medicare’s “take it or leave it payment system” pays hospitals about 30 percent less than private insurers for the same service. Physician payments are about 20 percent less than under private coverage. Also, because Medicare has no insurer profits or broker/agent commissions, administrative costs for this population are about one-third of administrative costs in private health plans.

Provider net income would decline under the proposal, even after accounting for reduced uncompensated care and increased utilization for the newly insured. Net hospital revenues would fall by $36 billion (4.8 percent), and Physician net income would fall by $33 billion (6.5 percent).

The public plan is hard to evaluate because no one has specified in legislation how it would work. The Obama Administration has been careful not to say that the plan would be modeled on Medicare, and during the campaign said that the plan would be open to only individuals, the self employed and small firms. Senator Baucus has also proposed a public plan, but has said that it would not use Medicare reimbursement rates. We will need to wait for the details to understand its impact.

Providing Americans with the choice of enrolling in a public health insurance plan or in private plans is central to providing affordable coverage to all and increasing value in our health system. Recent estimates by the Lewin Group show that the establishment of a nationwide insurance exchange with private plans and a public health insurance plan, along with a comprehensive set of coverage and payment reform policies, has the potential to reduce the number of uninsured to less than 1 percent of the population while slowing the growth in national health expenditures by a cumulative $3 trillion over 11 years.

Creating a national insurance exchange that offers a public plan and private plans will give employers and individuals multiple advantages. A public health insurance plan could not only help cover all Americans at an affordable budget cost, but also spur the rapid implementation of payment and system reforms that align incentives to enhance value and slow the growth of health care costs. Moreover, premiums available under a public health insurance plan would be an estimated 20 percent or more lower than the premiums for private insurance now available to small firms. To compete, private insurers would need to add value and lower overhead. If they are innovative in benefit and network design, and adopt new payment methods similar to the public plan, private plans could outperform the public plan.

However, if private insurance premium trends continued and insurers failed to respond to new opportunities, the market would be split evenly between private plans and a public health insurance plan by 2014. Many, if not most, of the private insurance plans would be linked to integrated delivery models to reduce fragmentation and coordinate care and eliminate unnecessary and expensive supply sensitive services. As Medicaid rates improved and the number of uninsured decreased, providers would experience increased revenues with the potential for narrowing differentials in payment rates across public and private payers. Additionally, the private plans would have a larger pool of potential enrollees through the insurance exchange as individuals and employers respond to requirements for coverage.

A public health insurance plan, along with comprehensive system reforms, would increase competition in insurance markets, and assure enrollees that a plan would always be available at an affordable premium. The goal is a new business model for insurance plans in which companies are rewarded for innovation that improves quality and efficiency, chronic care management and care coordination, and the health of the population they serve. A public health insurance plan--offered in the context of a national insurance exchange with comprehensive payment and delivery system reforms--is an effective strategy in these stringent economic times for slowing the rising cost of health care and extending affordable coverage to all.

The debate over the role of a public health plan in the promised health reform is unlikely to be settled over the economic merits or demerits of the idea. It will be a purely political compromise that responds to different demands from different people. I already know the nature of that compromise, but will keep it a secret.

In the meantime, comment we must, and so we shall.

Of recent the American people have had a lesson in economics that the country’s blind-sided economics profession never could have imparted to their students or the public, namely, that the private sector is much less robust, smart and efficient than the public had been lead to believe. In fact, teaching economics with a straight face out of existing textbooks is a real challenge.

Americans have seen venerated American companies pushed to the point of bankruptcy, either by global competition or by mismanagement, or by both. They have seen their 401(k) savings accounts deeply eroded in value and their promised retiree health benefits melt away, as promises once made by their former employers were broken. And they have witnessed a degree of debauchery on Wall Street hitherto believed to be just the stuff of history books. Wall Street brings to mind Thomas Jefferson’s remark that “I sincerely believe... that banking establishments are more dangerous than standing armies.” (Thomas Jefferson to John Taylor, 1816. ME 15:23).

Given this recent experience with the private sector, we should not be surprised by the existence among the public of a strong, latent demand for a trustworthy, permanent, stable public health-insurance plan such as Medicare. That there is apt to be such a latent demand can be inferred also from the fact that the overwhelming fraction of elderly Americans still prefer to stick with the traditional, government-run Medicare, in spite of the fact that the competing private plans have been heavily subsidized by the taxpayer, relative to the public plan, and therefore have been able to offer the elderly a superior benefit package.

If I am right about this latent demand for a public health insurance plan for the non-elderly, then it can be asked on what grounds government can refuse to meet that demand as part of health reform or, alternatively, how government can satisfy the public’s craving in this regard without a public plan. Is that not a fair question calling for a straight answer?

The hypothesized latent demand by Americans for a public plan, however, conflicts with the natural survival instinct of the private insurance industry. That industry has for some time now seen its book of business from employers shrink and therefore has come to look to the government as another source of revenue. Furthermore, the industry can and does lay out a long-run dynamic under which a public health plan that starts out as a mere player in a wider individual market could become the dominant player in that market and squish the private plans to the wall. Politicians must be sensitive to that demand for survival as well.

So the trick will be to develop a health reform that responds to both, (1) the public’s craving for a trustworthy, stable, permanent source of financial protection from the cost of illness and (2) the private insurance industry’s craving for survival.

In his thoughtful comment posted on this blog, Len Nichols points the way for such a compromise. He thinks of the menu of choices state governments offer their employees. I would have thought here of the Medicaid managed care model.

In thinking about this issue, we should differentiate among the distinct functions any health system must perform. Prominent among these functions are three: (1) financing, (2) risk-pooling and (3) procuring health care from providers.

If the American people seek a permanent, stable health insurance option, then government either has to perform the first two functions or at least be very heavily involved in them through tight regulations. In effect, the public may want “social insurance” (as distinct from “socialized medicine,” which we reserve for our veterans).

The third function, however, the procurement of health care, need not necessarily be performed by government under social insurance. It can be delegated to private health plans, as is already the case in Medicare and Medicaid, giving the private health insurance industry the economic lifeline it seeks.

Would delegating the purchasing function to private plans be more costly than having government perform that function itself under social insurance? It might. The Medicare experience suggests that it would. The Medicaid experience, on the other hand, does not. As far as I know, Medicaid managed care has not required for its performance a subsidy over and above the what Medicaid beneficiaries cost in the traditional Medicaid system.

But even if a purely private market for individual insurance under health reform were dictated by a political compromise, and even if it actually did cost taxpayers and premium payers collectively more than would a market with a public plan akin to traditional Medicare, we might look at it this way: Paying extra this way would not be nearly as objectionable as is the shoveling of hundreds upon hundreds of billions of taxpayers’ money into the pockets of some truly dubious characters on Wall Street, as is foreseen under the bailout plan just announced today by Secretary of the Treasury Geithner.

If that that compromise is what it takes to provide financial health-insurance protection to all Americans, why not?

Paul Ginsburg has it right. The kind of “public plan” Len Nichols lays out is a public plan in name only. If it operates under exactly the same rules then in what sense is it a public plan? Well, then, what is the big problem with it, one might ask. The problem is that it is inconceivable that Congress would set up a public plan that would actually have to live by the same rules. For instance, would Congress make it live by the same financing and financial reserve requirements as its private competitors, or would it have special access to the Treasury? If private GM is politically too big to fail, would Congress refuse to subsidize its own public health plan if started to lose the competition? Let’s get real. The playing field can never be level with Congress setting the rules and taking responsibility for one of the competing plans. That is why it is a dealbreaker.

The choice of a public helath insurance plan is critical to delivering the guarantee of affordable, quality health care to all Americans. This gurantees people a backup if they lose their health care or their job. This works like medicare. It will give families peace of mind. The lobbyists for the private insurance companies want to take this out to protect their profits. If they are so good they should have no trouble competing. The choice of a private or public health insurance plan that operates like medicare is a core element of the obama and democrats approach

Len Nichols says there would be a level playing field between a new government health plan and private plans if “all rules of the marketplace -- benefit package requirements, insurance regulations, and risk adjustment processes -- apply to all plans equally, whether public or private.”

But this is a false assurance because Washington can continue to change the rules that dictate how the private marketplace must operate. A statement to be released this week by members of the Health Policy Consensus Group will explain that, “While there may be initial assurances of a level playing field, the NHP would have special advantages over private health insurance. Private plans would be forced to match the more expensive benefits promised by the government plan, but only the government plan would be able to impose price controls and draw on government policing and taxing authority.

“This will result in government using regulatory, pricing, and taxing authority to favor its plan. The new government plan inevitably will underprice private plans and drive them out of this one-sided ‘marketplace.’

“The NHP would cause millions of people to lose the coverage they have now and leave them no option but the new government health plan. Massive crowding out of private health insurance coverage would undermine the employer-based coverage that most Americans under age 65 have and prefer today.”

Research by The Lewin Group concluded that if all workers and their families were eligible for enrollment in the government insurance plan and providers were paid at Medicare payment levels that as many as 119 million people would lose or be switched out of private health coverage. This certainly defies President Obama’s assurance that people will be able to keep the coverage they have now.

Len also makes the case that “More than 30 state governments offer their employees a choice between traditional private health insurance products and a plan self-insured by the state.” That is a strong argument for allowing states, not the federal government, to make decisions about a fall-back plan. They are much better able to balance resources and costs than a federal plan designed in Washington.

And, as Paul Ginsburg notes, states are basically large employers offering health insurance, and they value flexibility in offering “traditional products” and a “self-insured” plan. Once again, this argues for local control, not a federally mandated benefits package and major new federal regulation of the health insurance market that would suffocate this flexibility and innovation.

I am not sure if he intended it this way, but Len Nichols has contributed to the issue of whether a competing public plan is a good idea by forcing us to think about what is a public plan and what is a private plan. He points to state governments that offer a choice between a fully-insured HMO and a self-insured PPO to their employees as models for competing private and public plans. I have never perceived the latter as a public plan, however, nor what the advocates of a public plan really have in mind. When states offer a self-insured plan that is administered by an insurer, they are little different from large private employers who do the same thing. Although they specify the benefit structure and whether there should be disease management or wellness programs, they are basically buying into provider networks that the insurer has developed for all of its enrollees, claims processing systems and the like. Some of the largest public or private employers have gotten their carriers to develop offerings that differ from the standard, such as an option with a narrower provider network than the norm. But do the state employees who choose the self-insured plan administered by the local Blue Cross Blue Shield carrer perceive that they are enrolled in a public plan? I very much doubt it.

Len's contribution should force us to discuss explicitly what we mean by a public plan. To some, the key aspect of a public plan is monopsony power to demand low rates from providers. That is what arouses so much opposition from the insurance industry, which perceives a playing field stacked against them, and providers, which do not want to expand the percent of the market that can dictate rates to them. To others, public plans address the distrust that many have for private insurers (although I would expect that public plans operating in competition with private plans would develop similar reputations from the need to use many of the same tools to contain their outlays). Len focuses on this aspect. For each aspect of a public plan, there are different design elements that need to be brought forward and each has its own pros and cons.

Let me be crystal clear: if the playing field is level, it is possible for public and private health insurance plans to compete in such a way that our citizens -enrollees and taxpayers alike - are well served and private health insurance plans that add value thrive. The choice of a public health insurance plan should not create an impasse or stall reform efforts.

Appropriate insurance market reforms - minimum benefit package, guaranteed issue, guaranteed renewal, no pre-existing condition exclusions, modified conmmunity rating, risk adjustment - combined with subsidies and a requirement to purchase coverage could achieve satisfactory performance from a market comprised exclusively of private health insurance plans. Yet, I admit that there are few real-world examples that prove regulations of this kind can compel all private insurers to behave appropriately, though the experiment in Massachusetts does appear promising on this front. Even more importantly, I acknowledge that many advocates and citizens are highly skeptical that regulations or contracts will ensure private insurers comply with all reforms for all people. Therefore, it is worth exploring how to design an insurance marketplace wherein private and public plans can compete fairly.

Fair competition will require separating the 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.

More than 30 state governments offer their employees a choice between traditional private health insurance products and a plan self-insured by the state. In other words, the state bears the insurance risk of the self-insured product and selects its managers. These managers cannot profit from denying care. This experience combined with historic competition between public and private plans in both the Medicare program and California Public Employees Retirement System (CALPERS) serves as proof-of-concept: plans operating with politically appointed managers can compete with plans run by private managers if the rules of engagement are structured properly.

Again, state employee plans offer an excellent model for how we could structure a choice of a public health insurance plan because many states offer their employees traditional products as well as option(s) insured by the state. In the case of the self-insured product, the state or a third party administrator (TPA) negotiates provider contracts and performs administrative functions. While the state may pay a TPA (usually the resident "Blue" plan) to handle some tasks, the plan is publicly owned and financed. If claims outpace premiums in a given year, the state pays and is at risk for the difference. Likewise, if the TPA collects more premiums than it pays out in claims, the surplus dollars are usually allocated to a premium stabilization fund or remain with the state's general revenues. The TPA never profits more than agreed upon in the administrative fee.

I believe the type of public plan I describe above can achieve many of the goals of public plan advocates, while preserving fair and effective market competition, negating the risk of excess cost-shift, and avoiding a progression toward a single payer health system. We should move beyond the rhetoric currently consuming this issue and toward a more substantive conversation about the policy choices necessary to find common ground.

For more on how to make public-private competition work, see the recent paper by myself and John Bertko.

There is growing consensus that now is the time for health care reform. A health care system characterized by large numbers of uninsured, escalating costs, and a lack of evidence-based care is not sustainable and not an admirable track record. Health plans are committed to achieving reform and have offered workable proposals to help advance this goal this year.

AHIP’s Board of Directors last year released a comprehensive proposal to cover every American, control costs, and improve health care quality. This proposal incorporates the ideas and addresses the concerns that we heard from the American people as we traveled the country on our nationwide listening tour. A centerpiece of this proposal is guaranteed coverage for pre-existing conditions in conjunction with a requirement that individuals keep and maintain health care coverage. We have also recommended common-sense measures to reduce the rate of growth of health care costs and have offered targeted solutions to meet the unique needs of small businesses. Moreover, we will continue to be constructive participants in this process by collaborating with stakeholders and doing our part to streamline administrative processes.

As policymakers focus on reform, much of the discussion naturally centers on the role of government in the health care delivery system. We believe that the government has a vital role to play. Health plans strongly supported recent legislation to expand the children’s health insurance program. We also have proposed expanding Medicaid to cover everyone living in poverty and providing financial assistance to working families and small businesses who are struggling to afford coverage. We strongly supported the bold investments in health IT and the strong federal commitment to comparative effectiveness research that were included in the economic recovery plan.

Providers, employers, and patients continue to raise concerns about the potential unintended consequences of creating a new government-run insurance plan. Low payments to providers in Medicare and Medicaid already result in a cost-shift that significantly increases premiums for employers and consumers in the private sector. A government option could lead to a massive shift away from employer-based coverage, exacerbate the Medicare solvency problem, and turn back the clock on innovative care coordination, quality improvement, and prevention and wellness programs.

We need a uniquely American, public-private solution that builds on what is working in the current health care system. Market reforms and consumer protections, a helping hand to working families and small employers, and a stronger health care safety net can ensure that all Americans have the coverage they need.