Facing Down the Private Insurance Industry

Despite budget pressures, President Obama
has not backed off his commitment to universal healthcare reform. But
the devil is in the details. And if he is not careful he could end up
with a reform worse than nothing.

A crucial question is whether the law will include a public,
Medicare-style plan. This public plan could be used by people who
otherwise lack good insurance, or by employers who conclude that the
public plan is a better deal for themselves and their workers.

The
public plan would be the gold standard of both good coverage and
cost-containment. Without the public option, a system to cover everyone
by relying on the existing private insurance industry will realize few
cost savings. The result would be increased pressures over time to cut
care and shift out-of-pocket costs from insurers to consumers.

The
administration's projections have relied heavily on the supposed
savings of better use of computerized medical records. However, absent
a single unified system, or a strong public option, better
computerization will not realize major savings.

The
US healthcare system is the most expensive and least cost-effective in
the advanced world mainly because private insurance companies waste
about 25 cents on the dollar on claims, profits, administration, and
marketing. They have no serious financial incentives to emphasize
prevention, and every possible incentive to avoid sick people. Doctors
and hospitals, meanwhile, make their money from increasing costs.

Other
countries get better results at lower cost because a universal system
naturally emphasizes wellness and prevention, and spends its money on
the most cost-effective treatments, not the most expensive ones. Every
nation faces similar inflationary pressures because of advances in
technology and an aging population; but other advanced countries, using
single-payer systems, do a fine job of covering everyone for 10 percent
of gross domestic product or less, while we spend upwards of 15 percent
and leave out nearly 50 million souls and under-insure tens of millions
more.

Obama's plan is a
variant of an astute strategy first proposed by the political scientist
Jacob Hacker as a solution to two political obstacles to health reform.
First, how do you enlist the uninsured and the anxious insured in the
same coalition? Second, how do you build momentum for a single-payer
system recognizing that there are not the votes to legislate it all at
once?

Hacker's insight was
that if the government offered a public insurance option, people who
liked their present private insurance could keep it, while others could
elect the public plan. Coalition problem solved. And the superior
efficiencies of the public plan would gradually overtake the rival
private plans. Momentum problem solved.

But
Hacker neglected one key political detail - the immense power of the
private insurance industry. Not surprisingly, the industry's stance is
that any public plan must compete on disadvantageous terms. And most
Republicans oppose a public plan outright.

Obama,
the great conciliator, has chosen to work with the private insurance
industry rather than targeting it as the primary obstacle to meaningful
health reform. Periodic leaks from the White House suggest that if push
came to shove, Obama would ditch the public plan in order to get a bill
through Congress.

Senator
Max Baucus of Montana, chair of the Senate Finance Committee, is no
enthusiast of a public plan. After the New York Times last week
reported Baucus sparring with Senator Ted Kennedy on whether to include
a public plan, the two senators quickly cobbled together a statement
insisting they were really in harmony.

However,
in the push to get legislation in the face of fierce industry and
Republican opposition, a good public plan could well be tossed
overboard. That would leave a legacy of expanded coverage, but a time
bomb of exploding costs, underinsurance, and a squeeze on actual care.

I
would much rather see Obama battling for public health insurance,
making it clear to Americans that the obstacle to real reform is the
private health insurance industry. That, however, is not the president
we have.

We'll see what kind of public plan, if any, survives.