The prospect of federal action this summer on a major expansion of health-care coverage seems very real. President Obama wants it, and so does his party, which controls both houses of Congress. But Democrats are not of one mind on what reform should look like. In fact, they are in danger of getting bogged down in an unproductive wrangle over whether or not to create a "public plan" to compete with private health plans.
The way to avoid that pitfall is to focus on what the American voter wants. Policymakers should keep in mind that voter skepticism can doom any insurance reform proposal, just as it doomed the Clintons' Health Security Act in 1994.
The markets for both health insurance and health-care services are in dire need of reform. Both markets are political minefields, but reforming the market for health-care services will be much more contentious because it involves direct intervention in the patient-physician relationship. Our advice is to concentrate first on reforming the health-insurance market.
What voters want from health-insurance reform are real solutions to real problems of market failure -- not titanic struggles among politicians who are ideologically invested in "public" versus "private" administration of health-insurance plans. To improve the chances of success this time around, we think it would be best for both voters and politicians to keep two simple principles in mind.
First, most Americans who work for large employers already have health insurance that protects them against premium increases in the event of a personal health crisis, such as cancer, and they want to keep that protection. Any "reform" that disrupts large-group coverage is likely to inflict heavy damage on the political party that implements it.
Second, Americans would like to be able to move seamlessly from a large employer's plan to the small-group or individual market without having their health risk reassessed and their premiums increased just because they have become ill.
People who have been paying into a large-group policy for years should not have to pay higher premiums when they move to a different sector of the health-insurance market simply because their health status has changed. In a mobile society, consumers want guaranteed portability, continuity, and price stability. These qualities also would improve the efficiency of labor markets by eliminating "job lock," in which people are trapped in jobs simply to keep their health insurance.
The private health insurance industry has failed to offer a product that provides guaranteed, portable insurance with stable premiums. The government also has failed to provide that stability. Some people may think they have guaranteed portable insurance protection at a reasonably stable premium under a federal law called HIPAA, short for the Health Insurance Portability and Accountability Act, but they do not. HIPAA guarantees only that under some circumstances, health insurers must offer you a policy. HIPAA provides no guarantee regarding the premium you will be charged.
A public plan is not necessary to achieve guaranteed, portable insurance with stable premiums. All we need are state-level "health marts," "exchanges," or "connectors" that allow people to purchase small-group or individual coverage from private insurers under the same terms as the large-group market. Coverage purchased through these exchanges could be subsidized directly or through the tax system to make premiums affordable for the poor. This is essentially what the citizens of Massachusetts have had since 2006. National portability could be achieved through cooperative agreements among states.
Claims that a public plan is indispensible to the success of health care reform should be greeted skeptically. Advocates cite traditional fee-for-service Medicare as an example of an efficient public plan, despite the fact that most claims are handled by private firms. The "public" Medicare plan is popular, but it is poorly managed. Premiums and cost-sharing have been kept low through a large and growing draw on federal tax revenues, but Medicare will run out of money to pay claims in 2017 under current projections.
Congress regularly sets targets for controlling Medicare costs -- and just as regularly ignores those targets. Both Congress and the courts consistently block attempts to reform purchasing through competitive bidding. The "public" Medicare plan has become so large that it invites political meddling. Advocates for a nationwide public plan have proposed that it might be insulated from such meddling by setting up a new entity to govern it. It is hard for us to believe that Congress and influential interest groups would permit a new entity to operate much differently from the current Medicare program.
So, let's not be distracted by the "public vs. private" argument, which is essentially a rehash of the perennial and perennially unproductive debate over a single-payer system. Focus instead on giving Americans what they want: guaranteed, portable, affordable coverage that offers long-term premium stability.
