'Competition and the Public Plan' by Bruce Bullen

Proponents of a “public” plan offering in the commercial marketplace frequently cite competition as the reason that such an option is needed. But would competition in fact be the result, or would reimbursement rates to providers be driven to lowest common denominator levels?

While the language used to sell the public plan references competitive forces, behind the rhetoric is a plan to fix provider reimbursement rates, preferably at Medicare levels. This is viewed by many in Congress as a significant cost savings initiative, and as a way to make private markets more efficient. It isn’t.

Most providers survive by being able to negotiate reasonable levels of reimbursement from private insurers. In Massachusetts Medicare typically pays providers on average 30% less than private insurers do. If the public plan fixes reimbursement rates at Medicare or some percentage of Medicare, the resulting premium will be low enough to induce a large shift of enrollment from private plans to the public plan. Is this competition? If we want government to fix reimbursement rates, let’s just say so.

Even if the public plan paid at fixed rates would its costs be lower in the end? Medicare’s experience would argue no.

Despite paying significantly less per unit than private insurers, Medicare’s total payments are out of control (e.g. $30 trillion Part A deficit) because utilization is out of control. The public plan, like Medicare, is unlikely to have the tools or the political leeway needed to manage care. Health care providers will find a way to obtain the funds they need to remain viable, or go out of business.

Rather than increase competition a public plan that pays a fixed reimbursement rate will eliminate competition. What people seem to dislike most about the commercial marketplace can be regulated without imposing such a market-destroying solution. In fact, every other regulatory reform being proposed nationally already exists in some form in Massachusetts, where health plans compete and margins are low.

Some argue that a public plan could negotiate rates, like private insurers. This could certainly happen, but is the government prepared to pay what it would cost?

Bruce Bullen
COO of Harvard Pilgrim Health Care