Sunday, 16 August 2009

Public option, or no?

So what do we need in a health reform plan?

The Obama administration has hinted that they may be willing to consider some plan short of the “public option”. Keep in mind that nobody really knows what “public option” means. There are five different bills running through Congress, each with their own definition of the term, and of course we have the wingnut definition – “Obama is going to kill off all the old and the sick, impose Communism, and personally smother Ted Kennedy with a pillow”, etc. It may be that Obama hung up that “public option” phrase, just to give the Republicans and insurers a target to shoot at, while actually intending to do something else.

So for the plan which we are, in fact, going to get: what do we need to include in the plan, to get what the services and features we want?

First we must figure out how the private insurers will try to crush the plan, sabotage it, or use it as a dumping ground for unwanted customers, and plan accordingly. We know the market is loaded with predatory crooks, so we must factor that in.

With that in mind, the plan must look something like this:

The new system must be a big, strong, national plan, with guaranteed funding and protection so that everyone knows it will always be there. It must be designed and run by reformers so the insurers can’t sabotage it. It also requires either a compensation pool, or a ban against insurers denying or dumping customers, or both, to prevent adverse selection. It would be designed by government people, but eventually run by a board paid for from the plan’s own funds, to shut up the “get big gummint outta mah health care” people.

Let me explain some of those provisions in more detail.

When a particular market has profit and non-profit plans, a mechanism is needed for preventing a thing called adverse selection – private insurers, who do have the incentive to seek profit, grab healthy customers, and dump the unhealthy people into the non-profit plans, which by definition are not seeking profit. Therefore, an imbalance in the market. The Europeans fixed this with a compensation pool: the profit plans pay into the pool, the nonprofits take it out, and therefore there is no advantage to tossing out unhealthy people, and we have a level playing field. Ireland got burned on this issue – they set up the compensation pool but then removed it, whereupon foreign insurers swooped in and grabbed the healthy customers, forcing them to put the pool back. The other alternative to preventing adverse selection is to ban insurers from picking and choosing their policyholders or denying coverage. The insurers would hate either one because both would prevent cheating, but they would hate the pool system even more because it would cost them money out of pocket.

The reason for building a national plan is that 38 states have insurance markets dominated by a single insurance firm. If we have 50 nonprofit plans instead of one, the 50 plans will be very, very easy for the private firms to destroy. Just as the wingnuts are working to make particular states abortion-free, they will follow the same playbook to make as many states as possible free of nonprofit insurance.

We must make provision for ensuring funding for the plan, as we also need to do for plans like Medicare. For one thing, we need to prevent a Republican Congress, 20 years from now, from trying to kill the new system by refusing to kick in any money, or by imposing fatal restrictions.

And what do we need on the political front? If the big political objection is to having federal employees actually run the plan, then give them federal money to start, and then gradually switch to paying these people from the co-op premium revenue itself, once the money starts coming in. They cannot be paid from the compensation pool – too easy for the insurers to game the system.

So as you can see, the aim is to make the plan crook-proof: design safeguards so the insurers can’t sabotage the whole thing.

Okay! Now for the next step. I will award an e-lollipop for everyone who can think of any other way the insurers could try to game the system. Post it or email me.

And another note on politics: if a plan of this kind is passed, both sides will declare victory, but of course one side must be wrong. The Republicans will screech “YEE HAW! We keeled the public option! Whatever that is!” Meanwhile the Democrats will point out that they saved thousands of families from sickness, death and bankruptcy, and saved the whole nation from economic collapse. In time America will realize just how much Obama did for this country, and they will forget that the debate over the “public option” ever happened. And just as Bill Kristol foretold 15 years ago: if the Democrats manage to pass meaningful health reform, a entire generation of Americans will switch to the Democratic party.

**UPDATE** -- A new study shows that if some sort of insurance exchange is used, instead of the public option, it must be big enough to compete, and it must be free of fatal state regulations, which federal law would be needed to overrule.

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