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Examining the Public Option in Health Care Reform

September 1, 2009 at 12:00 AM EDT
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In the latest in a series of conversations with key players in the health care debate, Jeffrey Brown speaks with Jacob Hacker of Yale University, one of the key proponents of a public insurance option.

JIM LEHRER: Finally tonight, Jeffrey Brown has the latest of our conversations about health care reform.

JEFFREY BROWN: In our previous conversations, we have sought the views of a leading hospital CEO, the head of a major health insurer, a former-executive-turned-critic of the insurance industry, and a writer who studied the health systems of other countries.

Tonight: one of the earliest and leading proponents of the so-called public plan, which has become such a focal point in the contentious debate over health care reform.

Jacob Hacker is a professor of political science at Yale University and a fellow at the New America Foundation.

Let me ask you first to define the term. That — that will help us get started. What exactly do you mean by a public plan?

JACOB HACKER: A public plan is pretty simple to understand.

It’s a — a plan that would be modeled after the Medicare program that Americans are familiar with and like. It would be available to those Americans who didn’t have good coverage from their employer. It would also be available to workers who worked in the smallest firms. And it would be made available through some kind of new insurance-purchasing exchange, through which people could get access to both private health insurance plans and this new public plan.

JEFFREY BROWN: And why is it necessary? What — what — how does — how does it do something that you see lacking in the system that we have now?

JACOB HACKER: I like to talk about the three B’s of — of the public plan, that it will be a backup for people who don’t have secure coverage today and who want to have a broad choice of doctor, because a Medicare-like plan can provide a very broad choice of doctors and hospitals.

Second, it’s going to be a benchmark for private insurance plans. You know, the private insurance market has gotten increasingly consolidated over the last two decades. And, in many parts of the country, 94 percent of local markets, according to the AMA, there really isn’t effective competition for private insurers.

And, finally, it’s going to be a cost-controlled backstop. That means that it’s going to be able to be one of the levers for bringing down costs over time, both by creating a check on private insurers and by innovating in the delivery of and — and payment for care.

Public option could keep costs down

JEFFREY BROWN: But what's the evidence, or is there evidence -- is there evidence that a government-run insurance plan could hold down costs any more than private insurers do now?

JACOB HACKER: Well, there's two sorts of evidence that are pretty telling in this regard.

First of all, over the last 15 years or so, the Medicare program, for all the complaints about it, has actually restrained the rate of increase of per capita costs, cost per person, better than have private insurance plans.

And, in fact, this is -- this is what we find, too, in other countries that have a larger role for the public sector. They have done a better job controlling costs. But the second piece of evidence is -- is a pretty clear one.

When the Congressional Budget Office first looked at a public health insurance plan, when it was estimating the cost of the competing proposals in the House, it estimated that the public health insurance plan could save on the order of $150 billion over 10 years, relative to not having that public health insurance plan in the mix.

JEFFREY BROWN: The -- the main criticism, of course, is that it will crowd out the private sector.

Now, how do you respond to that? Because, in part, what you're saying is that -- that that's in part is what it is intended to do, I guess, to undercut the private -- private insurers to some degree. So, how does it -- how does it do that without ending their role in our system?

JACOB HACKER: Well, I don't think this is going to -- to crowd out the private insurers in any significant way. It will create competition for the private insurers.

I mean, what we're contemplating right now and what our political leaders are contemplating right now is basically requiring that Americans get private health insurance. What people like me who want to have a public health insurance plan are saying is that those -- those private insurance plans, which, right now, have so much of the market, should have to fight for those new customers.

You know, I think that, if you have the public and the private plans competing with each other on a complete level playing field -- no special subsidies for the -- for the public insurance plan, no special subsidies for the private plans, you're going to have a situation in which both the public plan and the private plan -- plans are pressed to improve their operation and focus on value over time.

The Congressional Budget Office, which I mentioned earlier, says that about 10 to 12 million Americans would end up in the public health insurance plan, which is less than 5 percent of the U.S. population. At the same time, the Congressional Budget Office says that more people will have private insurance after reform than before it.

So, the -- the important point is that there be competition. And the worry about crowd-out, it seems to me, is more a defense of having private insurers be in charge of the situation, as they are now. But we know where that has gotten us, toward ever-escalating cost and declining coverage.

Slow move towards public option

JEFFREY BROWN: Well, you cited the CBO numbers of the people that might join a plan like this.

What -- what do you see? I mean, I have seen different estimates of how many people might join something like this. How large a percentage of the health care system do you think this government-run plan might become?

JACOB HACKER: Well, the first thing I would say is that -- that we need to move slowly, in terms of making the public health insurance plan available to larger employers.

So, it's, I think, smart to start out by saying that only people who don't have coverage now who are in the -- who are working for the smallest firms have access to this new public health insurance plan. Now, if it's working well, if the level playing field is working, if insurers are being pressed to improve their value, but the public health insurance plan is also providing better customer service and better -- and better services over time, then I think it should be something that should be available more broadly.

I don't have a good estimate of exactly how large the public health insurance plan will be or should be. I think the point is that people are going to vote with their feet.

But I do know that the public health insurance plan is not going to swamp private insurance plans. They are a very resourceful set of companies. I mean, they have over 170 million customers today. They have brand loyalty. They control many local markets.

I think we should be worried about whether or not the public health insurance plan is going to have the ability to come into those markets right away and be able to push for lower prices, for lower premiums, for better service, and for better treatment of customers immediately.

JEFFREY BROWN: But, at the same time, I mean, you know, of course, that there's a lot of people out there who see this as a kind of end-run toward a -- a single-payer plan, and that that's -- the way they look at it is that folks like yourself, that's where you want to get to anyway.

JACOB HACKER: Well, all I can say is that I think that, for most people who work for larger employers, the private health insurance system works pretty well, that we know that private health insurance doesn't work well for people who are in small and low-wage firms. And it clearly doesn't work well for people who don't have health insurance at all today.

So, the idea of creating this new exchange, which, I should say, will let people have a choice between public health insurance and a range of private plans, is to try to fix those parts of the employment-based market that just aren't working right now, to make sure that everyone in the United States has health security.

JEFFREY BROWN: All right. So, the big question now, as we sit here today, where there doesn't seem to be the votes for something like this, it's become the focal point for opposition, how central to reform is the public option?

You know now there's a debate about whether it might be delayed, whether there might be a kind of trigger mechanism to put it in later on. If it's dropped, does that end reform, in your view, or is that one way to go?

Only option with guarantees

JACOB HACKER: Well, I think we have seen many, many reports of the death of the public plan. And, each time, they have, to paraphrase Mark Twain, proved greatly exaggerated.

It's a bit like those silent movie classics, "Perils of Pauline," where the heroine gets strapped to the tracks, and, at the last minute, the protagonist shows up and saves her from the -- the onrushing train. So, I'm not sure whether the public plan is really on the ropes this time around.

Every time we have a big debate about it, we keep coming back to the fact that it's the only option that will provide a guarantee of a backup, a benchmark on private plans, and a real cost-control backstop. And I worry that, if we don't embrace the public plan in some form, we're just going to come back to the table a few years from now, with skyrocketing costs making it impossible for us to fulfill the commitments that we have made in health reform.

JEFFREY BROWN: All right, but let me try that one more time. Are we at the point close -- where we're close, or even at the point where it's a make-or-break for progressives, who want to see something done?

JACOB HACKER: Yes, progressives definitely see this as a decisive issue. There are a large number in -- in Congress who say they will not vote for reform if it does not contain a public plan.

And, at the same time, I think there's lots of people who -- in the country as a whole, who don't quite understand what -- why this is such a big issue. I mean, after all, this is a choice between public and private insurance. The majority of Americans in surveys say that, if it is a choice, it's something they support.

And, really, we're -- there's a lot of people wondering, is this just about the insurance industry's opposition to this issue, or is there something else that's behind this sort of knee-jerk opposition to the idea of having real competition between a public plan and private plans for these people who don't have coverage today and -- and for workers in the smallest firms?

JEFFREY BROWN: All right, Jacob Hacker of Yale University, thank you very much.

JACOB HACKER: Thanks so much for having me.

JIM LEHRER: We will have the opposite view, against a public plan option, from another health policy thinker and consultant, Robert Lashefsky, tomorrow night.

On our Web site,, you can find answers to your questions about the facts and the fiction in the health care debate.