When Private Entities Compete with a Public Option

Mon, 13 Jul 2009 14:26:51 +0000

The beginnings of an idea: as health care reform discussions heat up in the Senate, policy makers will have to consider how a "public option" will interact in a market place with a number of smaller private plans. It struck me this morning, in reading about the continued woes of the California public university system, that higher education provides an example of an arena in which public and private options compete with each other. Are there lessons that can be drawn from this example?


I think the differences are most instructive, with two differences in finances being most critical. In the education field, the private entities compete most effectively with the public options when they build up large endowments through philanthropy. I don't see this happening to the same degree in health care, and then only around providers like hospitals and not the insurance companies.

In the education field, the public entities are subjected to pretty severe budget discipline -- California's universities are getting squeezed now because their subsidy from the state is part of the state's annual budgeting process. I don't think there will be anything like that in the public option being considered, primarily because it will be operated at the federal level. Private insurers aren't worried about competition from Medicaid -- operated on a no-frills basis out of state budgets that have pressure for budget balance -- but I think they would be worried about direct competition from Medicare. The latter is operated at the federal level with very little regard to its budgetary impact -- it is an entitlement, after all, with even premiums from Part B & D designed to cover only a quarter of the costs of those programs.

I am not particularly against public insurance plans -- I have not seen anyone reconcile the problem of individuals excluded from large risk pools in their absence. But I am very concerned, given the way our federal government operates, about expanding public options and public financing there. I would sooner fashion universal coverage out of a combination of a means-tested expansion of state-level Medicaid, a zero-subsidy buy-in for older workers into Medicare, and a zero-subsidy buy-in to state employee health insurance plans for other workers.