Public Plan Won't Happen in '09, But It's Inevitable
The chances of a public insurance option this year seem to diminish every day, but health insurers shouldn't celebrate the idea's demise just yet. It will happen eventually. All signs point to it.
President Barack Obama and leading Democrats want a public plan, but even if it doesn't happen this year, the public option is a powerful negotiating tool. Health insurers and Republicans are so petrified of a public plan that they will likely give in on a number of other issues.
The public plan's power is already evident as America's Health Insurance Plans has agreed to change two practices that have been an individual health insurance staple—not accepting members with preexisting conditions and charging women more for coverage—as long as lawmakers require all Americans to have health insurance. There is simply too much opposition to a public plan to happen this year. Instead of a public plan, this is the healthcare reform package I expect Congress will pass this year:
- An individual mandate that will require all people have a certain level of health coverage that the government will heavily subsidize to help pay for coverage of lower-middle-class Americans and will help fund by taxing mid-sized and large companies that don't offer health insurance. The individual mandate will be implemented slowly, but will require all Americans have coverage within the next five to eight years.
- Similar to the Massachusetts model, the feds will create a connector program that will help the uninsured find individual insurance. This is a win for health insurers, but the insurance industry will also have to give back something (see next bullet).
- The individual insurance market has been called the "wild west" because of its lack of regulations, but expect Congress to regulate the industry as a way to protect individual health insurance members. Layoffs and reduced employer health benefits have forced many Americans into the individual market, which is the one area of growth for health insurers. This growth has also caused lawmakers to focus more on that segment of the industry. Expect more regulations that go beyond the two proposed by AHIP.
- The feds will reduce healthcare costs by cutting hospital and physician payments, reducing payments to Medicare Advantage, and bundling payments that pay for care coordination and quality rather than volume, and investing more money in prevention programs in hopes of reducing long-term health costs.
In the short term, the health insurance industry will avoid the public insurance bullet, but will also have to sacrifice in the areas of more regulation and less Medicare Advantage payments. That doesn't mean the public plan idea will die though. In fact, it's inevitable. Most Americans have accepted greater government intrusion in their lives.
Government is now often seen as a solution rather than a problem, which is much different than in the days of Ronald Reagan. Plus, surveys show Americans want a public option to compete against private insurers. All of this points to my belief that a public insurance plan is inevitable.
This first pass at health reform will disappoint many liberals. But the public option will return after the midterm elections—and a watered down public plan may actually become law next time around.
This scenario is a nightmare for the health insurance industry—more regulations this time and a public plan next time. It's a one-two punch that will force health insurers to find ways to set themselves apart from the public plan, but if health insurers respond by streamlining programs and reducing administration costs, maybe that's not such a bad thing after all.
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