Monday, January 11, 2010

Achieving Compromise on the Public Option Through A Hybrid Solution

When baseball and basketball players went on strike in past years, they eventually went back to the field and the court by crafting a hybrid solution that met the essential needs of both players and owners, rather than one side winning an “all or nothing” victory. A similar approach for negotiating a hybrid solution could be valuable in resolving differences on health care reform.

Both the House and Senate bills offer myriad improvements to our nation’s current health system in terms of access to coverage, cost controls, health care quality, and insurance regulation. Yet, the fate of the “public option” remains an important, and contentious, issue. Although the House bill includes only a scaled down version – accessible only to the individual, family, and small business markets, which face the steepest premiums – insurance companies opposed it strenuously. They and others were, of course, successful in keeping the public option out of the Senate bill (for example, by the efforts of Senator Lieberman, who represents Connecticut, the nerve center of the insurance industry).

Insurance companies will rake in premiums from having millions of new customers, and they are fighting hard to keep these premiums exclusively within their domain. They suggest that they could not handle the competition that a public option would provide. But it is precisely that competition that would pressure them to restrain premium rates and rises, since the small group and individual markets are the most vulnerable to insurer pricing schemes.

A solution is still being sought which would satisfy the competition, coverage, cost control, and quality improvement rationales of the public option, while doing so in a way that would not allow the Federal government to function as a full-fledged insurer for this market (even though the government does fulfill this role with Medicare and Medicaid).

There is a solution to this quandary.

Proponents of the public option envision it functioning just like a private-sector insurance company, as one of the options accessed through the “purchasing exchange”. To do so, it would engage in a number of activities: (a) it would market the program, and pool together individuals, families, and small businesses who choose to enroll; (b) the Federal government would underwrite the program and take on the financial responsibility (i.e., assume the risk); (c) the government would establish the premium rates; and (d) the government would administer all aspects of the program, including collecting premiums, enlisting providers, and paying claims.

However, the goals of the public option could be achieved by fulfilling just some of these roles, and, in so doing, placating its opponents. A hybrid model could serve this market through a true public-private partnership between the government and the insurance companies, with a blend of roles:

1. the Federal government would market a “publicly-administered option” to individuals, families, and small businesses who are eligible to participate in the “exchange”, enroll those who select this option, and create a risk pool among those who would be covered by this option;
2. insurance companies that seek to cover enrollees would apply to the program to be a participating insurer under this program, and would submit its underwriting, coverage, and customer service plans to the program administrator, to ensure conformance with standards established by the administrator;
3. proposed premium rates would have to be approved by the administrator, and an insurer could not participate – nor, in the future, increase premiums – until the administrator approves the rate schedule;
4. enrollees in the “publicly-administered option” would select an insurer from among those that are approved for participation, pay their premiums directly to their chosen insurer, and interface with the insurer for all of their customer service needs and related issues;
5. participating insurers would assemble a provider network to satisfy all enrollee health care needs (in conformance with standards issued by the option’s administrator), manage all financial aspects of its relationships with providers (e.g., payment of claims and other forms of compensation), and transfer to the option’s administrator a small amount of premiums to cover the expenses incurred in executing the administrator’s role;
6. enrollees in the “publicly-administered option” could switch insurers during an annual open-enrollment period if they are not satisfied with their insurer for any reason (e.g., cost, customer service, the provider network, etc.); and
7. the option’s administrator would establish an ombudsperson and a review board for enrollees to resolve complaints and appeal decisions relating to the insurer’s practices and decisions.

This hybrid of roles would satisfy each of the objectives that are sought to be achieved by the public option, while still keeping the Federal government from becoming a direct competitor of the private insurers. Coverage would be expanded by virtue of element #1; competition would be enhanced by elements #2, #4, and #6; cost control would be advanced by elements #3, #5, and #6; and health care quality would be improved by elements #2, #5, #6, and #7. At the same time, the private health insurers’ role in the market as underwriter would be maintained by virtue of #2.

Although private insurers would still be the underwriters of policies under this hybrid, and they may also compete for business in the “exchange” as a stand-alone option, the “publicly-administered option” still offers considerable value to consumers. This option will ensure that the risk pool is large enough to minimize costs, premium rates and rises are scrutinized and approved by the administrator, customer service mechanisms are in place, the provider networks are sufficient, and that there is recourse to challenge practices and decisions which consumers find objectionable.

Bridging the gap between the House and Senate bills with regard to the public option is certainly challenging. However, the development of a public-private partnership for a “publicly-administered option” has the potential to satisfy a broad range of stakeholders and achieve sufficient support to enable the health reform legislation to proceed on to other issues.