Should the U.S. Government Offer Its Own Health Insurance Plan to People under Age 65?

The question of whether a new public health insurance plan should be allowed to compete with private health insurance plans has polarized the health reform debate unnecessarily. Extremes from both political parties have tried to use the issue to prevent progress toward a bipartisan health reform package.

But health reform must be bipartisan to be sustainable over time. This means both sides' priorities must be reflected in the policy solution.

Allowing individuals to choose between public and private competitors serves two primary purposes. First, many Americans fear that private insurers, even those that operate on a nonprofit basis, will always restrict access to care (the mirror image of those who fear government involvement in any market). A public health insurance plan would reassure those who mistrust private insurance that their insurance product is accountable to elected officials and not to corporate stockholders or the proverbial bottom line.

Second, a public health insurance plan could serve as a valuable benchmark and enable consumers (and market managers) to compare the premiums, benefit design, and administrative efficiencies of different health plans. This benchmark would be especially valuable in the first year of the new insurance marketplace.

At the same time, the public health insurance plan must not be allowed to bankrupt private insurers unfairly nor should it be permitted to pave the way for governmental control of the health system.

The following three conditions are absolutely necessary for public and private health plans to compete fairly:

Real-world experience is instructive. More than 30 states offer their employees a choice between privately insured products and a product for which the state bears the insurance risk. Under this scenario, the state picks the managers of the self-insured product, which then competes with traditional private insurers. In her recent testimony before the Senate Finance Committee, Secretary of Health and Human Services Kathleen Sebelius pointed to state employee benefit plans as examples wherein "public and private plans compete on the basis of benefits, innovation, and cost" without destroying the marketplace.

Yet, this type of public plan alone will not be sufficient to control costs. Therefore, cost growth control must be addressed through a systematic approach that includes a health information infrastructure, best practice information, decision support tools, and realigned provider and patient incentives. Medicare can and must lead the way with some of these transformations. But simply using Medicare's pricing power to control costs without addressing the underlying reasons health care costs are growing so rapidly will not fix our problem.

Some people question why a public plan is necessary if competition is actually fair. A public health insurance plan would help restore consumer confidence in our health system and provide a valuable benchmark for competition. Buying power is not what makes a plan "public" and a private-only marketplace is not a prerequisite for competition. Americans should be allowed to choose between public and private health insurance plans that compete on a level playing field.