The Dangers of the Public Plan
Paul Starr has an important column today on the dangers of a badly designed public plan. The issue essentially comes down to adverse selection. If the public plan becomes a dumping ground for the sick and the old, it will be too costly for the young and the healthy. Rates will go up, and conservatives will point to the plans as costing X percent more than private insurance, thus proving the inefficiency of the government. Starr explains how this might go:
Entry into the public plan for the eligible employed would be a two-stage process. First, employers would choose between paying into the exchange and buying insurance directly to cover their workers. Unless the exchange is such a good deal that nearly all employers take it, firms with a young, healthy work force would tend to buy insurance on their own, while those with higher-cost employees would go into the exchange's pool. As a result, the pool would suffer "adverse selection" -- it would get stuck with a higher-risk population.
Second, within the exchange, the government-run plan would compete against private insurers, yet it would likely abstain from the marketing strategies used by private plans to avoid high-risk enrollees. This double jeopardy of adverse selection could then more than nullify the advantage the public plan derives from its lower overhead (as a result of less money going for salaries, profits, and marketing).
[...]Over-constrained, the public plan could go into a death spiral itself as it becomes a dumping ground for high-risk enrollees, its rates rise, and it loses its appeal to the public at large. Creating a fair system of public-private competition -- giving the public plan just enough power to offset its likely higher risks -- wouldn't be easy even if it were up to neutral experts, which it isn't.
This, incidentally, has been a storied part of the history of American health reform. The reason the government provides health insurance to nearly all of the old and the bulk of the poor is that insurance companies found these segments of the population unprofitable to insure. So the government took them on. But Medicare and Medicaid largely dominate their markets. The public plan, however, is supposed to compete in its market. That's an entirely different approach, and it's not at all hard to see insurers quickly gaming it to their advantage.
Posted by: NicholasWarino | June 24, 2009 4:13 PM | Report abuse
Posted by: eRobin1 | June 24, 2009 4:24 PM | Report abuse
Posted by: eRobin1 | June 24, 2009 4:25 PM | Report abuse
Posted by: tomtildrum | June 24, 2009 5:24 PM | Report abuse
Posted by: DrSteveB | June 24, 2009 6:09 PM | Report abuse
Posted by: eRobin1 | June 24, 2009 6:25 PM | Report abuse
Posted by: calvinav | June 24, 2009 8:05 PM | Report abuse
Posted by: jamesoneill | June 25, 2009 9:44 AM | Report abuse
The comments to this entry are closed.