Harvard Business Online

A "Public Option" That Would Work


Posted on Conversation Starter: November 16, 2009 2:24 PM

A critical issue in the Congressional debate on healthcare is whether the new legislation will include a "public option." Part of the problem is that there is little agreement about what the public option should be. Some see it as having the government act as a provider of last resort. Others mean a national one-payer system based on the Medicare model. Still others mean healthcare cooperatives, though they do not exist in most of the U.S.

This lack of clarity around the definition has created a serious ideological divide. For many of its supporters, a public option should be a first step towards the greater goal of a UK-style government run healthcare system. The same perception is precisely what drives the public option's opponents, who do not want the country to start down that path. This fierce debate is not likely to be resolved in the near future, and left unchecked it could unfortunately block the whole legislative effort.

Let's go back to the overall objective of the healthcare bill, which is to provide healthcare to the previously uninsured at a reasonable cost—an objective supported by the Congressional majority. To deliver this objective, Congress is proposing two state-based measures:

First, every state will be required to expand the coverage of its Medicaid program—from most residents below 100% of the poverty line (e.g., $20,000 per year) to all legal residents below 133% or 150% of the poverty line.

Second, every state will be required to establish a public agency that will act as a group purchasing agent for the uninsured residents of that state. The agency will put together a menu of healthcare policies—with high quality care at reasonable costs—to be offered to the state's uninsured. In putting together this menu for the uninsured, the agency will negotiate for healthcare policies with various insurance companies. Due to economies of scale and its expertise, an agency should be able to negotiate better rates and terms than individuals could on their own.

Negotiation, however, only gets you so far, and it's here that a public option is needed. If we want the agency to further reduce healthcare costs for the needy, then it could should be required or allowed to offer as one choice in its menu a state run healthcare plan as the public option. This could be, for example, a healthcare plan for local teachers or state government employees.

This definition of the public option would fit well into the system of state-based measures envisioned and it would be consistent with our traditions and structures; health insurance in the U.S. has always been organized and operated on a state-by-state basis. Offering the extra option would not cause a major organizational headache.

To sum up, using a state based plan as the public option would have the following advantages:

• It will be a public option without the ideological issues raised by a national plan.• It actually exists in some form in every state or region, unlike, say, healthcare cooperatives that some people are proposing.• It will offer the uninsured an additional choice of a high quality healthcare policy at a reasonable cost.

Do you favor a state based definition of the public option, another definition, or no public options?
Bob Pozen is a senior lecturer at Harvard Business School and the author of Too Big To Save.

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