Reforming Health Care: What Has the "Public Plan Option" Got To Do With It?

BenefitsLink.com

By Alvin D. Lurie

January 8, 2010

It should first be explained that this article was originally prepared for publication in the third week of December (2009), at which time the Senate was locked in fierce dispute between the Democrats and the Republicans over the health care reform bill, H.R. 3590 (grandiosely titled the Patient Protection and Affordable Care Act). The bill seemed headed for a certain filibuster from a solid 40-person Republican bloc, the principal bone of contention being what had come to be called "the public plan option", i.e., a government-run insurance plan to be offered to compete with private insurance company plans as a health care benefit enhancement and cost containment measure, the theory being this would force the private insurers to meet the government benefit standards and premium pricing rates.

But early in the morning of December 21, the public option was dropped from the Senate bill in the "manager's amendment" submitted by Majority Leader Harry Reid; and the Senate promptly, in a key procedural vote, all but assured a bullet-proof Democratic majority of 60 votes for actual approval later that week of the as-then-amended Senate health care reform legislation. New provisions were added to achieve the principal objectives -- greatly broadened coverage, raised standards and lower premiums for private plans -- that were claimed for the public option by its supporters in the White House and Democrats in Congress. If one thought that put an end to the matter of a public plan, one would be mistaken. The health bill passed by the House six weeks previously includes the public option, so the issue awaits final resolution as the legislation works its way in the next few weeks (if not months) through both Houses of Congress as they struggle to accommodate the irreconcilable views of the die-hards on both sides of the aisle. That process is normally accomplished by the appointment of a Conference Committee consisting of members of the respective committees of both Houses most responsible for development of the bills of both Chambers, a process itself subject to obstacles and delays – not least, further filibustering in the Senate; so there are efforts on the Democratic side to foreclose the Conference entirely, by somehow getting one of the Houses to adopt the exact bill of the other House – an exercise that one would expect to have an extremely low probability of achievement at the best of times of accommodation among the parties. This is far from such a time, when the rancorous divisions within and between the parties appear to have rendered the present Congress close to dysfunctional. Witness the unbelievable nonaction of the Senate at the end of 2009 in having failed to join the House in extending the estate tax that was otherwise scheduled to go into a one-year moratorium on January 1, 2010, that has since happened for the first time in nearly the 100 years since it was first enacted by Congress.

There are many differences between the health care bills that have now passed the Upper and Lower Chambers; but it is fair to say that the principal issue relates to the public plan option, since there is widespread agreement among the Democrats and Republicans in both Houses that the major concern with the health insurance system in this country that must be addressed is coverage, not just for the 30-million-plus uninsured, but also for those to whom coverage is denied or discontinued on account of disqualifying pre-existing or subsequently occurring health conditions that prevent the inception or continuation of insurance coverage under many present plans. A government-run insurance facility has little, if any, relation to a meaningful expansion of coverage; so we can have health care reform that most agree is essential, without the public option. But there is no agreement between the parties as to the public plan option; and, indeed, even Senator Lieberman, of Connecticut, who, though now an Independent, mostly votes with the Democrats and whose vote is essential to the assurance of their 60-vote anti-filibuster majority, who is on record as firmly opposed to the public option. Many Democratic congressmen in both Houses have indicated similar discontent.

That brings us to the question posed in the title of this piece: What has the public plan option got to do with achieving the overarching goal of meaningful health care reform? Can anyone seriously contend that something is to be gained by pressing for the public option and losing the main prize? In fact, even if so much were not at stake, is there a reason why this country should opt to trade in its proven, multi-provider, private insurance system for an unproved, nationwide, mega government insurance scheme? The answer of this author is surely already apparent to the reader. But I hasten to state up front that I do not cast my lot with the libertarians, for whom the merest scintilla of a hint of government involvement is anathema.

The signers of our Declaration got it right. To them it was "self evident" that governments are instituted to secure for their people "unalienable rights . . . among these . . . life, liberty and the pursuit of happiness." But nowhere in that document, or in the Constitution that followed, which affirms in its opening phrases that the government is purposed "in order to form a more perfect Union", is it suggested that the Government should take over the Nation's business (whether piecemeal or in one fell swoop). Doubtless the constitution of the USSR, before it fell, and of China today (if there be such) provide for just such a takeover, that being the defining difference between capitalist and socialist societies.

Our Constitution goes on to say, in the Interstate Commerce Clause, that "Congress shall have the power to regulate commerce among the several states". Nota bene: the power to regulate, not the power to run. Congress has repeatedly exercised its authority under that Clause to provide the ground rules governing business practices; and, except for the Government's operation of the Medicare and Medicaid systems and, temporarily, during wartime and other infrequent emergencies that jeopardized the Nation's economy (e.g., when Truman seized the mines in 1946 to avert a coal strike because of a breakdown in negotiations with John Lewis and his miners' union -- coincidentally over establishment of a health plan), the Government has not gotten into the business of running a business serving the general public. Even in case of the very recent infusions of millions of Federal dollars into the failing auto, banking and other financial giants, in return for majority stock ownership by the Government, Administration spokesmen were quick to assure the public that the Government would not become involved in managing the businesses and would quickly divest its holdings as soon as the companies were stabilized.

That did not silence some who criticized the salvage actions as "socialization" of these companies; although more justifiable criticism has been leveled at the failure of the Administration to exert more influence over the business decisions of the rescued companies.

But now, in its health reform campaign, it has gone to the opposite extreme, ardently pushing the establishment of a government insurance program to compete with private insurers for their health insurance business. First, it does not seem like a fair fight to pit a 900-pound gorilla against a pack of chimpanzees. Second, I can think of no other instance in our history when the Government has entered an industry to compete with private enterprise. Cynics have suggested it wasn't intended to be a fair fight, but rather the opening round for achieving the Administration's purported true goal, a single-payer system with Government the designated payer.

But for that possible explanation, it is difficult to fathom why the Administration's health reform proposals have been so solidly moored – at least until recently – in the establishment of the so-called "public plan option", and why these words had become the mantra of the Democratic leadership in the Congress, as if, without this element, health reform would be impossible to achieve. On the contrary, it is not clear at this writing that insistence on a public health insurance plan had not attracted such hostile opposition as to poison the chances for achieving real health reform at this juncture. It was only at the signs of a softening of the position of the Administration and the Democratic leadership – presumably in acknowledgment of growing opposition to the public option that was showing up in polls – by redesigning the model into "government light", that a health care reform bill began to show signs of passage.

Such passage is still not assured. A part of the Administration's attempt to retain a vestige of government involvement in providing health insurance for the uninsured has been to move large segments of the uninsured population into the Medicare program. That has engendered its own opposition from seniors, for whom Medicare was created, and their representatives in Congress. So it might do nothing to end the debate over this issue that has greatly forestalled the effort to this point to achieve a law that would effectuate what most persons in the Country now appear to agree are the fundamental reforms of health delivery that the U.S. should provide, on a par with the essentially universal coverage found in other great democracies. Just as importantly, most people agree that the law must include effective mechanisms for controlling the nose-bleeding rise in health care costs in the Country.

As already indicated, it is the burden of this piece that those goals are attainable without the public option. I would go so far as to say that this option is a white elephant (as defined in Webster's Unabridged Dictionary, "something from which little profit or use is derived, especially such a possession acquired and maintained at much expense".) The public option is actually more harmful than simply of "little profit or use...maintained at great expense". Not only would it introduce a massive new bureaucracy into our National structure, but one which could very well drive the private delivery system out of existence, with untold damage whose full impact on our health system cannot now be measured. Were it to have such dire consequences, and in time to fall of its own weight, it is doubtful that the private system could be resurrected for many years thereafter.

Why take such a chance? A model was employed in this country in the not too distant past, firmly within our traditional economic system of private enterprise, that I will shortly describe, that is readily adaptable to achieving the foregoing goals of the health reform agenda, without introduction of the public option. But first let's examine how the public option has become the holy grail of the Democratic leadership and central to the debate. It is generally acknowledged that the out-of-control health care costs now threaten our economy as nothing else, steadily chewing up a larger share of the gross domestic product, and pushing the federal deficits to the point of "fiscal catastrophe". That's not my phrase. It is Paul Krugman's, in a recent op-ed column in the Times (Dec. 4, 2009). He says in that same column, "America can't get control of its budget without controlling health care costs". Health reform is "our biggest fiscal problem", he notes, and the price of failing to accomplish it now will be "a nasty debt crisis" in the future.

Why would the public option cure this imminent disaster? It would keep the private insurance companies honest, claim its advocates, by compelling them to compete with the government insurance company. I must say, that strikes me as an odd rationale in a democratic and capitalist society. Quite apart from the unlevel playing field on which a competition would be waged, let's assume, arguendo, that the Government can do things cheaper than private entrepreneurs, without sacrificing the quality of its outputs, by establishing statutory wage limits for its executives brackets that prevent the bloated salaries, super bonuses, perqs, and other sweetheart arrangements that are part and parcel of the private entrepreneurial system. Why stop at the health industry? By the same token government could go through the entire society, picking off an industry here, another one there, wherever it sees an opportunity to advance a goal of some political group or a quest for power by some bureau head or Congressional committee chair (the only constraint being, I suppose, not to go into so many ventures as to erode the tax base on which the Nation's fiscal structure rests, let alone the capitalistic underpinning of our economy).

I am surprised to see so many newspaper editorial boards that have signed onto the public health plan option – The New York Times as a notable example. Would the Times be that sanguine about the Government's deciding to publish a daily newspaper in New York City with "all the news that's fit to print"? Given its fragile economic condition, could the Times compete if the Government paper cut the price of its daily paper by a quarter? Would that make the Times honest or broke?

But let's assume that there is some merit to reining in the lavish lifestyles of the insurance executives and curbing other extravagances of the private insurance industry. Do you suppose there is no waste in government? Besides, are mega salaries of a relatively small group of executives at the root of the steadily skyrocketing medical costs? Have you looked at the charges of the doctors for office visits, and vaccinations, and blood pressure tests; and the charges of the laboratories for x-rays and scans; and costs of the pharmacies for drugs and medical equipment; and the hospital charges for each night in a semiprivate room, and for all the medicines, tests and other services they provide; and the charges of the anesthesiologists, and surgeons, and special nurses, and medicines supplied in the hospitals? Wouldn't it be necessary for the Government to take over all of those functions, services, supplies and equipment of vendors, and the hospitals themselves – indeed, the entire health industry – to actually get significant control of health costs? Or is there some legal principle, like eminent domain, under which the Government could simply decree what, qua insurer, it will pay for the products and services of the various providers and purveyors to the system, and the level of quality of their goods and services? If it even could do that, would it be able to attract for its own operations the skilled personnel necessary to conduct a business comparable to what it is replacing? The career paths of MBAs seldom lead into government service.

Putting all that aside (which one really cannot do if one is to validly assess the viability of a government-run health insurance system), we now come to the really gut question. Would the health reform legislation, as represented by the bills that have been adopted by the House and the Senate, cost the public less than the costs that now obtain for health care in this country. First, it must be pointed out that no one can now know what the final legislation will look like (if it is in fact adopted). Each of those bills was over 2,000 pages. How much longer will the Conference Bill be, and with what new provisions (in some cases, bribes) to achieve the necessary votes in the Conference and then on the floors of each House. So, scoring this unknown statute with any degree of precision, even by the skilled members of the Congressional Budget Office, is obviously an impossibility. To suggest otherwise is a fiction.

Furthermore, very few people – in or out of Congress – have any idea of the magnitude of the myriad provisions that make up the 2,000-plus pages in these pending bills. The overwhelming majority of the provisions do not appear in the public prints or in the comments of talking heads on the airways. I can tell you that they are greatly detailed, embracing with great specificity many of the health delivery practices and procedures, such as the ratios of plan participants' wages to premium costs, the factors affecting whether a participant can purchase insurance from a so-called insurance exchange, and whether an employer must provide insurance purchase vouchers to some or all of its employees, and, if so, in what amounts. Even more relevant to predicting costs are guesstimates as to the effects of inflation on the charges of medical providers and institutions. It is inconceivable that any realistic estimates of the impact of all this on health care costs can be made at this time, let alone well into the future.

One sees many claims in the public press, some the "official" estimates of the Congressional Budget Office (which become the bible that the Congressional committees swear by), others the critiques of persons with special interests, and everywhere the tendentious analyses by columnists and editorial writers (not surprisingly contradictorily on the editorial pages of the New York Times and Wall Street Journal on successive days in just the past few weeks). The American Benefits Council, in a recent memorandum to its members, described the "dueling analyses" provided even by well respected groups within the Administration itself, that "have come to different conclusions about the potential economic impact of health care reform legislation." The memorandum notes that the Office of Chief Actuary of the Centers for Medicare and Medicaid Services (the division in the Health and Human Services Department charged with maintaining the integrity of the entitlement programs) claims that total health spending would increase by $234 billion to $35.5 trillion over the next 10 years under the then pending Senate bill, while the White House Council of Economic Advisers at the same time reported that total health care spending will drop by 0.5 percent under that bill. How are mere citizens supposed to make anything of these wildly disparate cost estimates. In fact these "estimates" are at best guesstimates, which obviously no one can forecast with any meaningful degree of accuracy. The margins of error could run into the billions of dollars.

Moreover, none of the estimates purport to take into account the incalculable legal, accounting and administrative costs that will be incurred by the businesses, institutions and professionals that will be obliged to cope with the myriad rules and requirements that the new legislation will entail, to say nothing of the litigation costs that will surely ensue as a direct result of such a massive new law. One sees nothing of that in any of the cost estimates and comparisons that have been floated to advance the positions of one side or another. These costs, which will have to be borne by all players in the health industry across the entire nation, will surely at least equal the most optimistically based estimates of the savings to be realized from the public plan option.

If the main goals of health reform are, one, vastly increased, if not universal, coverage of the health costs of the citizens and legal residents of this country -- coverage that assuredly cannot be compromised by insurance eligibility rules that deny protection to people who need it most because of medical conditions or economic circumstances -- and, two, costs which are affordable or subsidized for users, and if these goals can be achieved without the proposed turn to socialized medicine (that is not used as a perjorative term here, simply an objective characterization of the proposed program), why utilize a radical solution that is alien to our system of government?

Aren't there other ways for the Government to impose minimum standards that must be reflected in health insurance policies sold across state lines? Doesn't the Interstate Commerce Clause provide Congress with all the authority it needs to impose such standards; and aren't there a variety of carrot-and-stick mechanisms to enforce these standards? Indeed, insurance commissioners of the states have long imposed such requirements and restraints on the design of policies sold within their state borders. That, however, is not a satisfactory technique for dealing with a national problem that requires a uniform solution across state boundaries (and extending to the far-flung U.S properties and protectorates around the world). There is a well-established and oft used technique for achieving that essential uniformity. It is called "federal preemption", signifying the power to enact federal laws that supersede any and all state laws, regulations, decisions, etc. that relate to the subject matter of the preeemptive federal statute.

A template for designing the reformation of the health care system fully within the current private marketplace already exists in our country. Readers of this discussion will not be surprised that it is called ERISA, the major overhaul of the private pension system that occurred in 1974, and that, just like the objectives of the current initiative, was enacted to make the benefit delivery system broader in coverage, fairer in its provision of benefits, and more certain that the promised benefits would materialize, without forfeiture, cutbacks or other harmful frustration of participants' expectations. Pension benefits are paid by pension trusts in return for contributions, as health benefits are paid by insurance companies in return for premiums. For the former the source of contributions is often employers of the covered individuals, sometimes supplemented by the individuals themselves; for the latter, too, employers are often the source of premium payments, sometimes supplemented by individuals. In case of a traditional defined benefit pension plan, contributions are heavily influenced by actuarial considerations, just as premiums for health insurance. If the insurance policy is obtained outside of employment, the premium is paid entirely by the individual. In that respect the benefit arrangement is comparable to an IRA established outside of employment, the contributions to which are paid entirely by the IRA account owner. Indeed, the IRA plan was established under ERISA as a substitute retirement benefit for persons not covered by a plan provided by an employer.

ERISA does not mandate that the Government provide a government-run pension plan to compete with the employers' plans. What it does is to establish an extensive set of minimum standards that must be observed by all pension plans, affecting participation, vesting, funding and fiduciary responsibilities, that are enforced by the Department of Labor, the IRS, and the PBGC, each with its own sanctions and its own regulations, that are continuously expanded and refined to achieve the security objectives of the statute. These are further reinforced by detailed prohibited transactions that add rules circumscribing the dealings of fiduciaries, employers and other interested parties with the pension plans and IRAs. The regulating agencies also utilize resort to the courts to enforce their missions. Consequently it is fair to say that the pension area, functioning under the Employee Retirement Income Security Act, is the most tightly and extensively regulated sector of the Nation.

Note also that ERISA broadly preeempts, with certain exceptions, "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan". With particular relevance to this discussion, the statute states that "nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance". But, in what is generally called the "deemer" clause, the statute goes on to state that no employee benefit plan "shall be deemed to be an insurance company or other insurer...for purposes of any law of any State purporting to regulate insurance companies (or) insurance contracts", thereby insulating employee benefit plans from state regulation of insurance companies and insurance contracts. The effect of this roundabout statutory technique has been to protect state insurance laws generally from ERISA preemption, but at the same time to remove employee benefit plans from their reach. Therefore, if insurers and insurance contracts providing health benefits are to be subjected to a regulatory structure similar to ERISA, Congress will have to provide the rules in the pending health reform legislation.

The argument of this piece is that the pension model would be no less effective with respect to the delivery of health care than it has proved to be in the regulation of pension benefits under ERISA, and completely refutes the claimed need for a "competing" government plan option, while avoiding all the bureaucratic baggage and financial risks inherent in such a radical option. Why stray so far from the traditional approach of our "more perfect Union"?

Copyright 2010 Alvin D. Lurie