Jacob Hacker makes the case for public plan choice in national health reform

Jacob Hacker, at UC Berkeley, who has previously laid out the Medicare-for-all (plus some employer-based insurance) concepts that have been at the core of several Democratic presidential candidates' health reform plans (including the President-elect's), released a paper today demonstrating the value of a government plan such as Medicare as one option among a menu of options for health care coverage under an Obama health reform plan, through The Institute for America's Future. 

A summary of key findings culled from the paper was released as well.

His conclusions:

In sum, he presents a strong argument for building on the Massachusetts "Connector" model — the Connector is the state agency that serves as a clearinghouse for private non-group and small-group health insurance plans required under the Massachusetts universal health care coverage law — albeit with one significant difference.  Unlike the Connector, which offers only private health plans, the Obama proposal calls for a public health plan to be offered side-by-side with the private plans.  Hacker promotes the notion of using Medicare or a Medicare-like plan — and not the often-discussed option of allowing folks to buy in to the federal employee health benefits plan — because Medicare's cost structure and inflation rate is significantly lower than that of private plans.  (A naturally cynical sort, the HealthBlawger wonders if the comparison is truly apples-to-apples.)  It's an interesting read, treading a bunch of familiar territory as well as marshaling the evidence in favor of Medicare or a Medicare-like public plan to be offered through an exchange.

Prof. Hacker and Congressman Stark announced the release of this report on a conference call today.  Stark warns not to look for legislation in the first hundred days of the Obama Administration, and they both emphasized the potential for robust competition between public and private plans which would redound to the benefit of ultimate payors of health care premiums. 

Update 12/17/08:  Following the conference call, Prof. Hacker was kind enough to answer a couple of questions I posed to him via email:

Q:  Much has been said about how Medicare's costs are not fully-loaded and that therefore there is no apples-to-apples comparison being made when promoting "Medicare For All."   So, when you compare Medicare costs and cost growth rates favorably to FEHBP and other private health plan costs and cost growth rates, are you comparing apples and apples?  What about "hidden" or undervalued CMS costs, such as office space (in GSA's budget?); also, are CMS employee expenses fully-loaded?
 
A:  First, the comparison of administrative expenses in public and private plans by the CBO that I cite in my brief (showing a 9 percentage point public-plan edge) looked at Medicare Advantage plans and the Medicare public plan, so these "hidden" costs were constant across the two. I do note that some of Medicare’s administrative expenses are not included in the standard calculations, but there is no question that Medicare has substantially lower administrative costs than private plans—even within the FEHBP. There is simply no contest.
 
Second, this is basically irrelevant to the question of cost growth. The issue there is whether Medicare is more capable of restraining the growth of costs (which it is), not whether Medicare can deliver the same benefits for less (which it can). I compare the growth of Medicare spending per enrollee and private health insurance spending per enrollee for comparable benefits – which is as close to an apples-to-apples comparison as you can get. And Medicare is clearly superior in terms of cost control: Private insurance outlays per enrollee grew an average of 7.6 percent a year between 1983 and 2006, compared with 5.9 percent growth in per enrollee spending under Medicare—a 22 percent difference. (1983 was the year in which Medicare’s prospective payment system for hospitals was implemented; 2006 is the last currently available data year.) The gap is even bigger in recent years. Between 1997 (when the Balanced Budget Act of 1997 further constrained Medicare spending) and 2006, private health insurance spending per enrollee grew at an annual rate of 7.3 percent, compared with an annual growth rate of 4.6 percent under Medicare—a fully 37 percent difference. As these comparisons indicate, not only has Medicare more successfully restrained the rate of increase of per enrollee spending, the rate of growth is also on a steeper downward trajectory under Medicare than under private insurance.    
 
Q:  Given the value in eliminating excess administrative costs to the system associated with having multiple payors, is it your belief that a "connector" with public and private plan offerings would either yield a market with lower prices overall due to competition, or morph into a de facto single payor system, and if so, over how long a period of time?
 
A:  I believe, as do other experts, such as John Holahan and Linda Blumberg at the Urban Institute, that you could have stable competition in which private plans played an important ongoing role. For one, a good number of people will probably want to be in a private plan. For another, the private plans will have greater scope to achieve efficiencies by restricting provider access or more directly coordinating care. The overall effect of this competition, in my view, will be much more effective restraint on costs, yet with built in safety valves for people in both the public plan and competing private plans.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting