A MIXED PUBLIC-PRIVATE HEALTH INSURANCE MARKET DOESN’T WORK

A serious debate about changing the U.S. health care system to a universal single-payer system, e.g., Medicare for All, is occurring. Some opponents of a single-payer system, who do want to expand access to health insurance, support a mixed system with both private health insurers and a public health insurance option, often referred to simply as a “public option.”

Unfortunately, the mixed public-private health insurance market some are proposing won’t achieve the efficiencies and quality of a single-payer system. It also won’t achieve universal coverage without substantial public expenditures. If universal coverage were achieved under such a mixed market, the government’s costs would be similar to or greater than those of a single-payer system but without its benefits of efficiency and quality.

There are three core problems with including private health insurers in our health care system (see this previous post for more details):

• The private insurers will fragment the pool of insured people undermining the basic theory and efficiency of insurance – having a large pool of insurees with mixed risk profiles. Furthermore, the private insurers will work to enroll healthier people who are cheaper to serve, therefore maximizing profits, and leaving or dumping the higher cost, less healthy people in the public health plan. This and the ability of some, usually healthier people, to opt out if insurance isn’t mandated, further undermines the basis of an efficient insurance system with a large pool of people with mixed risks.
• Private insurers have no financial incentive to maintain the long-term health of their enrollees because people change insurers frequently, for example when they change jobs. Therefore, private insurers do not have a long-term relationship with enrollees. Furthermore, profit not quality of care is the driving force for private insurers, so if denying coverage for services or providing low quality services produces more profit, that is what will happen.
• Private health insurers spend a large portion of premiums (roughly 25%) on overhead, i.e., non-care expenses. This costs an estimated $570 billion a year and represents money that won’t be used to pay for health care services.

In a mixed market system, the presence of multiple payers (i.e., insurers) in the market means that the complexities of billing and administrative paperwork will not be eliminated as they would be with a single-payer system. Potential administrative and overhead cost savings will not be realized; they are estimated at $220 billion per year for insurers’ overhead expenses and $350 billion per year for the administrative costs of providers who have to deal with multiple sets of rules, regulations, co-pays, and forms. [1]

A single-payer system is the only way to both improve quality and control costs, as Dr. Donald Berwick (the former head of the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees those public health insurance programs) has stated. An example he cites to illustrate this point is an action he took when he was the head of CMS in 2010-2011. Data were showing that senior care facilities were using drugs to sedate patients whose behavior was challenging at times, rather than taking the time and energy to handle their behavior more appropriately. Given that Medicare and Medicaid pay for much of the care these facilities provide, he had the leverage to tell the facilities’ managers that they should address this problem or that he would develop regulations to deal with it. The result was that the facility managers reduced drug use and costs, while providing better care to their patients. Berwick could do this because he had the leverage as the primary payer (although not quite the only or single payer) for these services. [2]

The bottom line is that a mixed public-private health care system with multiple private insurers won’t work efficiently because:

• Administrative and overhead costs will remain high,
• The pool of people being insured will be fragmented and the private insurers will game the system to serve healthier people and maximize their profits, and
• Improvements in quality will not occur because private insurers have no long-term incentive to keep enrollees healthy.

I urge you to study the policy proposals for our health care system; pay attention to the facts and ignore the scare tactics. If you do this and reflect on your experiences with our current health care system, I will be surprised if you don’t end up supporting a single-payer system. The transition to a single-payer system will not be easy and there will be bumps in the road.

The health care and related industries will lobby strenuously against it, but in the end a single-payer health care system will provide better health care and health outcomes for Americans and will save us all a lot of money. Remember that every other wealthy country in the world has a single-payer health care system and for half the per person cost of the U.S. system, they get better health outcomes, including everything from longevity to birth outcomes.

A mixed public-private health insurance market exists today under Medicare. An examination of it is very instructive in terms of how a mixed system would be likely to work if extended to those under Medicare’s eligibility age of 65, so I will summarize it in my next post.

[1]      Himmelstein, D.U., & Woolhandler, S., 10/7/19, “The ‘public option’ is a poison pill,” The Nation (https://www.thenation.com/article/insurance-health-care-medicare/)

[2]      Ready, T., 9/20/16, “Donald Berwick calls for ‘moral’ approach to healthcare,” Health Leaders Media (http://www.healthleadersmedia.com/quality/qa-donald-berwick-calls-moral-approach-healthcare) See in particular page 3 of the article.