How can the United States better control its health care costs and quality and still achieve universal coverage? The strongest choice is not Medicare for All, which would eliminate private insurance; it’s the public option, which would allow people to choose from Medicare or private insurers. But the public option can only succeed in controlling costs and quality and achieving universal coverage if it is implemented without the financing gimmicks that characterize Medicare.
In this article, we define the principles that can make the public option the legitimate and powerful competitor to private insurance firms and how this competition would expand access and improve cost and quality. But first we’ll clarify how extremely important the universal coverage is.
Universal Health Care Coverage: Life and Death Politics
Universal health care coverage is central to the physical, fiscal, and political well-being of a nation. Nowhere is that more evident than in the United States, the wealthiest nation in the world, which still has 28.3 million people without health insurance. Americans have literally died, gone bankrupt, become disabled, and stayed in dead-end jobs that offer insurance. And yet, despite the lack of universal coverage, the United States spends more as a percentage of GDP than any other nation and its quality of care is erratic. Even with its world-class resources and medical technology, it ranks the lowest among developed nations in avoiding preventable deaths.
Universal coverage has a long history in other developed countries. It began as primarily employer-based health insurance coverage in the 1880s in Germany, morphed into government-backed universal coverage in England in 1948, marched across Western and Eastern Europe in the ensuing 25 years, and then into Latin America, Africa, Asia, and Canada, making the United States the exception among developed countries. Finally, after 65 years and 12 presidents, the United States passed the Affordable Care Act (ACA) in 2010 to significantly reduce the 45 million Americans who did not have insurance.
The passage of the legislation was hard fought and its results, nine years later, are mixed. On the plus side, the ACA insured more than 20 million additional Americans, lowering the percentage of the U.S. population that was uninsured from 17% in 2008 to 10% in 2016, and fewer people have suffered financial shocks since being insured through the ACA. Although the data are early, it may help make Americans healthier.
But there are negatives too. The ACA’s slogan, “if you like your plan or doctor, you can keep it,” proved to be false for many. And 14.7 million of the more than 20 million were insured through Medicaid, the U.S. health insurance for the indigent, which the important Oregon Health Insurance Experiment found had no effect on health status (but it did have a positive effect on self-reported mental health status). Health care remains unaffordable to millions: Premiums for insurance purchased on ACA-related exchanges rose by a staggering 26%, which helps explain why unsubsidized enrollment declined by 2.5 million people between 2017 and 2018. Those newly insured who were not covered by Medicaid faced ACA policies with substantial deductibles of at least $1,400 for an individual or $2,800 for a family. Finally, the small numbers of insurers that agreed to participate in the ACA had little incentive to compete on price, lower out-of-pocket costs, or by offering a broad choice of providers.
So what the United States needs, and Americans want, are lower premiums and out-of-pocket costs for health care, a sufficient number of competitive private insurers to honor the promise “if you like your plan or doctor, you can keep it,” and, as surveys reveal, no exclusion for pre-existing conditions, no lifetime limits on benefits, and coverage for children up to age 26 on parents’ insurance.
The Medicare for All option, which would eliminate all private insurers, is clearly not the answer Americans want. They do not want to lose their private health insurance to a public bureaucracy or to pay its $3.2 trillion annual price tag in the form of higher taxes.
How the Public Option Can Cure the U.S. Health Care System
The aim of improving health care affordability, continued private insurance, and better access to quality providers can be achieved with the public option, but only if it is implemented with rates that reflect realistic underwriting and accurate and fair cost accounting.
The Medicare component of the public option is wildly popular: 85% of Medicare beneficiaries are satisfied with the federal program. And why not? Many doctors accept it, and the beneficiaries pay only a fraction of the cost, passing the rest onto future generations. The U.S. Congress, Democrats and Republicans alike, gives away benefits to users whose value substantially exceeds what they pay. Each beneficiary on average receives $310,000 more in benefits than they paid. The unpaid bills — $37 trillion at last count — have been kicked down the road to future generations in the form of bigger federal deficits. The Galen Institute reports that Medicare’s annual deficits are responsible for one-third of U.S. federal debt.
Yet, Medicare’s enormous scale confers genuine administrative and purchasing efficiencies. Medicare spends up to seven times less than private insurers on administrative costs. It also pays hospitals 40% less and providers 2 to 3.5 times less than private insurers do for the same services. Some contend that providers merely shift Medicare and Medicaid’s unpaid charges to private insurers, but that charge has been refuted. Rather, it is plausible that these payments appropriately help to squeeze out the one-third of health care expenditures that many experts view as sheer waste.
The public option can take advantage of these efficiencies but only if it is implemented without the financing gimmicks that have artificially lowered the costs of Medicare at the expense of our progeny and that would allow it to unfairly compete with private insurers.
To assure that all insurers play on a level playing field, public-financing principles must conform to those of private insurers. For one, the public option’s expenses must be financed by current users, not future generations. In other words, it should be pay as you go, just like private insurance. The public option’s accounting also should include all its expenses, such as the unfunded liability for Medicare employees’ post-retirement benefits, which are often buried in some fund other than Medicare’s. It must also account for the cost of the money that American taxpayers and debt holders have invested in building Medicare’s infrastructure, including its buildings, equipment, and workers. After all, private insurers incur costs to build the infrastructure that allows them to market their products; yet, under current accounting practices, Medicare gets these assets for free. To keep it real, expert accountants would routinely audit the public option’s financial statements to certify that its expenses are accurately stated, just as they do for private insurers.
Private insurers will be forced to compete with the public option’s lower costs through improved pricing, service, and quality. They can offer, for example, low-cost policies that transport enrollees from high-cost states to high-quality, low-cost ones such as Utah. Or they can emulate Ashley Furniture’s sending an enrollee to low-cost Mexico for an orthopedic procedure, replete with an American surgeon who was paid three times Medicare’s rate payments to the patient of $5,000 plus all her travel and out-of-pocket costs. (For political reasons, Medicare cannot emulate policies that favor certain states or send its enrollees out of the United States.) To help the private insurers to compete, new legislation should allow bundling of health, life, casualty, disability, and any other products, as well as the ability to sell across state lines. This enhanced competition among insurers and providers would lower costs, thereby increasing access to coverage and likely improving the quality of care.
We personally believe that the United States would be better off emulating three European countries — Germany, Switzerland, and The Netherlands — which are lauded for the quality of their universal coverage health care systems and yet spend far less on them than the United States. These countries are fiscally much healthier than nations with government-run health insurance systems akin to Medicare for All. But the reality is this model is politically untenable in the United States because it relies entirely on private insurers and would require eliminating highly popular Medicare and giving people vouchers for buying private-insurance policies.
Americans generally like both private insurance and Medicare but universally deplore their costs. Medicare for All eliminates private insurers and increases taxpayers’ burden. The public option keeps private insurers and controls health care costs. However, it will require legislative and governmental administrative backbone and independent oversight to assure that the public option achieves these goals legitimately — without resorting to Medicare’s financing gimmicks.