By John C. Goodman
This article was originally posted at Forbes, August 2016
The idea of a government run health insurance plan, competing with private insurers, has reentered the public discourse. It’s not just a Bernie Sanders idea. Hillary Clinton has recently revived the notion and so has President Obama. When the Affordable Care Act was enacted this was a feature the left had to abandon in order to get moderates to vote for Obamacare. Now they want another bite at the apple.
Is there any reason to think that the proposal will attract more backing today than it did six years ago? Indeed it might. Turns out that some Republicans may be willing to come on board, provided the public option is Medicaid.
Paul Ryan’s Task Force on Health Reform is an example of a limited step in that direction. Under the proposal, certain near-poverty families would be able to “buy into” Medicaid by paying a small premium. At the same time, people who are eligible could get premium support from Medicaid if they join an employer’s plan instead. People who obtain insurance in the individual market could get both premium support from Medicaid and a federal health insurance tax credit to subsidize their choice.
So as not to mislead, the Ryan task force report does not actually describe these features as public/private competition. But such competition is implicit in what the report proposes – even if the writers don’t seem to be focused on it.
A more robust form of public/private competition would be possible under health reform legislation cosponsored by Rep. Pete Sessions (R-TX) and Sen. Bill Cassidy (R-LA). This proposal would replace all current tax and spending subsidies with a universal health insurance tax credit. Since the amount of the credit is pegged to the cost of Medicaid, people will get the same amount of help from the federal government whether they enroll in Medicaid or whether they obtain private insurance.
How much competition would emerge would be up to state governments. But if a state wanted to promote a vigorously competitive public sector option, here is how it could work.
The universal tax credit is roughly equal to the federal government’s contribution to a well-managed, privately administered Medicaid plan. If the state adds its contribution to such plans to the tax credit, families would have the same amount of money spent on their behalf – whether they choose Medicaid or a private plan.
States could also allow both the poor and the non-poor to join Medicaid. In theory, even Bill Gates could join. But he would have to pay the full actuarial cost of joining. The reason? States would not be allowed to spend Medicaid dollars to subsidize care for middle- and high-income people.
Why would competition be a good idea? Those on the left seem to think that government insurance is better insurance. In fact, study after study has shown just the opposite, even though about two thirds of Medicaid enrollees are in plans run by the private sector.
So while the left thinks that public sector competition would improve the performance of private insurance, in reality competition is likely to improve Medicaid. If it doesn’t, Medicaid will wither on the vine, so to speak, as enrollees migrate to better options. This is a result, by the way, that should be welcomed by everyone – right and left.
In order for Medicaid to improve, it must be freed from numerous rules and regulations that strangle its ability to operate efficiently. That is why the Sessions/Cassidy proposal block grants Medicaid to the states – giving them maximum authority to revamp these programs and improve them.
I think Republicans will be comfortable with this approach.
They may also be willing to consider doing the same thing to the VA health care system. Many Republicans already advocate creating private health care options for veterans. Allowing the VA to compete for non-veteran enrollees is the next logical step.
What Republicans are not likely to support with is the creation of entirely new government entities. Something like that has already been tried. The federal government has spent $1.7 billion in a failed effort to subsidize non-profit cooperatives competing in the exchanges.
Of 23 original coops, only 7 are left and they are on financial life support. There is no reason to throw more good money after bad.