Public Plan Would Stifle Innovation. Or, Would It?

Les Masterson, for HealthLeaders Media , June 10, 2009

One of the leading public insurance advocates isn't buying the innovation argument. Jacob Hacker, PhD, a University of California, Berkeley professor, says public insurance can work side by side with private plans and the system can benefit from both of their strengths. For instance, private insurers are better at customer service, care innovation, and delivery system structuring, while a public option could serve as a lower-cost option with low overhead costs and greater bargaining power, says Hacker.

Hacker disagrees that innovation would be lost with the public plan. By having direct competition, private plans would need to innovate or go out of business.

At the same time, Hacker suggests that a public plan could actually help private insurers because they will have to respond to the lower-cost option and streamline administration processes, which will ultimately make them stronger and better able to compete.

"I think it would affect the least innovative plans. The ones that are most like the public plan in their structure are the ones that won't have any value over public insurance," says Hacker.

Private insurers feel they are fighting for their lives with the possibility of a public plan, but Hacker warns that private insurers should be more concerned about the losses of the employer-based market. He makes an excellent point.

The potential loss of employer-based members is a much more pressing problem and private plans shouldn't wait (one healthcare leader told me last week health plans are "paralyzed and don't know what to do") to see how the public plan shakes out.

Hundreds of thousands of Americans are losing health benefits each month. In fact, Ian Duncan, president and founder of Solucia Consulting in Farmington, CT, recently told me one health insurer client is losing 0.5% of its membership monthly because of layoffs.

To combat layoffs and prepare for a public plan, health insurers should show some of that innovation that it is trumpeting. Some areas to explore include reviewing and expanding individual health insurance options, streamlining administration processes to cut costs, collaborating with employers to identify current needs, and offering lower-cost options to employers who are deciding between cutting benefits, laying off employees, or shutting their doors.

Private insurers are staring down an industry's destruction. How they respond to these issues will be a major factor as to whether private insurance remains. It's time to get innovative people.

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Les Masterson is an editor for HealthLeaders Media.

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