Commentary | Health

A public plan option as backup insurance for all Americans

A public health insurance option-that is, a public insurance plan available to all Americans under the age of 65 -has emerged as a key component of the national health reform debate. This public insurance plan, as proposed by Senators Max Baucus (D-Mont.), Sherrod Brown (D-Ohio), Charles Schumer (D-NY), and President Obama, would compete directly with private insurers within a new national insurance exchange. Americans in the exchange would be able to choose among multiple private insurance plans, or the new public plan, within a marketplace that guaranteed a common set of rules for all insurers. A broad array of research has confirmed that a public health insurance option is a key component of cost containment because it will introduce more competition, lower administrative expenses, and drive cost-saving innovation (Hacker 2008, Hertel-Fernandez 2009, Holahan 2008).

Another reason that the health system needs a public health insurance option is that it serves as backup insurance for all Americans. While a majority of Americans are covered by employer-sponsored health insurance, many do not have access. Even among full-time workers, 17% do not have insurance. Furthermore, many people lose coverage each year when they leave their jobs and then pick it up again at a later time, spending at least brief time periods without insurance. Aside from the risks of being uninsured, these individuals and families also must deal with the disruption of changing providers, and the lack of continuity in their care. Though employer-sponsored health insurance is the backbone of the American health insurance system, it is not an effective backstop particularly in this time of high unemployment. A public health insurance option would offer a plan Americans could depend on. It would ensure not only that they retain insurance coverage, but that they have access to a core set of common medical providers.

Churning in and out of coverage

Estimates show that 63% of the under-65 population was covered by employer-sponsored health insurance (ESI) during 2007 (Gould 2008). However, over a third of the uninsured work full-time (CPS 2008). A key component of meaningful health reform would be provisions that guarantee insurance to the workforce, either directly through their employer or via a national exchange.

Even with such a provision, job changes can translate into losses of coverage. Current estimates of the number with ESI hide substantial movement in and out of coverage (Gould 2009). This has been acutely demonstrated during the current recession; 5.7 million Americans have lost their jobs and most likely, their health insurance as well (Shierholz 2009). Even individuals who keep their jobs may lose their coverage. An increasing number of employers are being forced to scale back or cut coverage altogether given rapidly increasing health insurance costs (Kaiser/HRET 2008). Recent research has shown that even in prior years not marked by widespread job loss, more than a third of Americans covered by ESI-36%-fell out of coverage for at least one month over the course of the year (Gould 2009). Minorities, children, and low-income households are all at a higher risk of insurance churning compared to the overall population.

Having no insurance or discontinuous coverage carries important health and financial consequences. Extensive research has shown that, compared to the continuously insured, individuals with spotty coverage were more likely to forego needed medical attention (due to cost and lack of access to a provider) and also have difficulty paying medical expenses (Schoen and DesRoches 2000, Sudano and Baker 2003). Children are particularly affected by discontinuous health insurance coverage, and are much more likely to go without preventative care such as vaccinations and regular checkups (Olson et al 2005). All of these factors lead to poorer health outcomes for those without continuity in their insurance coverage.

These factors also drive up system wide health care costs. People with discontinuous coverage are more expensive to cover when they are insured because of their generally poorer health status and less frequent use of preventive care. Movement in and out of coverage also greatly increases the administrative expenses that insurers must incur when offering plans to employers, particularly small businesses. These costs are then passed on to employers and workers in the form of higher premiums.

Moreover, those with individual, direct purchase insurance are even more likely to cycle through periods of insurance and uninsurance than those with employer-sponsored health insurance (Pauly 2008). These populations are equally, if not more at risk for the detrimental health and financial consequences associated with gaps in coverage. A public plan can serve as back-up for populations who have had the most tenuous ties to insurance coverage.

Why Insurance Regulation Is Not Enough

Given the harmful consequences of spotty coverage, comprehensive health reform must ensure that individuals have consistent access to health insurance, regardless of their employment status. The creation of a regulated national insurance exchange, as has been recommended by leading reform proposals, is an important step towards affordable coverage, but it is not sufficient to ensure continuous coverage. Massachusetts has created a marketplace for health insurance intended to make it easy for individuals who do not have employer-sponsored coverage to purchase standardized insurance. However, research has shown that there are wide variations of coverage within that system, even though it was designed to offer standardized coverage (Pollitz et al 2009). Even within these comprehensive and standardized plans, patients may be charged dramatically higher co-payments and deductibles and in practice with essentially no out-of-maximums for conditions such as breast cancer, diabetes, and heart attacks relative to supposedly comparable plans in the same “tier” of quality.

Insurance regulation and the creation of a new national exchange are therefore necessary, but not sufficient, steps to provide continuous coverage. If regulation of private insurers in the new exchanges proves to be inadequate, individuals and families ought to have an alternative public insurance plan that they can turn to. Without a public plan, in the face of insufficient protections, Americans would have to wait for lengthy legislative or administrative action to be taken to shore up insurance regulations

A Public Plan as Backup Insurance

Employer-sponsored private health insurance may be the backbone of the American health insurance system, but it is not-and cannot be-the backstop. A public health insurance option, competing against private insurers, would provide protection against losing health insurance. It would be available to all Americans, regardless of employment status, and would offer access to a common and predictable set of doctors and facilities, ensuring continuous access to the same medical providers. A majority of Americans recognize the importance of a public insurance plan in providing a reliable, high quality option along with the peace of mind that comes from knowing they will not have to go without health insurance if their employment status changes (Celinda Lake 2009).

Works Cited

Celinda Lake Polling Results. 2009. A Public Plan Health Insurance Option.

Gould E. 2008. The Erosion of Employer-Sponsored Health Insurance. Washington, DC: Economic Policy Institute Briefing Paper #223.

Gould E. 2009. Insurance Instability: a story of churning in America. Washington, DC: Economic Policy Institute Working Paper.

Hacker J. 2008. The Case for Public Plan Choice in Health Reform. Washington DC: Institute for America’s Future Policy Brief.

Hertel-Fernandez A. 2009. Why a Public Insurance Plan is Essential for Health Reform. Washington, DC: Economic Policy Institute Policy Memorandum #141.

Holahan J and Blumberg LJ. 2008. Can a Public Insurance Plan Increase Competition and Lower the Costs of Health Reform? Washington, DC: Urban Institute.

Kaiser Family Foundation-Health Research and Education Trust. 2008. Employer Health Benefits Survey.

Shierholz H. 2009. Jobs Picture, May 8th 2009. Washington, DC: Economic Policy Institute.

Schoen C and DesRoches C. 2000. “Uninsured and unstably insured: the importance of continuous insurance coverage.” Health Services Research 35(1 Pt 2): 187-206.

Sudano JJ and Baker DW. 2003. “Intermittent Lack of Health Insurance Coverage and Use of Preventive Services.” American Journal of Public Health 93(1): 130-7.

Olson LM, Suk-fong TS, and Newacheck PW. 2005. “Children in the United States with Discontinuous Health Insurance Coverage.” New England Journal of Medicine 353: 382-91.

Pauly M. 2008. “How Risky is Individual Health Insurance?” Health Affairs 27: Web Exclusive.

Pollitz K, Bangit E, Libster J, Stephanie L, and Johnston N. 2009. Coverage When it Counts. Center for American Progress Action Fund Brief.

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