Who's Afraid of a 'Public Plan,' and Why?

June 25, 2009— -- Why are private insurance companies and managed care organizations so frightened of a "public plan"?

One controversial element of current ideas about health care reform is the proposal that a new public health insurance plan sponsored by the government should be created.

This new public plan would be an alternative source of insurance for people who cannot get health insurance through an employer-sponsored plan at work and cannot find an affordable option in the private, individual market, or as an additional option for employers seeking group coverage for their employees.

There remain many differing visions about what this public plan might look like and how it might be structured, but any such approach is the subject of some pretty heated debate. Understanding a bit more about why this idea is controversial might be helpful as the conversation moves forward.

From literally the time of our nation's founding, most Americans have been taught (and genuinely seem to believe) that the private sector can do almost anything more effectively and more efficiently than the government.

We acknowledge a few exceptions: national defense, international relations, some policing and public safety functions and basic education. Even in those areas, the government role is often viewed as a grudging admission of necessity, rather than a clear expression of preference. And whenever it seems to be an option, we pursue means of having these public functions accomplished though contracts with private entities.

In part, of course, some of our belief that private initiative is preferable to government action is historic, emotional and a matter of basic philosophy. It reflects a view that government, even if it is democratically elected and subject to a wide range of checks and balances, is to be feared as a force that may reduce our liberty and perhaps our highly valued self-reliance.

This latter aspect is of special concern if government programs reach too deeply into too many areas of our daily lives.

Will Public Plan Really Be Competition?

But most of our national aversion to government seems to be more a matter of practicality than philosophy. We simply believe that government is not very good at most tasks. That it is cumbersome, bureaucratic, slow to respond, quickly becomes entrenched and resists change even when the need to adapt is obvious to all.

Large programs like a state's department of children and families, or federal agencies like FEMA are routinely cited as examples that affirm this view. Nimble, effective private sector entities like Apple Computers, the BlackBerry folks or eBay exemplify the alternative.

In health care, the comparisons are between a slow, intrusive, bureaucratic Medicare or Veterans Administration program, as distinct from a well-managed private insurance company or an astoundingly effective provider like the Mayo Clinic or Geisinger. And again the comparisons seem to affirm the superiority of the private sector alternative.

But all of this raises two pretty basic questions. The first is a simple "why?" What is it that makes the private sector organization more efficient, responsive and effective? The answer is almost always that this is the natural and certain consequence of competition: Private entities simply must manifest these characteristics or they won't survive in the marketplace.

The second question is more intriguing.

If private companies are better at whatever might be the task at hand, mainly because they have already accrued the benefits of prior healthy competition, why would our nation's private health insurance companies so desperately fear the presence of a public sector alternative as part of that very competition?

Surely they would expect to be able to easily thrash such a public alternative in the marketplace. After all, they have the head start of being better at doing this from the outset, they have the advantage of being more nimble and responsive going forward, and the public program, whatever its final form, will be disadvantaged by the inevitable ineptitude of government.

Private Companies May Have Little to Fear From Public Plan

So why on earth would the private companies be worried that the public program alternative might be able to even come close to achieving their standards?

To be sure, if the same public program that competes with the private entities also gets to write and enforce the rules of the competition, that might create a problem. But almost all serious observers anticipate that the public program alternative currently being proposed will not also control the regulatory framework in which services are offered; it will simply be available as another option, and will survive only if it can succeed as a genuine alternative to those private companies.

Clearly, if the certain ineptitude of a public program and the obvious superiority of the private sector are true, there would be no reason for the latter to fear the former. Given the passion of such fear in today's health policy conversation, one cannot help but wonder what else might be going on here.

R. Paul Duncan, Ph.D., is a Research Foundation Professor at the University of Florida, where he also Chairs the Department of Health Services Research, Management and Policy. Much of Duncan's research is focused on access to health care and issues surrounding health insurance coverage.