By Jason Marks

Year in and year out, healthcare costs go up faster than the rate of inflation. This year, we will spend more than $2.5 trillion on healthcare in the U.S., which is over $8,100 per person. Even at that, more than 35 million of our fellow citizens are left without regular healthcare coverage through insurance or a government program.

Health insurers serve as a convenient target, getting criticized for denying care to those that need it most, creating too much red-tape for doctors and other providers, and for diverting too much of our insurance dollars to administrative overhead, profits, executive compensation, and lobbying. But since most insurers pay out 75 to 85 percent of premium dollars in medical reimbursements, the direct savings from taking them entirely out of the system is no more than 25 percent.

If like me, you are concerned not just with the availability and quality of healthcare, but also its affordability, then it is important to understand that we have to look beyond insurance reform and coverage mandates. We must also look also at our healthcare industries, by which I mean doctors, hospitals, pharmaceutical companies, and so forth. Most importantly, we have to look at -- and fundamentally change -- the current dynamic in which employers, insurers, healthcare providers, and last (and sometimes least) patients come together to deliver and pay for our medical care.

Neither health insurance nor the healthcare industries exhibit the benefits we expect from effective marketplace competition. As BusinessWeek Magazine recently reported, most health insurance markets in the U.S. are effectively monopolies or duopolies (one or two companies control the vast majority of market share). They found the same thing for hospitals. Insurance companies are unwilling or unable to extract significant long-term cost savings from providers. Healthcare providers seemingly feel the squeeze of “inadequate reimbursements” from insurers, but costs keep climbing, as do salaries and compensation.

This is where the “public option” comes in. The public option would be a single, nationwide health insurance plan that would be available as a choice for anyone who is currently uninsured, as well as many people with current coverage. It would co-exist with the current system of private health insurance, and no one would be forced to select the public plan. In fact, the only restrictions go in the other direction – public option advocates have agreed to restrict the ability of people with existing employer-based coverage to opt-in to the public plan in order to protect private insurers from the risk of losing too much business.

The public option plan can provide immediate savings to consumers who select it by doing away with some of the excess overhead consumed by insurance companies. There won’t be any premiums diverted to profits or outsized executive salaries. Moreover, government plans such as Medicare and Medicaid have proven to be more administratively efficient than their private counterparts. More importantly, a large public plan will bring competition and market discipline to every corner of the country. Frankly, the theory is that with enough enrollees, the public plan will be able to act as a price-setter, and not merely be a price-taker. The public plan will not be authorized to save money by rationing access to needed care.

Miracles of cost-containment, bringing us into parity with places like Canada should not be expected, but it’s very reasonable to expect that we can knock a couple of percentage points off the rate of annual medical inflation: What the President calls “bending the curve.” The savings would go beyond members of the public plan, as private insurers would be forced to respond with their own efficiencies. You wouldn’t know it from stories that cast the public option as yet another costly program demanded by “liberals,” but the public option is actually the most significant cost containment feature in the proposal being considered by Congress.

Since our last stab at major health reform, we’ve added another decade’s worth experience to the decades that went before, all telling us that our current mix of insurance and healthcare arrangements is simply unable to control costs. Common sense demands that we try something different. The public option can bend the cost curve, while not disrupting the existing care relationships for people who are happy with their current coverage. It is an essential component of any healthcare reform package.
Marks is a member of the New Mexico Public Regulation Commission, which regulates insurance through its Insurance Division.
Copyright © 2009 by the New Mexico Editorial Forum. 10/09