'Public Option' Could Return Competition To Health Market

News Analysis

August 21, 2009|By Jay Hancock | Jay Hancock,jay.hancock@baltsun.com

Joining employers across Maryland who are feeling another year of health-insurance pain, Groove Commerce will see its medical premiums rise 20 percent on Sept. 1.

The 10-person online marketing firm is less than three years old. CEO Ethan Giffin is trying to build the business in the worst recession in decades. A key cost that goes up 13 times the rate of core inflation isn't exactly helping.

"I want to operate a company that provides for its employees and has great benefits and makes people feel welcome and a part of something," Giffin says. "What if it goes up another 20 percent next year? I have to start looking at alternatives and see how that fits."

There, in a nutshell, is the toughest part of the health care problem - wacko, out-of-control expenses.

Legislation in Washington would address the other part - millions of uninsured people - with taxpayer-subsidized coverage. Too bad it looks like Democrats are bailing on another feature that might help solve the first problem - keeping costs down with the so-called "public option" that would inject health-insurance competition into a market that badly lacks it.

What backers of "free-market" health coverage don't tell you is that there really isn't much of a market. A few huge insurers dominate most states, according to a recent report by Health Care for America Now, a pro-reform group. Employers and other buyers have hardly any choice.

Look at Maryland. CareFirst BlueCross BlueShield owns half the business, and UnitedHealth Group has another 20 percent, according to a 2007 study by the American Medical Association.

It's worse in metro Baltimore, where CareFirst and UnitedHealth control nearly 80 percent of the trade.

That's not a market. That's oligopoly - market failure. Antitrust regulators start getting worried when one company starts controlling even 40 percent of an industry.

A public health care option would provide another piece of what the market has withheld: competition. In addition to requiring almost everybody to obtain coverage, penalizing employers not offering coverage and subsidizing premiums for low-income folks, many Democrats favor creation of a new, government plan to keep corporate insurers "honest."

The public plan would be an alternative insurance choice as well as a formidable buyer of health services that could bargain with hospitals and pharmaceutical companies to lower costs. It wouldn't be perfect, and there are risks.

Wouldn't employers just dump their coverage, pay the government penalty and let workers use the public option? Would a public plan become overburdened with sicker-than-average folks?

Maybe. But could things possibly be worse than what we have now?

Across Maryland, employers are again seeing double-digit medical insurance increases.

"Some people say 10 percent is not that bad," said David Noel, senior benefits consultant with Group Insurance Solutions in Sparks. "Well, 10 percent is that bad. You're outpacing inflation. You're outpacing employees' gains in wages. And it's compounded over the years. Somewhere, somebody is going to hit their ceiling."

And many companies are doing much worse than 10 percent. An insurer just asked one small-employer client of Noel's to pay 47 percent more. The lowest increase I have heard this year for employers of any size is 8 percent.

"When I came into the business, there were probably at least 10 or 12 insurance companies selling health insurance to small businesses in Maryland," says Stephen Shaff, executive vice president for Employers Plus, a Baltimore-based benefits administrator.

That was in the 1980s. Now there are maybe half as many.

Shaff and other middlemen partly blame Maryland regulation, which in the mid-1990s limited how much insurers could raise or lower premiums based on the health of small-group members. That made the market less attractive.

But whatever the reason, there isn't enough health-insurance choice.

CareFirst blames continuing premium increases on rising health costs, but that's begging the question. With little competition, carriers have no incentive to drive down expenses. They just pass them on to customers.

Shaff and others I talked to for this column opposed a public option, arguing that a new government insurer might be a Trojan horse for getting rid of private insurers altogether. But how else will we start to control medical costs?

A modest measure to pay for counseling so families could choose to avoid expensive, heroic and dubiously effective end-of-life treatment got turned into a call for mercy killings by reform opponents. That won't be in the bill.

Republicans oppose "comparative effectiveness" studies that would reduce costs by identifying treatments that cost too much for what they deliver. Democrats oppose tort reform, which might keep lawsuits from driving up the cost of care.

Now they seem to be backing away from the public option. So we may get health "reform" that gives the insurance companies we know and hate millions of new customers, fabulous taxpayer subsidies and few cost controls.

That's a recipe for national bankruptcy. If we want to expand access to health care, making it unaffordable for everybody, including the country, may not be the way to go.

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