Maryland's auto insurance fund shows a public option can work

November 11, 2009|By M. Kent Krabbe

The health care reform bill passed by the House of Representatives last weekend ensures that the public option debate is far from over. Today's reasoned discussions thankfully replaced a summer show of angry health care forum re-runs with a fresh reality series featuring intelligent debate on serious policy issues.

Framing and advancing this discussion, President Barack Obama recently noted that we should require everyone to have health insurance "just as most states require you to carry auto insurance." In this simple formulation, the president reminded us that a successful public/private insurance initiative is not a dream. In fact, in Maryland, it is a time-tested reality.

The Maryland Automobile Insurance Fund is a government created public/private partnership that works. It is a hybrid entity providing automobile insurance for those unable to obtain it with private carriers. Today, MAIF provides reasonably priced automobile insurance and dignified customer service to thousands of Marylanders. MAIF receives no tax dollars and succeeds at no cost to Maryland's standard insurance market.

MAIF's success provides a road map for a public/private solution to our health insurance crisis. Emulating MAIF, Washington policymakers should follow five principles.

1. It must be a public/private partnership. While created by state government, MAIF's board of trustees includes guaranteed positions to members selected by the automobile insurance industry. This provides valuable industry input in all aspects of MAIF's operations. MAIF is allowed to recoup any operating losses from Maryland's private automobile insurers. This provision, though unused and unneeded for 20 years, creates a compelling financial interest for the private insurance market to see to it that MAIF runs as an effective and cost conscious automobile insurer. The public/private partnership is unfettered by the need to pay dividends, yet it runs as a business and not a bureaucracy.

A health insurance public/private partnership can embrace this model. It would be a federally created entity, governed by a board combining publicly appointed members with representatives of the insurance industry and health care providers. Capitalized by policyholders, the industry would nonetheless proportionally share in any losses, motivating it to work in partnership with the public plan.

2. All must have "skin in the game." MAIF premium payments are made by each policyholder at actuarially developed rates. Importantly, this expands the ownership of MAIF from the insurance carriers to the individual. In health insurance, actuarially sound rates must also be charged.

3. It must be universally available. MAIF insures all Maryland residents who apply and does not reject any risk. MAIF has no producer or agent force, but rather its coverage is easily and universally available through the existing automobile insurance sales structure. More than 2,500 small Maryland businesses benefit by selling MAIF insurance policies.

A public/private health insurance mechanism need be no different. It should insure all who apply with little new marketing infrastructure and be offered, like MAIF, through private agents and brokers.

4. It should focus on minimum coverages. Ninety-nine percent of the MAIF policies provide only the minimum legally required benefits. This allows the private insurance industry to design more attractive policies and provides motivation for people, when they can, to move from MAIF into (or back into) the private insurance market. Despite its minimal limits, MAIF coverages are high enough to pay 95 percent of all claims.

In the health insurance context, the public/private partnership option should consist of a mix of catastrophic hospitalization coverage balanced with a basic level of preventative services. This blend will put the majority of the health care decisions in the hands of the people it serves, while providing a safety net against debilitating needs that haunt American families.

5. There must be an adequate risk pool. An adequate risk pool is vital to keeping insurance costs affordable. As the president has noted, mandatory health insurance coverage for all, combined with rules protecting coverage for individuals with existing illnesses, will drive down costs.

Let the five principles of MAIF's success guide the debate in Washington.

M. Kent Krabbe is executive director of the Maryland Automobile Insurance Fund. His e-mail is kent.krabbe@emaif.com.

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