The American Academy of Actuaries is a non-partisan organization that dedicates itself to trying to inject sound thinking and analysis into public policy discussions.
The Academy has produced a series of issue papers on the issues around health insurance reform.
Their take on the public option is here
In this diary, I'll take you through their analysis, which does, I think, add some clarity to what is meant by "creating a level playing field."
The bottom line, for those who want to skip the detailed analysis, is that a group of respected, deliberately non-partisan professionals believes that it is possible to design a public plan that can compete with private insurers on a level playing field.
I think that makes this an excellent reference to rebut the red-state talking point that the public option condemns us to a socialist hell.
Of course, the actuaries who wrote this are non-political, and I'm progressive, so I'm not sure the playing field should be that "level" and I'll discuss that too.
The paper opens with the statement that the
American Academy of Actuaries Health Council neither advocates for nor opposes the concept of a public plan.
This is consistent with their general attempt to provide impartial analysis, rather than to advocate for particular solutions.
They then go on to say, as most other people do, that there needs to be a level playing field if a public plan is included. What makes this paper useful is that they go on to describe, in detail, what would make the playing field level.
(As an aside, here, I generally favor single-payer, so I'm not sure I'd mind a playing field tilted heavily toward the public plan, but such a bill would be unlikely to pass, because it would, rightly, be criticized as single-payer in disguise).
So what, Actuarially speaking, do my colleagues (none of whom I actually know, btw) say about the requirements for a public plan.
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Issue and rating rules must be the same for the private and public plan options.
In other words, if the private insurers are allowed to deny coverage or charge lower rates on the basis of health, age, location, etc, then the public plan must be able to do the same. (and vice versa)
This is classic actuarial thinking, and I think, correct. If you let one side pick and choose who it wants to cover while the other side takes all comers, then the side that can choose will take only the healthiest, making its rates lower, and creating a huge advantage.
A level playing field requires that both sides play by the same rules. IMHO, that means no rate differentials except for age and area of residence (and I'd give those up if I had to).
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Premium Rates must be Actuarially sound
What this means (Other than guaranteeing continued employment for Actuaries, which I, of course approve of) is that the premiums charged for the public plan must be sufficient to cover the claims that the plan has to pay, and the expenses of running the plan.
As far as claim costs go, I completely agree. If the government plan sells insurance where the premiums do not cover its losses, it will quickly drive private insurers out of business, and be a drain on the general budget.
As far as expenses go, I agree with this as a general principal, but in practice, it can be very hard to implement. The accounting for expenses in a large corporation or in a government is part science and part art. There will be some arguements as to what government expenses count as "public plan expenses."
The other item that the authors put in this category is a "risk charge." Private plans are required to hold assets in order to demonstrate that they have enough money to pay claims even if their assumptions about future claims turn out to be low. This protects the customers of the company against the risk that the company will become insolvent. A risk charge is a part of premium that allows the insurer to earn sufficient return on the money that it invests in this surplus. Unless it is mandated to do so, there is no need for the public plan to hold such a surplus, so it could have the benefit of not needing a risk charge.
I think that the actuaries are technically correct here, but I think that the whole essence of making this a not-for-profit plan is to give it an advantage. The private insurers are supposed to have an advantage by virtue of being more flexible than the creaky government beauracracy. Why should the government plan have to hold a risk fund just because private insurers do? If the government can provide a service cheaper because it is the government, then why should we artificially favor private enterprise.
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Benefit Package Requirements must be the same for public and private plan options.
This sentence could only have been written by people who do math for a living. Translated, it means that any restrictions on what plans can be offered must be the same for both sides.
This seems to me to be obvious and correct. It does bring up an interesting point about the guaranteed issue rules discussed in item 1. We want everyone to be free to sign up for coverage even if they have health problems. One consequence of this is that there must be a mandate that everyone be covered, so that healthy people can't just stay out of the system until they get sick. This would make insurance a money losing proposition for both the public and private plans. What, however, does the mandate that everyone be covered mean in a context where you could choose to be covered in plans with very rich or very limited benefits? Can you switch freely between plans? Smarter people than me will need to figure out how to make this work (another reason why I'm for Single Payer)
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Any premium subsidies must be available for both private and public plan options.
Again, this is a no brainer to me. If we're going to make money available to help poorer people buy insurance, they should have the same options available as those who are using their own money. This does raise the question of how big the subsidies should be, but that's off the topic here.
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Provider Payments must be comparable for all plans.
Translated, this means that the government cannot use its bargaining power to get lower prices than the public plans. I agree that the absence of this provision would be backdoor single-payer, so I think we can expect it to be there. On the other hand, I am in favor of the government using all the bargaining power it can; my solution is to say that providers who participate with any insurer in the health insurance exchange agree to participate with all insurers in the exchange at the same rate. This allows the government to bargain for lower rates, but allows private insurers to get the same rates. This seems fair to me, and it will avoid the distortion in the senior health market where the rates for non-medicare services subsidize medicare.
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Other state requirements must also apply to the public plan option.
This is a catchall that says that if a state mandates something for a private plan, then the public plan must be subject to the same requirement.
I think this is a little too strong. It is theoretically true if we want the playing field to be as level as possible, but it is by no means necessary to subject a federal government entity to all the rules of a private insurer. I'd take these one at a time.
I'm still for single payer, but I'll work for this form of public option as an acceptable compromise.