At the recent Democratic debate, Lester Holt asked for a show of hands: Who would end the role of private insurance companies as part of health care reform? Four hands went up – Bernie Sanders, Bill de Blasio, Elizabeth Warren, and Kamala Harris. Other candidates argued for incremental expansions of Medicare within our current heavily private insurance system. John Delaney made a plea to “keep what’s working” – i.e., private insurance that people like. After the debate, Harris muddied the waters a bit, saying she misheard the question, and favored a role for private supplemental insurance.
How do we make sense of all this? In this perspective, I unpack the idea of private insurance – considering benefit design, marketing, financial coverage, and profit status. I examine the potential role of private insurance in Medicare for All (M4A) or single payer health care. Preview: the role is minimal to none.
Let’s start with the current system. Private insurance, mainly employment-based, covers two-thirds of the population and one-third of health spending. It is typically fairly broad in the kinds of services covered, but with many limits and exclusions, and no standardization. Certain features, such as wellness care, are added to attract healthier enrollees. Marketing is intense. Financial coverage is highly variable, often with extensive cost-sharing (high deductibles, copays, and excluded services or providers). Most insurers are for-profit, and even among not-for-profits executive salaries are sky high. In these ways, private insurance echoes many features of other free market products.
Over the last decade, private insurance got a little better, then worse again. Obama’s Affordable Care Act (ACA) established standards for insurance to protect the policy holders, including required types of coverage (e.g., hospital and ambulatory), specified tiers of actuarial rates (percent of covered health care paid), community-based premiums (based on age and gender) rather than charging more for individuals with medical problems, maximums on out-of-pocket costs, and prohibition of egregious practices like “recission” (retroactively revoking insurance based on trivial errors in applying). The ACA also imposed an individual mandate, and set up insurance exchanges to facilitate that. Here’s the worse again part: The Trump administration has undone the mandate and created massive loopholes to foster insurance plans without protections for policyholders.
Private insurance has also permeated public programs. “Medicare Advantage” is the capitated (monthly set payment) alternative to traditional Medicare fee-for-service, which has been subsidized by Congress for years and still overcharges. Medigap policies cover costs not paid by Medicare. And the Medicaid program is now also largely capitated via private plans.
As you can see, private insurance is highly variable in the U.S.
Not so in other wealthy democracies. Outside the debates, some experts and pundits have proposed following the Swiss or German model of relying on private insurers instead of a government payer. This may leave the impression that their private insurance is like ours. In fact, they differ in nearly all important ways. First, the private insurers sell mainly a single, standardized benefit package. This broad benefit package assures excellent coverage. It also profoundly simplifies system administration – providers deal with a single set of rules and billing procedures. Second, financial coverage is much better: little or no deductible, low cost-sharing, and access to any provider, so no out-of-network charges. Third, marketing is very subdued. Finally, insurers are not-for-profit for these primary health plans. (Some ancillary insurance can be for-profit.)
So… is there a role for private insurance under M4A?
The big answer is “no”. All M4A proposals, including the Sanders bill, have a single payer. This strategy is what confers the many gains of M4A. First, a single payer (the government) means simplicity for enrollees and providers, yielding a massive 10% overall savings via administrative streamlining. Having multiple insurers covering core services would undermine those gains. In addition, a single payer can effectively negotiate on prices, in particular with drug companies. Finally, and importantly, having private insurance would undermine equity and a shared commitment to the public payment system. Imagine someone making $1 million per year and because of progressive tax-based financing is paying the costs of five people on the public plan. People in that position may feel it’s justified to reduce the public system generosity by 20% to pay for his insurance plan. Or that wealthy person may insist on tax subsidies for private insurance premiums, again stealing money from the public system. We’d be exacerbating inequality.
OK, so no major private insurance role within single payer. Is there any role?
- What about emulating the Swiss system? Perhaps…but can we really get there, given our corporate culture? One product, not-for-profit? What companies would be interested?
- What about insuring gaps in coverage? Good question. M4A proposals don’t have major gaps in coverage, except sometimes long term care. Private insurance might have a focused role there, but nothing as large as Medigap today. In my view this would be suboptimal, but it’s a reasonable discussion.
- What about Kaiser and other HMO models? Some M4A proposals allow for capitated care systems. Personally I think that’s a good idea. But it wouldn’t be insurance, it would be a care system.
- What about supplemental coverage for low-value/non-core medical services, such as private hospital rooms or alternative care models? As long as it’s not totally discretionary (like most cosmetic surgery), could be.
- Could private insurers handle the billing process? There could be private vendors for these services, and current insurers have some expertise in this area. But it’s not really private insurance.
- What about for individuals who want care from providers who choose not to participate in M4A, e.g., concierge medicine? That will be out-of-pocket, not insurance. See above for all the problems with allowing private insurance for core services.
- What do we say to people who like their health insurance? We ask them, is it your insurance you like, or excellent access to providers and coverage of care? Because under single payer both will improve – access to any provider, and low or no cost-sharing.
Ultimately, in my view, private insurance cannot have a central role in M4A, because it would undercut what’s so powerful about a single payer. But perhaps it can have a focused role.
James G. Kahn MD MPH is Emeritus Professor of health policy at the University of California San Francisco.
