How to compete with private insurers on level playing field

As we undertake healthcare reform, we must make increasing competition our top priority in order to get costs under control and give consumers better choices.

In many areas of the country, one or two insurers have a stranglehold on the entire market, which produces costly premiums and healthcare decisions that may not always serve the best interests of the patient. This is why a public health insurance plan is absolutely critical: to ensure the greatest amount of choice possible for consumers, and provide at least one option that is patient-, not profit-, focused.

Under a reformed health care system, eligible patients — including uninsured Americans, as well as small-business employees — will be able to shop for and purchase health insurance in a centralized marketplace, or “Exchange.” The public plan would be a government-backed coverage option that would compete alongside private insurance plans in the Exchange.

Private insurers complain that they would never be able to compete with a public option. But it is fully possible to create a public plan that delivers all the benefits of increased competition without relying on unfair, built-in advantages. If a level playing field exists, then private insurers will have to compete based on quality of care and pricing, instead of just competing for the healthiest consumers.

Along these lines, I have proposed a set of principles to ensure just such a level playing field. For instance, the public plan should be run separately from the entity assigned to oversee the so-called Exchange. This separation would ensure that the public plan does not serve as both player and umpire, as some critics of the idea worry.

Second, the public plan should be self-sustaining. The federal government would capitalize the start-up of such a plan, but after its inception, premiums must cover claims.

Third, the public plan could be required to establish a minimum reserve to cover liabilities, as private plans are required to do.

Fourth, government subsidies for low-income individuals would be uniform, regardless of whether the consumer opts for the public plan or a private one.

Fifth, the public plan must be required to provide the same minimum benefit design as all other insurers competing in the Exchange.

And sixth, the plan could be structured to allow Medicare providers to opt in, rather than be forced, to participate.

A public plan that adheres to these principles would provide a number of positive benefits. For starters, it will exert downward pressure on healthcare costs. The public option will be able to leverage its lack of a profit motive and relatively lower administrative costs to spur private-sector competitors to identify operating efficiencies to keep administrative overhead and premiums low.

It will also increase transparency in the market. A public plan can serve as a trusted benchmark for consumers to enable them to easily compare plans, and equip patients and providers with transparent information about what treatments work best.

In addition, the public plan will provide a stable, “always there” recourse for uninsured and underinsured Americans. It will ensure that every consumer has access to a quality health plan no matter where they live.

Those skeptical of the need for a public plan have been proposing a “trigger” option that would introduce a public plan sometime down the road if certain conditions are met. The main criteria would likely be either market share and premium costs, or some combination of both. But in many states, those conditions have already been met — premiums are through the roof and one or two insurers dominate the market.

The need for increased competition, therefore, is clear. And a public health insurance plan is the only true way to guarantee it.

Schumer is a member of the Senate Finance Committee.