Government Insurance and Useful Innovation

President Barack Obama has signaled a strong desire for a public option in any health reform legislation. There are many questions that need answers in order to evaluate such an option, but most who oppose it do so based on the belief that government insurance doesn't work.

The 45-year history of the Medicare program (the federal insurer of persons age 65+) has demonstrated just the opposite: The Medicare program is an innovator that private insurance often mimics.

A classic example of Medicare as innovator was the program's covering of hospice care in the early 1980s. Hospice is an approach to caring for terminally ill persons that focuses on alleviating suffering and improving quality of life of the dying and their families. Physicians, nurses, chaplains, dietitians and others provide team-based care that focuses on the needs of dying patients in their last days and weeks. Most persons receive hospice in their homes, while others do so in dedicated facilities.

The concept of hospice initially came from England in the 1970s and was considered by many at the time to be a flawed notion. We cure disease here, not give into it.

However, hospice has passed the market test, and 4 in 10 Medicare beneficiaries who die choose this type of care (they are not forced to do so). Most people know someone who has been helped by hospice. And research that I have completed with colleagues at Duke University shows that hospice actually reduces the cost of care in the last year of life by about $2,300 for Medicare decedents compared with persons with similar medical issues who died but did not choose hospice.

Most private insurance companies followed the lead of Medicare and now cover hospice services for their terminally ill customers, because hospice has been shown over and over to improve quality of life for patients and families who are in very trying circumstances. And it does so while reducing costs. There are very few things in the health system that improve quality of life while reducing costs.

Deleting a Tax Subsidy from the EquationThere is a good chance you would never have heard of hospice had Medicare not added it as a benefit. The decades of the 1980s and 1990s saw an increasing cultural discussion of death, particularly the concept of a good death. There were many parts to this discussion, but Congress's decision to add a hospice benefit to the Medicare program was an innovative step that helped to mainstream the idea of hospice. And the payment approach adopted by Medicare allowed the United States to innovate and provide most hospice care in patient homes and not only in facilities, as it was done in England.

Medicare coverage of hospice helped transform a group of idealists into a plausible industry with many for-profit providers, one that has done much good.

The Medicare hospice benefit is not perfect, and I think the payment mechanism used today should be tweaked. And there are plenty of legitimate questions to be asked about how a public insurance option in health reform would work, mostly related to whether it would compete fairly with private insurers.

But opposition to a public option based on the notion that public insurance never gets it right, never innovates, is not based in fact. Hospice provides an important example.

Donald H. Taylor Jr. is an assistant professor of public policy. His blog is available for discussion of this article and health care reform in general. This article was first published in The (Raleigh) News & Observer on July 17, 2009.  This is part of a weekly series of articles by Donald Taylor exploring aspects of the health care reform issue.