Opening Up to Choice

The Baucus bill has a radical notion at the heart of its strategy to expand insurance coverage: Individual consumers should exercise free choice in picking an insurance plan, and health insurers should compete for their business. In doing so, the ranks of the uninsured would decline, and competition would bid down premiums for individual coverage, slowing health-care cost inflation and making insurance more affordable.

Choice and competition are bedrock values in our culture, but they are rare in health insurance. In fact, insuring all Americans via Medicare would be a smaller cultural departure than would creating a functioning market for health insurance in which individuals do their own shopping.

After all, everyone will eventually be covered by Medicare if they live long enough, but a robust market for individually purchased health insurance has not developed.

Just over half of all Americans (about 160 million people) are covered by private insurance obtained as a benefit of employment or are the spouse or dependent of a covered worker. Many who are insured through the workplace have no choice of plan, and they are forced to accept a one-size-fits-all policy or to decline coverage. Others have limited choices. At Duke University, we are fortunate to have several policies to choose from that differ in terms of insurance company, provider network and benefit structure -- higher premiums for lower out-of-pocket risk, or vice versa. The Federal Employees Health Plan -- what members of Congress have --is said to offer the most choice of any employer-based private insurance plan in the nation.

Just 14 million out of 307 million Americans have individually purchased policies, meaning that they contacted an insurance company, applied for coverage, were approved and are paying premiums (with after-tax dollars). By comparison, Medicare covers 45 million persons and rising (here come the baby boomers!), and Medicaid covers 60 million at some point in a year (some people are eligible for both).

The Baucus bill aims to expand coverage by reforming insurance laws and creating a market in which uninsured individuals and small businesses (50 employees, 100 by state discretion) can shop for insurance. The CBO estimates that 29 million persons would sign up for policies via the markets (called exchanges) to be created by the Baucus bill from 2013 to 2023. The policy debate in Congress will likely focus on whether the subsidies provided in the bill make insurance affordable (still too small), whether there should be a penalty for not obtaining coverage (I wouldn't die on this hill) and identifying spending offsets to make the bill deficit-neutral (capping the tax exclusion of employer-paid premiums is the way to go). Important details.

Deleting a Tax Subsidy from the EquationBut step back for a second. At its heart, the Baucus bill identifies the uninsured problem as a failed insurance market and, instead of turning only to government insurance, attempts to actually set up a functioning market for individually purchased policies, with a goal of harnessing the benefits of market competition.

However, the vast majority of Americans would not be allowed to shop for insurance in the exchanges as the bill is written. Those with employer-based coverage would be stuck with whatever policy was offered at work, and those who decline employer-based coverage would be barred from shopping in the exchanges.

We need to shake things up because our system is unsustainable and we have millions who are uninsured. If we are going to try choice and competition, then we need to try it more broadly and not just for those currently uninsured or working for small businesses.

Sen. Ron Wyden, an Oregon Democrat, has proposed an amendment to the Baucus bill that would open the exchanges to anyone, but no one would be forced to use them.

It would work like this: If you did not like the policy you have through your job, you could get two-thirds of the premium amount paid by your employer and take this, plus any money you wanted to pay out of pocket, and buy a policy in the exchange. If you liked your employer-provided plan, you would do nothing. Some worry that only the young and healthy would seek out the exchange, but I suspect younger, healthy employees are the most likely to take the path of least resistance.

Most arguments against covering the uninsured via a government insurance plan end with a phrase like "what we really need are market solutions, and more choice and competition in health care." The Baucus bill is imperfect, but passing the Wyden Amendment and opening up newly created markets for health insurance to all who want to shop for their own coverage is a step toward what many have been saying they want.

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 September 25, 2009.  This is part of a weekly series of articles by Donald Taylor exploring aspects of the health care reform issue.