A better option: Give the uninsured access to the health plans offered Members of Congress

A public insurance plan as an option under a new health-care system is proving to be a major point of controversy. While President Obama has addressed the controversy, he has continued to avoid addressing the real issues behind the controversy, as well as why an obvious solution that would make everyone feel better about health care reform wasn't considered instead. One issue surrounding the controversy is that allowing government to support a public business enterprise in competition with private firms is counterproductive.

While the President recognizes that subsidizing the federal government's own health insurance company would give it an unfair advantage against private insurers, the issue is more subtle than that.The President supports a public-plan option plan because he believes that it will offer lower administrative costs, an alleged advantage of Medicare.

However, much of Medicare's administrative costs are hidden. For example, Medicare reports its administrative costs as a percentage of identified administrative costs divided by claims. That seems simple enough, right? But there’s a lot more to administering a health plan than just paying claims. For example, there’s an entire bureaucracy involved in managing Medicare, the Centers for Medicare and Medicaid Services (CMS). Yet the salaries of these professionals are not included in Medicare’s administrative costs.

Nor are the marketing costs incurred by CMS to promote Part D. Nor Medicare’s use of the tax apparatus to collect “premiums.” By overlooking these and other hidden costs, advocates of government-run health care greatly underestimate the true cost of administering Medicare.In embracing the hope of lower administration costs, President Obama also overlooks the fact that some administrative costs add value. Disease management programs can help reduce overall medical care spending while improving the quality of life for insureds.

The private sector also pays taxes, government fees and incurs the cost of compliance with government mandates and reports. Good or bad, these costs are beyond the control of private health plans.Fraud prevention is another administrative cost that adds value. Medicare's low percentage of administrative cost has come at the expense of a high rate of fraud and unjustified reimbursement.

As just one example, on June 23, the Justice Department announced 53 criminal indictments against individuals making false claims to Medicare. FBI Director Mueller said that there are 2,400 open health-care fraud investigations. Medicare's low rate of administrative cost likely results because the program is under-administered, with insufficient oversight of claims resulting in higher total payouts - creating an exaggerated statistical ratio of low administrative costs to high payouts.

So, if lower administrative costs are elusive and the threat to private sector insurers palpable, why not embrace the better option of allowing the uninsured to enroll in the same health plans offered to Members of Congress? Certainly, the Federal Employees Health Benefits Plan (FEHBP) is part of the current private insurer, third party payer system that needs reform. But the President himself cites the FEHBP favorably, and it provides a choice of competing carriers and plans.

Federal employees are happy with their plans. And the FEHBP achieves this without offering a government insurance plan; rather, it uses private plans competing against each other on the basis of quality and price, marketing to cost-conscious consumers (who can save money if they choose a less-expensive plan). Under the FEHBP, every consumer has a choice of at least ten competing private insurance plans from at least six competing insurance companies - and in most parts of the country, the range of choice is significantly greater.

Even though the federal employee population is large, it is only a small fraction of the total workforce. With a nationwide system of health-insurance exchanges for all consumers, the number of alternatives surely would be greater still. Allowing America’s uninsured access to the health plans offered Members of Congress—along with everyone else on the Federal payroll – could help those who could afford it although some, perhaps many, would probably find the premiums beyond their reach. A tax rebate in the form of a health care voucher could help the rest.