• The Trigger: Hacker’s Competitive Check?

    Jacob Hacker, the “godfather” of the public option, doesn’t like the Senate’s compromise as it would apply to those below 55 years old. It would tap the Office of Personnel Management to oversee national non-profit health plans, which Hacker believes will increase the market share of Blue Cross and Blue Shield, the “most likely national non-profit to take advantage of this new opening”. He continues,

    Without an imminent threat of real competition, a strong benchmark, and effective regulations to back them up, private insurers are likely to raise premiums in anticipation of the implementation of reform.

    Hacker is right. While a dominant insurer, or several large ones, can negotiate lower prices, there is no guarantee those low prices will be passed on to consumers in form of lower premiums. One way to get them to do so is via an “imminent threat of real competition” in the form of a federal plan (a real public option) that would enter if premiums are not sufficiently close to costs. That is, a trigger should be defined in terms that protect consumers from the otherwise monopolistic behavior of insurers, among other things. However, preserving the monopsonistic feature of a large buyer is still worthwhile.

    This is precisely the notion of contestability, identified in the health economics literature (and elsewhere) and about which I wrote before. A government plan in waiting that serves to keep pressure on private insurers is the right role for a triggered public option even within the current compromise. Whether it is crafted to work in the fashion Hacker seems to endorse and I just sketched out remains to be seen. I am skeptical but hopeful.

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