We in Minnesota have been able to watch the brouhaha over the Healthcare.gov website from a lofty perch. MNsure, our state health exchange, has had a much smoother rollout and has the full support of both the Governor and the Legislature. While the Affordable Care Act has some bumps in the road ahead, it is off to a decent start here in the heartland. That is not a surprise, given that Minnesota has a strong civic culture and a tradition of good government.
It also means that Minnesota is well-positioned to become a leader in the next stage of health care reform: I suggest Minnesota should offer its citizens and businesses a public option for health insurance. It has the potential to create radical change and do good things for Minnesotans.
The concept is simple. On MNsure, alongside the health insurance policies offered by private insurers, there could also be policies offered by the state. These policies would operate in every respect the same as a private insurance policy, but instead of a private company owning and running it, the State of Minnesota would.
The idea of a public option was a contentious part of the debates over the ACA in 2009 and 2010, and lamentably failed to make it into the final law signed by President Obama. The arguments for it were strong. A public option would create a competitive incentive for private insurance companies. It would push down costs and discourage insurance companies from spending vast sums on advertising and executive salaries. Even if no one actually bought into the public plan, its mere presence would be enough to stimulate change.
Although the federal law has no public option, there is nothing to prevent Minnesota from enacting one here. There is every reason to think we could do this successfully.
First, Minnesota has a great system for insuring state employees that gives us reason to believe Minnesota could successfully develop insurance policies for the private market. SEGIP, the State Employee Group Insurance Program, covers more than 120,000 people – state employees and their families. SEGIP is an efficient and effective program. From 2002 to 2010, the average family health insurance premium nationally rose 7.2% per year; SEGIP rose 6%. Through an innovative plan design, SEGIP makes full use of its large size to leverage lower health care costs for enrollees.
Perhaps most significantly, SEGIP’s medical loss ratio is (according to its most recent report) 93%, meaning 93% of the money taken in by premiums is spent directly on health care claims, and only 7% is spent on administration, overhead and everything else. Under the ACA, private insurance companies have to achieve loss ratios of only 80 or 85%, depending on the kind of policy. That means SEGIP is able to get significantly more bang for the buck than private insurance.
This was why the public option was championed by progressives when the Affordable Care Act was being debated in 2009 and 2010. The dirty little secret of the American health care system is that it’s radically inefficient. Huge amounts of money are spent on bureaucracy, from the medical billing specialists at every doctor’s office to the huge staffs of insurance companies who spend all their time looking for ways to deny claims. All those people, all that paperwork: it adds up. A program like SEGIP, by contrast, is able to do the job with significantly less administrative overhead. It’s why a public option would probably deliver lower costs to Minnesotans.
Perhaps the biggest – and most significant – objection to the Minnesota public option is that state government has no place selling health insurance: that it might be one thing for the state to insure its own employees, but it’s something entirely different to sell policies to businesses and individuals. And, that would be a very strong argument, if it wasn’t for the fact that Minnesota has been selling insurance policies for the past 25 years.
In 1987, Minnesota enacted the Public Employee Insurance Program, or PEIP (“peep”). PEIP allows school districts, counties, cities and other local government bodies to buy their insurance directly from the State of Minnesota. The plan is modeled on SEGIP, and the leveraging power of SEGIP’s 120,000 insured lives helps control costs for PEIP participants.
The biggest users of PEIP have been school districts, prompted by the active efforts of Education Minnesota, the state educators’ union. Many school districts have saved significant amounts of money by switching to PEIP – but that’s not the best part. The best part is that, in case after case, when the union would ask for an insurance quote from PEIP, the school district’s current insurance provider would magically find a way to cut their own prices in order to hold on to the district’s business.
This is exactly how a public option should work. It’s not primarily about moving everyone onto a government insurance program; it’s about using that program to keep the private companies honest and to push them to lower their prices.
While the current potential customers for PEIP are all public entities, the business relationship is exactly the same as it would be if PEIP was selling to a private company. There is every reason to believe that PEIP would be just as successful for the private sector as it is for the public sector.
Implementation of the Minnesota public option need not be costly. Selling an insurance policy is not the same thing as selling televisions. It’s not as if the state will need to build factories to make insurance policies, or open stores around the state to sell them. If fewer people than hoped buy into the public option, Minnesota won’t be stuck with warehouses full of insurance policies that we have to liquidate at auction for pennies on the dollar.
Instead, it could all be done electronically, through MNsure. Economists and actuaries would need to crunch the number to create initial quotes for bronze, silver, gold and platinum policies on the exchange. The cost of that work can be built into the premiums themselves, so that the state won’t be putting its thumb on the scale to make the public option artificially cheaper. PEIP is run by the state but the actual administration is done by private insurance companies, so there will be no need to inflate the size of state government to accommodate new policyholders.
Minnesota’s public-sector unions should encourage the enactment of legislation creating a Minnesota public option. However untrue the accusation is, the public perception is that unions fight to protect their own members at the expense of the rest of the middle class. Public-sector union members in Minnesota already have access to quality insurance benefits. They should fight to make quality insurance available to all Minnesota workers. They are among the few organizations with the political influence to make such a program a reality, given the all-but-certain resistance of private insurance companies. They should use that influence to help Minnesota set an example for the rest of the nation to follow.
Dave Kamper is a business agent for MAPE, the Minnesota Association of Professional Employees. This essay arose from his coursework at the Labor Center at the University of Massachusetts-Amherst, where he is completing a Master’s Degree in Union Leadership and Administration. Although he works for MAPE, the views expressed in this essay are his own.