In this article, Harvard Business School professors Regina E. Herzlinger, Robert Huckman, and Michael E. Porter offer their views on health insurance reform and the prospect of a government-run public market for health insurance. Each of the three contributions links to more detailed analyses of the issues, including Herzlinger’s book, Who Killed Health Care? America’s $2 Trillion Medical Problem-and the Consumer-Driven Cure.
Herzlinger (together with Senator Tom Coburn) argues against a government-run public market for health insurance. She points out the true cost of Medicare, if the program used accrual accounting—as private insurers must—would go up by a trillion dollars (34 trillion multiplied by a marginal Federal borrowing cost of 3 percent). Claims for lower costs for Medicare also fail to take into account Medicare’s tax-immunity and its monopoly-based lack of need for marketing. Herzlinger points to a major study finding that 118 million people would eventually move into Medicare, leading to a great shrinkage in—and perhaps death of—the private-sector market.
Robert Huckman is less concerned, believing that “the chances of a government plan supplanting private options are slim”. Even with consensus on this question, he says that significant reform means making major changes in how medical care is delivered and how information about patients is collected and tracked over time. This is the only way to make genuine progress in quality improvement, cost containment, and value creation.
Finally, Michael Porter identifies two fundamental issues: achieving universal coverage and changing the way insurers compete for subscribers. He argues that “competition among health plans should be based on value for subscribers, where value is the health outcomes achieved per dollar spent” and that a public plan is not needed to “reorient health plan competition around value for patients”. Porter notes that the claimed cost savings of a public plan are one-time savings rather than true ongoing outcome or efficiency improvements. Not only does a public plan shift costs to suppliers or other purchasers and ultimately to patients, it “is subject to political distortions and interest group bias that will disadvantage some citizens over others and block needed fundamental reforms.”