Why Care About Public Plan?

I'm puzzled by the fuss over including a public plan in health reform and hoping that readers out there-- who feel strongly on either side of the issue -- can help me out.

The idea of a public plan that can help keep the big boys honest is an attractive one that could prove marginally helpful in understanding how the market works and controlling costs. But I apparently missed the email explaining why it was Highly Important and am thus genuinely confused by the rhetoric it has inspired.

As I understand it, there are two ways a public plan could work. The simpler one would merely construct a public entity that would sell policies to buyers and make contracts to reimburse buyers in much the same way as commercial health insurers now do. Assuming equal efficiency, it could set premiums modestly lower -- perhaps 4% lower-- because it was a non-profit organization. But that assumes it could pay doctors and hospitals the same reimbursement that today's big insurers do.

That's improbable because price goes down as market share rises. In the negotiating process an insurer offers providers a lot of business in return for a price break (Blue Cross visits a cardiologist and says it'll send patients who need a thousand procedures a year in return for a lower price). But the new public entity will inevitably start with a lower market share and thus be less able to negotiate big price breaks that can be passed along as lower premiums.

For those who haven't noticed, the insurance market is highly concentrated, with a handful of major players in each major market. It will take a while for any new entrant -- including a public plan -- to become a major player able to squeeze major price concessions from providers.

There is, of course, another possibility. It would have the new public plan simply piggyback on Medicare, which has a very large market share already and doesn't bother to negotiate with providers. It simply pays a price it deems fair (subject to adjustment in the political process) and providers can take or leave it. Basically, it offers providers a deal they can't refuse -- and they generally don't.

A recent study concluded that medicare paid hospitals 93% of their costs, which means they're forced to make up the remainder from other buyers. If the public plan pursued this policy, it means that a growing percentage of the market would be insured by an organization that didn't pay full freight, forcing them to raise prices even more for others in the market -- private insurers and the few uninsured people left who'd be billed at the outrageously delusional rack rates.

The second option is one that causes fear and heartburn for private insurers, hospitals and doctors for readily understandable reasons. Some reformers are comfortable with that and see it as a fair payback to providers for past irresponsible behavior.

Maybe. There might be an argument if Medicare worked. But it isn't working economically. It is on the brink of bankruptcy despite its power to dictate prices. So it is hard to argue that Medicare should be a poster child for reform.

Meanwhile, the debate whirls on, becoming ever more heated about this issue and I become ever more confused about why folks care so much. As a political slogan, "public plan" pales before something robust like "54'40" or fight" or even "a chicken in every pot."

My inquiring mind is curious about what the real issue is here. Can anyone help? My thanks in advance.

Comments

[weiwentg]

If we started a public plan, it could potentially gain significant enrollment. If it was equal in size to the largest private insurers like Wellpoint and UnitedHealth (which have 30+million enrollees), it could undercut those insurers slightly on price, as it would be non-profit.

From there, it could innovate significantly on payment methodologies (e.g. bundled payments) and delivery system reforms (e.g. pay for performance). Some of the existing insurers are doing these, but not all of them. If there were a large government sponsored competitor, they would have to follow or possibly go out of business.

Aside from the fact that we may not get one, one key risk is that the for-profits might succeed in dumping the less healthy patients onto the public option. They could selectively market, or restrict the generosity of their benefits for chronic disease. Payments to insurers are likely to be adjusted for the health status of the insurer's enrollees, but the risk adjustment doesn't always compensate fully for the sicker patients. Another key risk is political: Congress might micromanage the public plan, as they do with Medicare. This could impede plan operations; for example, if a procedure or device was found to be very expensive and not offer much benefit, and the public plan decided not to reimburse for it, Congress could overturn it. This has already happened in Medicare with spinal fusion surgeries.

Basically, I'm for a public plan. However, the marketplace rules have to be tight.

[Jim Jaffe - Huffpost Blogger]

One's tempted to say that if wishes were horses than beggars would ride. Good-faith estimates say the public plan could pick up 10% of the market over five years, which would give it less clout in most markets than the larger insurers have. more to the point, consumers in many major markets have access to something that looks similar to the public plan in staff-model HMOs, but only a minority select it. There's a lesson of some sort there, tho I'm unsure what it is.

[max hp]

Apparently, the message is not getting thru.

Let us be PERFECTLY CLEAR: There is NO SUSTITUTE FOR A PUBLIC OPTION.

Don't waste YOUR time. Don't waste OUR money.

[Jim Jaffe - Huffpost Blogger]

thanks for clarifying things. there are probably nearly as many definitions of victory here as there are American voters. that said, if you choose to set a very high bar and draw a line in the sand about an issue that is entirely theoretical, you simultaneously maximize the odds that you'll score the outcome as a defeat or become a victim of the law of unintended consequences.

sorry that you feel the legislative effort to date has been a waste of your time. some of us value public debate

[getreal145]

You are misinformed about this 3-4% profit being the differential. Medicare overhead is 2-3% of costs; private insurnace, it is about 28-30%. We are talking about a 25% differential in cost, amounting to hundreds of billions per year. And there is more: the entrie health insurnace indisyrty focuses on denying care to imporve profits. Our care is called losses on their books. I am sick and tired of filling out forms and gegging for reimbursement from the private ehalth isnrunace company I have no chocie but to buy insurnace from. Let me buy a Medicare like policy and spend a little less and not worry about those a-holes cutting me or my family off if we get sick. Good riddance to private insurers. The co-op plan will not work; the pool needs to be large. We will vote for it wiht out feet and out pocketbook.

[Jim Jaffe - Huffpost Blogger]

unclear what you think I'm misinformed about, but all agree administrative costs are higher for private plans, which is a different question. if you have other profit figures, I'd love to see them. people in many places have the option of joining an HMO, where administrative costs tend to be much lower, but few do. the real issue is whether comparable coverage under medicare is significantly cheaper. apparently not. medicare is a system that's about to run out of money. allowing more people in would merely hasten its bankruptcy.

[weiwentg]

You, and not Jim, are misinformed. Private insurance overhead is actually about 15% of premiums for the larger insurers. Of that overhead, an average of 5% is profit. The rest is stuff like collecting premiums, marketing and underwriting, overhead for utilization and disease management, fraud prevention, and other stuff.

Now, a reformed market wouldn't need underwriting. Medicare collects premiums through the tax system, and I don't think the 2-3% figure you stated includes the costs of CMS and MedPAC (in other words, someone has to manage the program). However, the utilization management functions are really necessary, and Medicare has very little of this. I don't think we can make Medicare solvent just by cutting out fraud, but again, Medicare does very little fraud prevention. Not all overhead, in other words, is bad overhead.

I really hate it when anyone misstates the facts. That includes the single payer folks.

[Jim Jaffe - Huffpost Blogger]

you are not the first to suggest that Medicare might be a healthier program if it actually spent a bit more on administrative expenses. trouble is the current low figure gives those in government something to brag about -- apparent efficiency -- while leaving providers happy because of the modest scrutiny involved. so two powerful forces, ostensibly on opposite sides of the issue, are quite satisfied with the status quo for their own reasons.

[tompoe]

50 million people without health care, and you are asking, what?

[Jim Jaffe - Huffpost Blogger]

indeed. there's a difference between people going without care and people being uninsured. the key is affordable accessible insurance. a public plan isn't a prerequisit for getting there.

[tompoe]

Now, that's a good start to a solution, Jim. Just what do you think is a prerequisite for getting to affordable accessible health care delivery. Ooops. I just changed the rules. Or, did you? Let's agree there are 36 nations that provide superior health care delivery for all their citizens at a fraction of the cost we're spending on a private health insurance driven health care delivery system.

[tompoe]

Followed the two links to that site you mentioned. One point you fail to understand about the claims made, is their assumption that the savings in unnecessary health care would occur only if the fee for service feature of Medicare is eliminated, thus removing the incentive for providers to engage in the choices they make, now. We can talk about that, as it impacts on what reforms are needed.

The other point, concerns the profit percentage reported by insurance companies that is remarkable for a corporation dedicated to making their shareholders wealthy. Disregarding the unbelievable salaries and benefits granted insurance provider executives, it is nonsensical to expect any corporation to operate successfully over time, if their profits are that low. On the other hand, I suspect the IRS wouldn't be surprised to see such low profits reported. At any rate, that profit is put to good use when Single Payer is invoked, which, by the way, eliminates the fee for service concerns at the same time.

I'm beginning to sense you will quickly be championing one of the 36 versions of Single Payer being enjoyed by nations providing superior health care delivery for all their citizens. After all, Jim, we're really together on implementing what's best of the best for all of us, right?

[Buck Bannister]

Tell you what Jim... why don't you help me out? My husband needs $3500 colonoscopy to see if his cancer has returned. Obviously, because he has had cancer he isn't entitled to insurance coverage. So, how bout we swing by your house and pick up oh, 3.5 grand so he can get his colonoscopy. Should we need the $50,000 round of chemo and radiation again, I'll drop you a line and pick it up later. Look, we aren't getting what we wanted which is Universal Healthcare so the best we can hope for at this point with these morons is to get something like Medicare for people like my husband. Honestly, at this point, I don't give a crap whether it's sustainable in 50 years. So, when can I come by for that money?

[Jim Jaffe - Huffpost Blogger]

all should have access to insurance at a price they can afford without a bias against pre-existing conditions. if commercial carriers are willing to sell insurance -- and they say they are -- that's okay with me. sounds like a pretty pricey colonoscopy, more than double the norm here in the DC area where things generally don't come cheap.

[wuggaslady]

I don't think there is a single reason that supporters of a public option can get behind, whatever that option may mean.
I can think of a few reasons.
1. Here are just some of the problems we have with the so called service provided by private insurers. They bump people because they were seriously il. They discriminate against people with so called pre-existing conditions, such a pregnancy. They charge insanely high premiums and are covering less medical services. I suspect that some people simply don't trust the private insurers anymore.
2. Some people favor a single payer system, which was never on the table. The public option is a compromise. Without it, the problems with healthcare will not be fixed.

3. There has to be some mechanism through which people who don't have insurance can form a collective for the purpose of having some bargaining power with the insurance companies. Simply put, big customer groups get volume discounts. Small customer groups pay like they were buying ala carte in a restaurant. Some have argued that private owned co-operatives would solve this problem. I'm not convinced because a bunch of small cooperatives will lack the leverage in terms of negotiating premiums.

I have a question for you. If the public option wouldn't really make much of a difference then what's the harm in having one?

[Jim Jaffe - Huffpost Blogger]

I'm fine with co-ops and welcome an opportunity to try them. they immediately squeeze out the 3-4% in profits insurers enjoy. whether they can undercut their premiums is an open question, but I'd like to find out.

[Konnie]

teddy care will only work if you remove the profit from every segment of the industry. see: all the other civilized countries of the world.

it will only work if the rich and poor,sick and healthy are all in the same pool as in universal.

it will only work if drug, doctor, testing, and hospital costs are negotiated.

it will only work if the administrative costs are driven down and simplified to single-payer.

it will only work if there are no ceo's, executive staff, advertizing gurus and salesmen
counting on multi-million dollar salaries, bonuses and commissions.

it will only work if the grant money now being given to university research departments
is repaid with innovations/discoveries/new procedures/treatments/medicene for the
government run teddy care/va/medicare departments
instead of being turned over to a for-profit businesses to sell for a profit back to the taxpayers
whose tax dollars funded it in the first place.

it will only work after a period of revolution.........

this is only the first battle of many to get there.

[Jim Jaffe - Huffpost Blogger]

profit may seem a dirty word, but the public seems reluctant to limit compensation for doctors, hospital administrators and drug company executives and even I find it hard to explain why a hedge-fund manager can make multimillions annually while a surgeon would only be permitted to make a fraction of that.

[Konnie]

the limpublicans
have a problem, the doctors have a problem, the ceos, executive staffs,ad execs and salesmen have a problem - the public? not so much.