There has been a lot of buzz about the public plan, but what exactly is it, and what would it do to the US healthcare system? You’ll probably hate this answer, but it all depends. Here’s the general tension: one side believes that the government can run the healthcare system more efficiently and cheaply than the private sector. The other side is a belief that the private sector generally can do things better than the government and that the healthcare sector is no exception. I’ll start with the most liberal/powerful version, and move towards the right.
Strong public plan option
To me this is defined by 2 key elements: (1) required provider participation and (2) Medicare-based rates. Since no bill has actually required providers to participate, I won’t get into that. I did make a reference to low Medicare rates in an earlier post, but suffice it to say that there are studies, including one from the Lewin Group, which is admittedly a subsidiary of United Health Group, that show that Medicare rates are as low as 71% of standard commercial rates. If you don’t believe me or doubt the validity of the study, go ask your doctor (or ANY doctor) if the rates that Medicare pays come remotely close to the rates for commercial payors. One key question though is, why should providers care – isn’t Medicare+Plus better than an uninsured patient, who’s paying pennies on the dollar? Well the fear for hospitals and physicians alike is not about converting uninsured patients into some type of insured patient (government or commercial). The key fear is what if the commercial patients turn into a lower paying government-insured patient? If half of the patients are commercial paying patients, then the average rate that hospitals receive is slashed by 30% for half its patients. This would devastate the hospital industry. Remember, 30% off of reimbursement goes straight to the bottom line, so after accounting for mix and taxes, it’s roughly 10% of net income gone. For an industry that makes an average of ~3% profit margins (~85% of hospitals are non-profit), taking out 10% is infeasible. Even though every proposal has limited the eligibility of a public plan to a small group of people, industry experts, conservatives, and moderates alike have recognized that establishing a public option could be the “camel’s nose under the tent.” In other words, if the plan is eligible for groups under 50 today, then who’s to say that eligibility won’t be expanded down the road to groups of 100, 500, 1000…until eventually the government controls the entire healthcare industry? It’s for these reasons that the earliest versions of the House bill with a strong public plan at Medicare + 5% rates were defeated in committee.
House version Public plan option
To compromise a little with the moderates, the early House version switched from a Medicare+Plus system to a “negotiated rates” system. Loosely defined, the Director of Health and Human Services (the department in charge of Medicare, Medicaid, FDA, CDC, etc.) would be in charge of negotiating rates with providers. Ignoring the difficulties of negotiating with >5,000 hospitals and the hundreds of thousands of doctors, it is unclear if these rates would be closer to Medicare or commercial rates. Again, the same argument (Camel’s nose) is being used to argue against putting in the public plan infrastructure in this form.
Other proposed verions
There are a few other versions in the Senate being thrown around as ideas. 1) Senate Majority leader Harry Reid’s state-based public plans with an opt-out clause, 2) Senator Olympia Snowe’s public plan with trigger provisions if the health insurance industry does not meet certain coverage or cost goals, and 3) Senator Kent Conrad’s non-governmental, state-based cooperatives akin to the agricultural industry cooperatives (think FL orange growers). The state-based plans are nearly as powerful as their national-based cousins, but it would allow states to opt-out. Considering that a few moderate Senators do not like this plan, it has no chance of passing. Chalk this one up to politicking by Senator Reid. The cooperative has been blasted by liberals as being too impotent to cause any change in the current environment. In other words, it would be the same as not having a public plan at all, and those critics would be right. Private insurers have already been competing against non-profit, non-governmental entities for decades. The intriguing one to me is the trigger-based public plan. On the surface, it solves the general tension that debaters have: it gives the private sector the chance to prove that it can bend the cost curve and cover the uninsured under new regulation, but it also creates a public plan if the private sector fails as the public plan backers would believe. It seems like the perfect compromise, but then the question becomes what is the “trigger” itself? Can insurers really be responsible for cost controls when they control only 15-20% of the premium via SG&A and profits? Will the trigger be strong enough to motivate the journey towards efficiency? This and many other questions remain to be seen.
If you asked me my opinion (and I emphasize this is an opinion because I can respect the belief that government can do things better than the private sector – defense and utilities for example), I’d tell you that I look at Medicare as the model for the government’s ability to run a health insurance program. If you’ve read my earlier post about Medicare, then you’d know that I think it is a pretty miserable program full of inefficiency and fraud. Regardless, the public plan is truly a big distraction from all the things that need to be fixed. As an American, I really do sincerely hope that legislation gets passed in some form. It is impossible to argue that the current system works. We’re next going to explore some of the ideas and writings of Atul Gawande and identify some of the positive changes that are being proposed to the system.