Monday, May 18, 2009

Prospects Uncertain for “Public Plan” Option in Health Care Reform

The so-called “public plan" option proposal remains the most contentious of all on the table in the health care reform debate. The idea is that the federal government would offer a government subsidized benefit plan, akin to Medicare, for not only all of the current uninsured but also for anyone who wanted it. As such, it would compete with private insurance plans whereby it might, as feared by many, through its pricing power eventually wipe out private plans and be the only plan left standing, thus successfully effecting a Trojan horse tactic to establish single-payer government run health care.

Two related issues are thorny as well. First -- how to pay for it if enacted. Not much alternative but higher taxes. Second -- how can continually rising medical care spending be better restrained to make all health care more affordable? Here, some endorse free market solutions such as cost sharing to make patients behave more like discerning consumers, while some endorse a federal health care board that would mandate cost-effectiveness-driven coverage decisions as to who gets what care and when (Obama’s new Institute of Comparative Effectiveness, authorized in the stimulus bill).

As of today, the prospects for such a public plan option are unclear. A few days ago Matthew Murray reported (link) in Roll Call that “[t]he fiscally conservative [Democrat] House Blue Dog Coalition … announced its health care blueprint, a plan that likely will have fellow Democrats grousing for its lack of a government-run component.” Also last week, Philip Klein wrote (link) at The American Spectator that “Republican Sen. Mike Enzi (the ranking member of the Health, Education, Labor, and Pensions Committee (which is chaired by Ted Kennedy), and also a member of the Finance and Budget Committees) … insisted that regardless of their public statements in support of such an approach [for a public plan option], privately, Democrats are ‘backing away’ from the idea, ‘or holding it out there as something to trade in the future.’ ”

Finally, in response to my post last week (link) on the public plan option, a physician friend with a wealth of experience in clinical practice and managed care/health insurance comments:
The public option plan is so vague at this point, it seems hard to say what the implications will be. Clearly if you extrapolate it out, it could be the end of direct insurance role for the privates. But they would still run the back office---so less profitable, but still a going concern.
Nevertheless, I think your depiction of it as a "trojan horse" is apt. But, if it were available only to individuals, self-employed, and maybe small business, it could make a real difference without being so dominant. Maybe.
The amounts of money being currently charged for self-employed, small business or the individually insured are hurting business widely. (And remember that in aggregate this is a huge group--- with the self-employed and small business making up possibly the largest group of working people in the country) This is often the rag-tag group which brings new ideas --- really where "innovation" comes from. And the non-innovative private sector insurers are stifling their ability to have reasonable margins in their work with policies which often seem to have little to do with fair underwriting, but mostly to do with income optimization for themselves. If they, the private insurers, could provide more reasonable, less costly alternatives to these groups (which I think means lower profit margin and more accurate underwriting principles) then I would say go for it. I do know how tantalizing it is, though, to have large profit business go along undisturbed, especially in times when other LOBs are declining in margin. They have not budged on this for 20+ years. Maybe the scare of a possible "public option" is just what they need to start them thinking about their business model anew.
The economics are a bit murky. AHIP says it can accept no pre-existing conditions if there is an insurance mandate. But the public option people have been more or less silent on that, since it is politically dangerous. Assuming that did get in place, then AHIP is saying they couldn't compete with the public option due to pricing power imbalances. As far as I can recall, pricing has been shadowing Medicare for years in the private sector (at least payment for hospital days, various appliances, etc.). So have programs and policies, etc. So, while it seems logical that a public option would put competitive pressure in place, I don't understand why it would be a situation where the privates could not compete at all. I do hear that said, though.

John M Greco

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