National Journal’s cover story last week (“The Deal Busters“) was about the 4 issues that could kill health reform. And first on the list was creating a public health insurance plan option to compete with private insurers in the push for increasing coverage.
The National Journal does a great job of describing the stakeholder groups’ political pros and cons around a public plan, but it doesn’t delve too deeply into the policy implications of expanding health insurance coverage with or without a new public plan option. That issue was recently discussed in Charlie Baker’s blog – which included several key points about public versus private insurance plans:
- Public plans often set the standard that private plans follow, and thus are not neutral actors in the market – Medicare is often ascribed such a market tilting role
- Public and private plans face different financial pressures, i.e. private plans need to at least break even, while public plans can get financial infusions from their larger government entities
- Public plans “can set provider prices at pretty much any level they like, while private organizations need to reach a mutually agreeable number,”[quoted from Charlie Baker’s posting], which can lead to cost shifting from public plans to private payers – as happens today with Medicaid (and probably Medicare)
- Public plans are required to go through administrative processes, (such as publishing rules for public comment, etc.), which makes changing their benefits structure or operations an extremely time consuming process
The discussion also included a number of factors that would be necessary for a public plan to actually compete on a level playing field with a private plan, including:
- Premiums reflecting all administrative costs, including those performed by other government agencies
- Medical claims and administrative costs being covered by premium revenues
- Provider reimbursement rates being negotiated rather than unilaterally set
- Providers being able to refuse to accept the public option for the under 65 population, while continuing to be able to accept Medicare patients
- The regulating/marketing operations and the purchasing/selling roles for the public plan need to be separated and not done by the same entity
- Payments need to be risk adjusted – this is necessary in any restructuring of insurance markets whether there is a public plan or not
Adding to the analytical information mix about the effects of a public plan option in health reform, the Lewin group just published a paper on this subject – “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options.” This paper looks at several options for how a public plan could be structured, e.g. open to everyone or just individuals and small employers, and using Medicare or private sector payment levels.
Not surprising, the study found that using Medicare’s lower payment amounts to hospitals and physicians, and making the public plan available to everyone results in the lowest premiums for the public plan option and the greatest shifting of individuals from private insurance to the public plan. HOWEVER, the Lewin plans analyses are based upon several assumptions that other coverage expanding reforms proposed by President Obama in the 2008 campaign are also created:
- Mandate for children to have coverage
- Medicaid is expanded for all adults below 150% of the Federal Poverty Level
- Tax credits are provided to people with incomes between 150-400% of the FPL who buy private insurance
- Tax credits are provided to small employers with low-wage workers to offset some of the cost of health insurance
- Large employers are required to offer insurance or pay a payroll tax
- Medical underwriting and health status rating is eliminated, but rating by age is permitted
These changes are designed to increase insurance coverage, and are certainly individually and collectively important for fundamentally reshaping the health insurance market – particularly the last bullet. Therefore, the operations and influence of any public plan would be very different with those changes than in today’s insurance environment, and that needs to be considered in discussing the political and practical pros and cons of a public plan option.
Conclusions:
The conclusion I draw from all this – and which I’m paraphrasing from my comment on Charlie Baker’s blog – is that government programs serve a valuable social role, but the differences between public and private operations need to be recognized as they each carry specific benefits and limitations. Therefore, the real conundrum about whether a public plan in health reform is part of the right answer depends upon how the question is asked and whether it’s put into a policy or political context. Unfortunately, those two contexts are not separable in the real world, so the challenge in this debate is to connect the two in the legislative process, and see if a compromise can be reached to realistically increase insurance coverage and contain costs, but that won’t cause any stakeholder group to fall on their sword.
Michael – Thanks for your comments – and your thoughts here. I think your point about defining the “job to be done” is a good one. This is, in many cases, where the public sector gets caught – because there are rarely one, or even two, jobs to be done attached to a task or a piece of legislation. It’s usually many jobs – and that’s the rub. And I say this as someone who spent eight years in senior positions in state government in MA. I believe in the public sector, but have often appreciated, perhaps more than others, some of its limitations.
And your detective work on who posts what is much better than mine!
care4, John and Carol – Thanks for your comments. Just a few things to note –
care4 – many of the insurers in your list are non-profit organizations. And while you can be upset about the compensation for their executives, they do operate on a different business model than the for-profit companies. And the fact that essentially all the insurance plans in Massachusetts are non-profit was one of the factors that enabled the passage and implementation of the health insurance expansion program that has brought the uninsured rate in the state to below 3%. You could also argue about the role of non-profit organizations that have larger financial resources in this country, but then we’d need to look at the compensation for major hospitals, universities, etc….
John – Thanks for telling me what is happening in Massachusetts, but I live just outside Boston, MA
Carol – The point you seem to be trying to make is that we need a national single payer plan, but that is not what the debate about a public plan option is about. Also, the data you list are interesting, but equally interesting are similar data looking at life expectancy at different ages. The data you listed are for birth, but the US looks much better for life expectancy for older age groups – which is probably a better indicator of the effectiveness of the healthcare system, since the problems we have with premature mortality at younger ages are due to public health issues such as drug abuse, violence and auto accidents, etc.
And lastly, for the casual reader of this blog, I should note that care4, John and Carol all seemed to be sending their comments from the same IP address – so I welcome their input, but it really seems to be three parts to one connected comment.
Agree with above posts. Regarding a public option, which would compete with private plans, I would take the opinions of the heads of health insurance companies with a very large grain of salt!
I think a public option is absolutely essential. The for-profit focus of our insurance companies has gotten out of hand, not unlike AIG and Wall Street.
Public option, and single-payer in various forms, have worked well in many, many countries around the world.
From The CIA Website: Here’s a 2008 list of the life expectancies countries with public or public option systems including single-payer. The US, without any real such system, is at the bottom of the pack.
Canada: males:78.65 females:83.81?
France: males:77.68 females:84.23?
Germany: males:76.11 females:82.26?
Japan: male:78.73 females:85.59
?Luxembourg: males:75.91 females:82.67
United Kingdom: males:76.37 females:81.46
?Ireland: males:75.44 females:80.88?
Lichtenstein: males:76.38 females:83.52?
Netherlands: male:76.66 females: 81.98
?Belgium: males:75.9 females:82.38
?Spain: males:76.6 females:83.45?
Norway: males:77.16 females:82.6
?Sweden: males:78.49 female:83.13?
Finland: males:75.31 females:82.46
?Italy: males:77.13 female:83.2?
Austria: male:76.46 female:82.41?
Switzerland: males:77.91 female:83.71
——–>The United States: males:75.29 females:81.13
Many countries with public healthcare systems have better outcomes than the US.
I think the healthcare systems in place in Taiwan and the Netherlands should be seriously considered for the US.
MIchael, I caution you about taking what Charlie Baker writes too seriously. We here in Massachusetts have a different view of his opinions and management decisions regarding healthcare.
Charlie Baker has spent his years at Harvard Pilgrim Health Plan working hard to make huge profits and earn millions, while denying health care claims, lowering reimbursements, increasing co-pays, and building an impossible bureaucracy. Harvard Pilgrim is one of the worst offenders in Massachusetts in terms of denying care to make profits.
I’d like to comment on Charlie Baker’s 2nd point: “. . . private plans need to at least break even, while public plans can get financial infusions from their larger government entities.”
Charlie Baker is stretching the truth here. The heath insurance plans are big business with the goal of making profits. It’s not about ‘breaking even’, it’s about making huge profits at the expense of patients, like the greed we’ve seen on Wall Street.
ANNUAL COMPENSATION OF HEALTH INSURANCE COMPANY EXECUTIVES (2006 and 2007 figures):
• Ronald A. Williams, Chair/ CEO, Aetna Inc., $23,045,834
• H. Edward Hanway, Chair/ CEO, Cigna Corp, $30.16 million
• David B. Snow, Jr, Chair/ CEO, Medco Health, $21.76 million
• Michael B. MCallister, CEO, Humana Inc, $20.06 million
• Stephen J. Hemsley, CEO, UnitedHealth Group, $13,164,529
• Angela F. Braly, President/ CEO, Wellpoint, $9,094,771
• Dale B. Wolf, CEO, Coventry Health Care, $20.86 million
• Jay M. Gellert, President/ CEO, Health Net, $16.65 million
• William C. Van Faasen, Chairman, Blue Cross Blue Shield of Massachusetts, $3 million plus $16.4 million in retirement benefits
• Charlie Baker, President/ CEO, Harvard Pilgrim Health Care, $1.5 million
• James Roosevelt, Jr., CEO, Tufts Associated Health Plans, $1.3 million
• Cleve L. Killingsworth, President/CEO Blue Cross Blue Shield of Massachusetts, $3.6 million
• Raymond McCaskey, CEO, Health Care Service Corp (Blue Cross Blue Shield), $10.3 million
• Daniel P. McCartney, CEO, Healthcare Services Group, Inc, $ 1,061,513
• Daniel Loepp, CEO, Blue Cross Blue Shield of Michigan, $1,657,555
• Todd S. Farha, CEO, WellCare Health Plans, $5,270,825
• Michael F. Neidorff, CEO, Centene Corp, $8,750,751
The health insurance companies have played a major role in our current healthcare crisis. They make huge profits and their CEOs make millions, while the rest of us are denied care.
Do we need a public plan? You bet!