[Numerous links in original]
[It's interesting how much emphasis in the following is placed on cutting payments to providers. That is normally glossed over by Single Payer advocates.]
Bait and switch: How the "public option" was sold
Posted by Andrew Coates, MD on Monday, Jul 20, 2009
by Kip Sullivan
<snip>
The bait
"Public option" refers to a proposal, as Timothy Noah put it, "dreamed
up" by Jacob Hacker when Hacker was still a graduate student working on
a degree in political science. In two papers, one published in 2001 and
the second in 2007, Hacker, now a professor of political science at
Berkeley, proposed that Congress create an enormous "Medicare-like"
program that would sell health insurance to the non-elderly in
competition with the 1,000 to 1,500 health insurance companies that
sell insurance today.
Hacker claimed the program, which he called "Medicare Plus" in 2001 and
"Health Care for America Plan" in 2007, would enjoy the advantages that
make Medicare so efficient - large size, low provider payment rates and
low overhead. (Medicare is the nation's largest health insurance
program, public or private. It pays doctors and hospitals about 20
percent less than the insurance industry does, and its administrative
costs account for only 2 percent of its expenditures compared with 20
percent for the insurance industry.)
Hacker predicted that his proposed public program would so closely
resemble Medicare that it would be able to set its premiums far below
those of other insurance companies and enroll at least half the
non-elderly population. These predictions were confirmed by the Lewin
Group, a very mainstream consulting firm. In its report on Hacker's
2001 paper, Lewin concluded Hacker's "Medicare Plus" program would
enroll 113 million people (46 percent of the non-elderly) and cut the
number of uninsured to 5 million. In its report on Hacker's 2007 paper,
Lewin concluded Hacker's "Health Care for America Plan" would enroll
129 million people (50 percent of the nonelderly population) and cut
the uninsured to 2 million.
<snip>
The switch
Now let's compare the "single national health insurance pool covering
nearly half the population" that Hacker and other "public option"
advocates enthusiastically championed with the "public option" proposed
by Democrats in Congress, and then let's inquire what Hacker and
company said about it.
As readers of this blog no doubt know, the Senate Health, Education,
Labor, and Pensions (HELP) Committee, and three House committee
chairman working jointly, published draft health care "reform" bills in
June. (The third committee with bill-writing authority, the Senate
Finance Committee, has yet to produce a bill.) According to the
Congressional Budget Office, the "public option" proposed in the House
"tri-committee" bill might insure 10 million people and would leave 16
to 17 million people uninsured. The "public option" proposed by the
Senate HELP committee, again according to the Congressional Budget
Office, is unlikely to insure anyone and would hence leave 33 to 34
million uninsured. The CBO said its estimate of 10 million for the
House bill was highly uncertain, which is not surprising given how
vaguely the House legislation describes the "public option."
Here is what the CBO had to say about the HELP committee bill:
The new draft also includes provisions regarding a "public plan,"
but those provisions did not have a substantial effect on the cost
or enrollment projections, largely because the public plan would pay
providers of health care at rates comparable to privately negotiated
rates - and thus was not projected to have premiums lower than those
charged by private insurance plans. (page 3)
<snip>
In public comments about the Democrats' "public option" provisions, the
leading lights of the "public option" movement imply that Hacker's
model is what Congress is debating. Sometimes they come right out and
praise the Democrats' version as "robust" and "strong." But I cannot
find a single example of a a statement by a "public option" advocate
warning the public of the vast difference between Hacker's original
elephantine, "Medicare-like" program and the Democrats' mouse version.
<snip>
Hacker's papers laid out these five criteria that he and the Lewin
Group said were critical to the success of the "public option":
o The PO had to be pre-populated with tens of millions of people, that
is, it had to begin like Medicare did representing a large pool of
people the day it commenced operations (Hacker proposed shifting all or
most uninsured people as well as Medicaid and SCHIP enrollees into his
public program);
o Subsidies to individuals to buy insurance would be substantial, and
only PO enrollees could get subsidies (people who chose to buy
insurance from insurance companies could not get subsidies);
o The PO and its subsidies had to be available to all nonelderly
Americans (not just the uninsured and employees of small employers);
o The PO had to be given authority to use Medicare's provider
reimbursement rates; and
o The insurance industry had to be required to offer the same minimum
level of benefits the PO had to offer.
Hacker predicted, and both of the Lewin Group reports concluded, that
if these specifications were met Hacker's plan would enjoy all three of
Medicare's advantages - it would be huge, it would have low overhead
costs, and it would pay providers less than the insurance industry did.
As a result, the "public option" would be able to set its premiums
below those of the insurance industry and seize nearly half the
non-elderly market from the insurance industry. According to the Lewin
Group's 2008 report, Hacker's version of the "public option" would, as
of 2007:
o Enroll 129 million enrollees (or 50 percent of the non-elderly);
o Have overhead costs equal to 3 percent of expenditures;
o Pay hospitals 26 percent less and doctors 17 percent less than the
insurance industry (but these discounts would be offset to some degree
by increases in payments to providers treating former Medicaid
enrollees); and,
o Set its premiums 23 below those of the average insurance company.
I question some of Hacker's and the Lewin Group's assumptions,
including their assumption that any public program that has to sell
health insurance in competition with insurance companies could keep its
overhead costs anywhere near those of Medicare [see next
section]....
<snip>
[But arguendo] let us compare Hacker's original model with the mousey
"public options" proposed by the Senate HELP Committee and the House.
Of Hacker's five criteria, only one is met by these bills! Both proposals
require the insurance industry to cover the same benefits the "public
option" must cover. None of the other four criteria are met. The
"public option" is not pre-populated, the subsidies to employers and to
individuals go to the "public option" and the insurance industry,
employees of large employers cannot buy insurance from the "public
option" in the first few years after the plan opens for business and
maybe never (that decision will be made by whoever is President around
2015), and the "public option" is not authorized to use Medicare's
provider payment rates. (The House bill comes the closest to
authorizing use of Medicare's rates; it authorizes Medicare's rates
plus 5 percent).
Is it any wonder the CBO concluded the Democrats' "public option" will
be a tiny little creature incapable of doing much of anything?
<snip>
Put yourself in the "public option" director's shoes
To see why the "public option" proposed by congressional Democrats
remains at great risk of stillbirth, let's engage in a frustrating
thought experiment. Let's imagine Congress has enacted the House
version... Let us imagine furthermore that you have been foolish enough to
apply for the job of executive director of the new "public option," and
the Secretary of the Department of Health and Human Services (the
federal agency within which the program will be housed) decided to hire
you. It's your first day on the job.
You know the House bill did not create a ready-made pool of enrollees
for you to work with the way the 1965 Medicare law created a ready-made
pool of seniors prior to the day Medicare commenced operations. You
realize, in other words, that you represent not a single soul, much
less tens of millions of enrollees. You will have to build a pool of
enrollees from scratch. You also know the House bill authorized some
start-up money for you, so you'll be able to hire some staff, including
sales people if you choose. You can also open offices around the
country, and advertise if you think it necessary. But you know you
can't pay out too much money getting the "public option" started
because the House bill requires that you pay back whatever start-up
costs you incur within ten years. In other words, you may hire enough
people and open enough offices and buy enough advertising to create a
critical mass of enrollees nationwide, but you must do it quickly so
that your start-up costs don't sink the "public option" during its
first decade.
The only other feature in the House bill that appears to give you any
advantage over the insurance industry is the provision requiring you to
use Medicare's rates plus 5 percent, which essentially means you are
authorized to pay providers 15 percent less than the insurance industry
pays on average. But the House bill also says providers are free to
refuse to participate in the plan you run.
So what do you do? Let's say you open offices in dozens or hundreds of
cities, you hire a sales force to fan out across the country to sign up
customers, you advertise on radio and TV to get potential customers
(employers and individuals) to call your new sales force to inquire
about the new "public option" insurance policy. What happens when
potential customers ask your salespeople two obvious questions: what
will the premium be and which doctors they can see? What do your
employees say? They can't say anything. They haven't talked to any
clinics or hospitals about participating at the
15-percent-below-industry-average payment rate, so they have no idea
which providers if any will agree to participate. They also have no
idea what the "public option" premium will be because they don't know
whether providers will accept the low rates the plan is authorized to
pay. And they have no idea about several other factors that will affect
the premiums, including how much overhead the "public option" will rack
up before it reaches a state of viability, or who the "public option"
will be insuring - healthy people, sick people, or people of average
health status.
So, let's say you redeploy your sales force. Now instead of talking to
potential customers, you direct them to focus on providers first. But
when your salespeople call on doctors and hospital administrators and
ask them if they'll agree to take enrollees at below-average payment
rates, providers ask how many people the "public option" will enroll in
their area. Providers explain to your salespeople that they are already
giving huge discounts, some as high as 30 to 40 percent off their
customary charge, to the largest insurers in their area and they are
not eager to do that for the "public option" unless the plan will have
such a large share of the market in their area that it will deliver
many patients to them. If the "public option" cannot do that, providers
tell your salespeople, they will not agree to accept below-average
payment rates.
In other words, you find that the "public option" is at the mercy of
the private insurance market, not the other way around.
This thought experiment illustrates for you the mind-numbing
chicken-and-egg problem created by any "public option" project that
does not meet Hacker's criteria, most notably, the criterion requiring
pre-population of the "public option." If the pre-population criterion
isn't met, the poor chump who has to create the "public option" is
essentially being asked to solve a problem that is as difficult as
describing the sound of one hand clapping. You need both hands to clap.
<snip>
What next?
<end excerpt>
Full at:
Michael