The Administration proposal that would enable small employers to band together to purchase health insurance by forming Association Health Plans has several good features. Large companies do pay about 15% less, apples-to-apples, for health insurance than small businesses because they negotiate lower administrative fees, get larger discounts on health care prices and avoid premium taxes and risk charges by self-insuring. Allowing small business to replicate what boils down to volume discounts also appeals politically to many as a market-based alternative to government intervention. Reliance on Association Health Plans could result in substantial volume discounts, but, in the end, would be like paying $10 for a tube of toothpaste that retails for $100, a big discount and a rip-off price.
Even though the largest companies get very deep discounts, there is substantial research showing that their net costs are much higher than everywhere else because we in the United States pay higher prices for health care goods and services. One need to look no further than the benchmark large corporate purchasers who continue to pay about 40% or 50% more than Medicare for the same health care to see how excessive health care prices for private payers are. And this disparity is likely to get worse. While hospitals gobble up other hospitals and doctors’ practices and gain near monopoly market power to raise prices, employers of all sizes remain highly fragmented and, as a result, impotent price negotiators.
A better approach to health care cost containment than Association Health Plans hides in full view. Whereas the federal Medicare program covers almost 40 million people in one basic plan (Parts A + B), private payers’ purchasing power is highly fragmented. The latter payers offer over 100,000 health insurance plans to cover 155 million workers, an average of 1,550 workers per plan – or about 5,000 individuals per plan (including family members). One 500-pound gorilla representing 40 million lives should and does pay lower prices than 100,000 plans covering an inconsequential 5,000 lives each and, not to be forgotten, Medicare’s administrative costs are about 2% compared to 10% to 20% for employment-based plans.
So, why not let Medicare rent its network and discounts to private employers for a fee? Such a public-private partnership would have many advantages for both employers and the federal government. Employers would continue to provide health coverage – whether insured or self-insured — to their workers, but would save on claim costs by paying substantially lower health care prices. In other words, employees would have the same plan as Medicare beneficiaries, but the payments to hospitals and doctors would come from the employers and employees as is the case today, and would be much lower.
The federal Medicare program would benefit from this arrangement in two ways. First, it could charge a fee to employers for access to its network and plan design and thereby defray Medicare’s cost to taxpayers. Employers undoubtedly would be pleased to spend a few cents on the dollar to save 30 or 40 cents. And the addition of private-pay, pre-age-65 lives to the Medicare covered population would enhance the ability of Medicare to achieve even bigger volume discounts. Remember, doctors and hospitals are not required to participate in Medicare, but most do because they cannot afford not to.
Some may be concerned that the Medicare Public Private Partnership Plan sounds suspiciously like “Medicare for All,” or “Single Payer,” but that concern is not warranted. The difference here is that the Medicare Public-Private Partnership would be voluntary and not a government mandate. This a critical element because the only thing Americans like less than their current high-cost health coverage is the fear of losing it. “If you like your plan you can keep it” arguably was a fib critical to the passage of the Affordable Care Act.
Employers know how to introduce new health coverage. They demonstrated their prowess in this regard by moving millions to Managed Care in the 1980s and 1990s and millions more to Consumer Directed Care after that. They know how to craft incentives to get employees to try the new plans and then gradually to replace the old with the new. They could offer supplemental plans if needed to make the new Medicare Public-Private Partnership option actuarially equivalent (or slightly better as an incentive) to what their workers have now and still save billions. Employees would find Medicare’s lower out of pocket costs and the largest national network of participating hospitals and doctors very attractive. Instead of the tag line seen at 2012 presidential debates, “keep the government out of my health care, but don’t touch my Medicare,” the pitch could be, “keep the government out of my health care, but let me have Medicare.”
Bill Rosenberg is a health care consultant in Mount Vernon, ME