The NY Times’ Robert Pear has an article on the politics of the Obama Administration introducing a public plan as part of FEHBP.

As you might expect a boat load of Republicans who were told in grade school that private is good and public is bad are concerned about this causing the demise of private health plans–even though that would clearly benefit the country. Of course Pete Stark is quite happy to say that it’s not that Medicare underpays (as Charlie Baker said here last week), but it’s that private plans over pay.

So why is that the case? Well you knew that I couldn’t resist the appearance of my favorite lobbyist. Here’s what Karen Ignagni says, and — this is the shocker– it’s half true.

Karen M. Ignagni, president of America’s Health
Insurance Plans, a trade group, said the consolidation of the hospital
industry in the last seven or eight years had increased the market
power of hospitals, thereby reducing the ability of insurers to
negotiate discounts.

Actually it’s been more
like twelve to fifteen years since big players started merging (IFTF’s
Ellen Morrison wrote a great report about that in 1994 called "The Six Americas").
By the late 1990s Sutter, for example, was facing down Blue Cross of
California on price and winning. And of course in Boston Partners was
getting bigger and bigger, and facing down Blue Cross and the other plans. (Leading occasional THCB contributor and Beth Israel Deaconess CEO Paul Levy to become a big whiner, according to Partners Chairman Jack Connors). So Karen is telling the truth.

But she’s missing out one minor piece of information which is even more important.

What she neglected to mention is that health insurers did very, very
well out of this increase in costs too. For example in Boston, as
Partners got fat and happily aggressive:

Blue Cross has prospered, too, gaining more members in 2000 than any
other year and watching profits soar from $82.7 million in 2002 to more
than $200 million a year in each of the next five years.

And
of course the same thing was true for all health plans over the past
few years (until very recently). The saw their Medical Loss Ratios fall
(in other words their percentage of the take went up) while the
overall cost of health care also increased. In other words they were
getting a bigger slice of a bigger pie. And after the 2003 Medicare
Modernization Act the insurers also got an windfall extra of more money from Medicare dumped on
them by the Bush Administration–that’s the $15 billion in subsidy
which Obama referenced so often in the debate.

So it doesn’t take a genius to see why health insurers did what they
did over most of this decade. After the managed care backlash and in
the boom of the late 1990s, employers eased up on the pressure on
insurers. It was way easier to turn around and pass the increases from
providers onto their clients–and kick a bigger percentage on top–than
to do what some managed care plans tried to do in the 1990s, which was
to reduce health care costs. (Of course many of them almost destroyed
themselves doing it).

But this doesn’t obviate the truth that Ignagni didn’t tell the NY Times.

Private insurers gave up any attempt to meaningfully reduce health
care costs over the 2000s. The fact is that Medicare made a slightly
better fist of it (but by the way it didn’t exactly see its costs plummet either).

So speaking as a productive citizen and a taxpayer (and aren’t those
Republicans supposed to care about them?), why shouldn’t I be
interested in having Medicare expand its role? After all that will
leave costs lower for those not in the the health care system.

Of course that would also mean less opportunity for private insurers to
demonstrate their relative incompetence in reducing health care costs,
and less opportunity for them to take relatively undeserved cut.
Something Karen Ignagni is bound to get upset about.