The Public Program Impasse: A Proposal

Health care reform proponents could find encouragement in recent Obama administration comments on the issue of taxing health care benefits. The President, having adamantly rejected the concept during last year’s campaign (thereby violating a cardinal rule of politics: “never say anything you can’t later on claim was misinterpreted by your enemies”) indicated through White House budget director Peter Orzsag that he considered the issue very much on the table.

Since passage of health care reform is likely to require almost unanimous support by the fifty-eight Senate Dems—or maybe fifty-nine, depending on the eventual emergence of a winner from the long Minnesota winter—the President’s willingness to back down is a positive step (although sophisticated financial thinkers will note that shuffling funding sources will do nothing to reduce total costs).

What the administration’s openness to compromise also does, however, is move the spotlight onto another issue with the potential of sinking health care reform: the inclusion or otherwise of a public program option in a reform structure.

If the discussion at the March 5 White House Health Care Forum is a reliable guide, there is a real possibility that meaningful reform could fall victim to a battle between Democratic liberals’ insistence on a public program option and the insurance industry’s determination to stop a proposal that would allow the entity setting the health care system rules also to be a competitor.

Setting aside my own reservations about public programs, I believe it’s possible to craft a compromise, even assuming that liberal Dems who believe it’s not reform without a public program won’t be willing to back off (even in exchange for actually getting reform passed).

With current front-runner reform models all including some form of “insurance exchange,” a public program option could be written into reform legislation but implemented only when insurer premium increases for the standard coverage exceed a predetermined target, for example CPI change plus one percent. To minimize the effects of local and year-to-year aberrations and insurer premium variations, the trigger test could perhaps be applied on a biennial basis for each regional exchange, with the premium number in the comparison being a weighted average across insurers, and with the CPI percentage that for the region. This approach doesn’t cover the first year, since it’s dependent on year-to-year changes, but the Massachusetts Connector and Netherlands health care reform experiences suggest that insurers will offer aggressively low rates initially in order to build market share.

This kind of trigger approach should appease liberal concerns, and provide insurers with a very considerable incentive to control premiums, while insulating them—so long as they are successful—from any new cost-shifting effects. This doesn’t mean the trigger would be popular—after all, one definition of a compromise is something that both parties detest—but with Liberal Democrats convinced that public programs are far less costly, and Insurers and their Republican allies espousing the free market as the answer to our problems, who could reasonably object?

Now if only the Obama administration could forget about play-or-pay…

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.

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14 replies »

  1. After commenting on THCB for a few months I have a whole new appreciation for teachers.
    Tom, there is a difference between arguments and cold hard facts. I’m not advancing a theory that public underpayments drive up the cost I’m referencing the fact that they do. Take the hat off and listen to what actual hospital CEOs say;
    The report found that annual healthcare spending for an average family of four is $1,788 higher than it would be if Medicare, Medicaid and private employers paid hospitals and physicians similar rates, with total provider reimbursement unchanged.
    “As businesses struggle to cut costs to match sagging revenues, employee health benefits are increasingly at risk,” said Rich Umbdenstock, president and CEO of the American Hospital Association (AHA). “The faltering economy makes fair payment by Medicare and Medicaid more important than ever.”
    For Morgan Hospital & Medical Center (MHMC), Morgan County’s only true community-owned hospital, the net community benefit exceeds $18-million including charity care, Medicaid underpayments, community activity expenses, bad debt and Medicare underpayments.
    MHMC is seeing an ever-increasing amount of bad debt and charity care every year,” said MHMC President and CEO Tom Laux. “One of the main reasons for the increase is the fact that a large number of Hoosiers are uninsured or underinsured. This cost gets shifted to people who pay for insurance premiums causing premiums to increase. In Indiana
    U.S. employers and consumers are paying billions of extra dollars each year for medical care in hospitals and doctors’ offices to offset underpayments from Medicare and Medicaid, according to a study released on Wednesday by Seattle-based Premera Blue Cross, the New York Times reports.
    The Department of Health and Human Services should not renege on its responsibility to pay Cookeville Regional Medical Center the $900,000 it is owed in underpayments from Medicare, says U.S. Rep. Bart Gordon.
    “Apparently HHS does not operate with the same good faith that the Tennessee hospitals do in providing care and services for Medicaid and Medicare beneficiaries,” said Cookeville Regional CEO Bernie Mattingly. “These hospitals are indeed entitled to DSH payments of up to $100 million.
    In 2005, uncompensated care the U.S. totaled $28.8 billion and underpayments for Medicare and Medicaid reached $25.3 billion. Ohio’s share of uncompensated care was $1.3 million and Medicare and Medicaid underpayments reached $804.1 million.
    You don’t seem to understand how Medicare works Tom. Congress doesn’t sit down with your negotiator and come to agreement on what they will pay you, they tell you what you will be paid. The only way for you to stay in business is to charge private insurance companies more to make up for what the government stiffs you.
    I’ll put my knowledge of free markets up against yours any day. Further my knowledge of medical insurance markets is far greater then yours and I am very comfortable saying the requisites for competition are there, despite the best efforts of Congress to extinguish them. If you’re open to a schooling I’ll gladly explain how Democrats have been proposing compulsory national insurance since the 1930s and have publicly stated the only way to achieve it is to hoodwink the public and destroy the current system.
    Pick any portion of the insurance market and I’ll explain to you the present competitive forces as well as the liberal actions to undermine it, and what could be done to improve it.
    We don’t need trillion dollar government bills to fix healthcare, we just need to remove wasteful government. I could fix healthcare without spending a dollar more then we do already.

  2. Nate says:
    > Medicare and Medicaid underpayments drive
    > up the cost of private insurance 10-20%.
    I don’t understand this argument at all.
    (donning hospital CEO hat)
    Why on earth should my contract negotiator settle for less from you just because somebody else is paying more?
    > THe private insurance market, even with public
    > cost shifting, is sustainable
    No, it isn’t — the thing being financed through the insurance mechanism is not sustainable.
    (donning econ professor hat)
    I fear Nate does not understand free markets. Free markets are not necessarily competitive markets, and the requisites for a competitive market in medicine (or medical insurance for that matter) simply do not exist.

  3. Matthew, these last two comments look a great deal like political spam to me, and it’s about the third time I’ve seen similar comments. They are electronic press releases. What can we learn about their provenance? Is there anything practical that can be done to prevent people from simply using this is another place to slap a bumper sticker. It isn’t the ideology. I’d have the same problem with something from the right. You went to great lengths to keep machines from posting comments (the little “type these letters and numbers” guy). Maybe you could ask them to pay honestly for sponsorships or something and label them as commercial messages?

  4. “And not only liberals, just as not only liberals voted for Obama. If you put it on the ballot, most Americans would vote for nationalized health care.”
    Actually Ill and Uninsured in Illinois liberals have been proposing compulsary national insurance since the 1930s and never once has it been supported by a majority of the public. It’s usually runs 60-70 percent against. Amwericans have been very clear of their desire to avoid anything close to what liberals propose.
    “Let the private insurance companies compete if they can on a level playing field (no ‘cherry-picking of patients, no discrimination against unhealthy people, etc.)”
    Mark odd that you leave out the worst bias, it is not a level playing field because Medicare and Medicaid underpayments drive up the cost of private insurance 10-20%. If Medicare and Medicaid where required to pay providers a fair price both would have been bankrupt years ago.
    “and the continuation of the failed unbridled free market experiment that has all but ruined US Medicine”
    Dr. I fear you don’t know the meaning of free market. We have not had free market insurance in 70 years. It’s failed government healthplans that have driven up the cost not free market shortcommings. THe private insurance market, even with public cost shifting, is sustainable, it is Medicare, Medicaid, MA that are failing.

  5. Roger proposes one option, but there is a slew of options that have the same function: create an environment that gets private insurers to actively manage care and cut costs once again.
    You may want to run screaming, but that is where we will have to go. If it isn’t a single payer system managing care and cutting costs then private payers will have to do the job. As the Netherlands shows, they can.
    The role of the federal government will most likely be to empower private plans to do improve the value proposition, regulate them so they cut costs in the public interest, and prod them with penalties for not doing it.
    As many here know, getting insurers to stop cherry-picking is pretty straightforward. It is already happening in Medicare Advantage through risk adjusted premiums. Requiring plans to take all comers with community rating obviously will go some distance to this end as well.
    There are a lot more big and small things the government could do. To name another: it could side with California on balance-billing, and forbid out-of-network providers from pursuing funds from insured individuals when the provider bills more than the usual and customary rate. That will make it less lucrative for providers to remain outside of networks, thus increasing the negotiating power of insurers on rates, which both lowers premiums and lowers out of pocket expenses.
    Of course, immediately it is clear that providers will react ferociously, and they will probably win on any given reform that actually improves the value of care by compelling providers to reduce costs. 2-4 more years of the bully pulpit and damaging news articles that explain cost drivers are needed to set the stage for reforms that can turn back the GDP share sucked up by health care.

  6. Why are we wasting time and making it too complex. We should have a tiered system…where the basics are provided by the government throuhg community clinics and additional are through insurance companies. I authored the article (draft) “An all out solution to healthcare crisis” on the blog “healthcare transformation: blogs.biproinc.com/healthcare”

  7. Building on Ravi’s two-tiered system:
    The public program can focus on prevention. All citizens should be required to get age/gender appropriate preventive care. The government can fund it and enforce it. That could easily be funded with taxes. Currently, private insurers don’t have an incentive to push preventive care because people hop between plans too frequently. Preventive care shouldn’t be insured anyway (we don’t insure our oil changes) The government can also fund health education for the citizens, which is something we desperately need. The preventive care can be provided by non-physician providers such as nurse practitioners. I guess we could even consider havnig them be the care coordinators to guide the patients through the private system for their acute/chronic care.
    Let’s start there while we work on driving down costs in the system. The preventive care and education will certainly help with that.

  8. One quarter of the 46 million are ALREADY eligible for existing public programs, and probably won’t enroll in a new public plan for the same reason they aren’t in Medicare or Medicaid. There are almost 11 million uninsured BOOMERS, who are within hailing distance of Medicare buy-in, if we subsidize those without sufficient income. More than 10 million of the uninsured are not citizens, so they won’t go in the public plan (will they?). Four million kids got coverage from the recent SCHIP expansion/renewal, and seven million newly unemployed people got subsidies for their COBRA coverage. These groups overlap some, but not much.
    So how big is the remaining target population for a new “public plan”? How can people argue that the real target of a new public plan is the uninsured. Where is the unmet need, exactly, for the public plan? The obvious target are those presently insured by private plans. How does that help us? This isn’t subtle. . .

  9. Anything less that some pubic option is a continuation of yielding to the power of Big Insurance (POLITICIANS NOTE PLEASE-who poll very low with the US public) and the continuation of the failed unbridled free market experiment that has all but ruined US Medicine
    I’m with ravi above. Two tiers.
    Dr.Rick Lippin

  10. An approach that kicks in when already too-high premiums go higher doesn’t fix the problem of 46 million uninsured and rising.
    Who could reasonably object? A whole lot of people who think the public “option” is already a compromise. What liberals want is a single-payer national health plan.
    And not only liberals, just as not only liberals voted for Obama. If you put it on the ballot, most Americans would vote for nationalized health care.
    If there isn’t a public option, it’s not reform. It’s just a Band-Aid on the current system.

  11. This option is too confusing and too easily scammed to be of any value.
    We don’t need a ‘new’ public plan. We already have a public plan. Just let people buy into Medicare or be covered by Medicare. Let the private insurance companies compete if they can on a level playing field (no ‘cherry-picking of patients, no discrimination against unhealthy people, etc.)

  12. Why are we wasting time and making it too complex. We should have a tiered system…where the basics are provided by the government throuhg community clinics and additional are through insurance companies. I authored the article (draft) “An all out solution to healthcare crisis” on the blog “healthcare transformation: blogs.biproinc.com/healthcare”

  13. A new public program. Let’s see. . . what about SCHIP covering families at least up to $63,000 a year or maybe up to the $80’s like New York wanted, and people buying into Medicare at 55? What am I missing here? What’s missing is the public clamor for yet another cumbersome and user unfriendly insurance option to meet their needs, or employers saying “I really want a government alternative to my present private plans”. This is a MoveOn.org litmus test item, not a serious unmet need.
    The “of course, we’ll create a level playing field” argument is a joke. The playing field tilts whenever there is a budgetary crisis- toward cost-shifting onto private plans, and we’ve created yet another political football which, this time, gets “defunded” when the Republicans get their mojo back (in 2038?).
    You’re right about this derailing health reform, and it isn’t just the flat earth people and the greedy insurers that kill it. Simple is good. The new “public plan” is a bridge to far. It isn’t worth sinking the whole thing for. . .

  14. Interesting. Although implicit in this logic is the use of the public option not as an equal alternative that can “do the job” on a level playing field, but as a “bad actor” using non-market means. This is the anathema many who object to this alternative detest. If the private markets fail to adhere to the benchmark, the public program gets toggled–presumably with forced rates and carrot and stick approaches designed to break the logjam.
    I dont see folks playing along without major prohibitions; the very prohibitions that most who are in the “anti-camp” might agree to at the outset if the public option is on the table. As these are unacceptable on the pro-side…well, the circle goes round.