The Biggest Health Care Controversy on the Hill


Since when was a two-tiered health insurance system a Democratic policy goal?

Among Democrats in the Congress and at the White House there is a great deal of interest in creating a government-run health plan in the under-age-65 market. Such a plan would compete with the existing private health insurance market in a head-to-head showdown between private and public health insurance.

Such a plan was part of the President Obama's campaign health proposal—albeit limited to the small employer and individual market. We are told the President’s greatest interest here is in “keeping the private health insurance market honest.” That is, creating competition in order that private insurers do a better job of controlling costs.

most observers assume that this would mean paying providers at
Medicare—or even Medicaid—rates the administration says not necessarily.

The respected and non-partisan Lewin Group recently issued a report evaluating the idea, “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options.”
It looks to me to be a credible job. They made the assumption providers
would be paid at Medicare rates—a logical conclusion if the objective
is lowering costs.

Among Lewin’s findings:

  • “If the public plan
    is opened to all employers…at Medicare payment levels we estimate that
    about 131.2 million people would enroll in the public plan. The number
    of people with private health insurance would decline by 119.1 million
    people. This would be a two-thirds reduction in the number of people
    with private coverage (currently 170 million people).”
  • The
    study also examined what the proposed plan might do to provider
    reimbursement rates. Lewin says that if current Medicare payment rates
    were to be used for a public plan option,
    physicians would see their net income drop by $33 billion (-7%), and
    hospitals would see their revenue fall by $36 billion (-5%) in just
  • “If Medicare payment levels are used in the public plan,
    premiums would be up to 30 percent less than premiums for comparable
    private coverage. On average, the monthly premium in the public plan
    for a typical benefits package would be $761 per family compared with
    an average of $970 per family in the private market for the same
  • “If as the President proposed, eligibility is limited to only small employers, individuals and the self-employed, public plan enrollment
    would reach 42.9 million people. The number of people with private
    coverage would fall by 32.0 million people. If private payer
    reimbursement levels are used by the public plan, enrollment would be
    lower, with only 10.4 million people switching to the public plan from
    private insurance.”
  • Medicare premiums would be lower
    than private premiums because of the exceptional leverage Medicare has
    with providers. Medicare pays hospitals about 30 percent less than
    private insurers pay for the same service. Physician payments are about
    20 percent less than under private coverage. Also, because Medicare has
    no allowance for insurer profits or broker/agent commissions,
    administrative costs for this population are about one-third of
    administrative costs in private health plans.

As Lewin
found, a government-run Medicare-like plan in the commercial market
covering those under-age-65 would save an enormous amount of money.

It would do so in two ways:

  1. By
    eliminating the higher expense factors that private health plans have
    in order to do business. Right at the top of the list are costs built
    into insurance plans to pay brokers and agents, health plan profits, as
    well as state and federal taxes.
  2. By paying providers less. Simply, the government plan would pay providers just as they now pay for Medicare and Medicaid—Lewin
    presumed providers would be paid at the Medicare level that is
    typically 20% to 30% less than what providers get from private plans.

at once, in what would be almost a simple wave of the hand, doctors and
hospitals would see their reimbursements cut by 20% to 30%.

Provider cuts would be across the board.

and hospitals that provided unnecessary and wasteful care would see
their reimbursement cut 20% to 30%. However, providers delivering
appropriate care would also be cut 20% to 30%. That would be sort of
like the difference between carpet-bombing and laser guided
bombs—somewhat effective but totally inelegant as a solution.

cutting provider payments across the board in a government plan would
reduce the cost of providing insurance to the two-thirds of the
population that Lewin
estimates would ultimately gravitate to the public plan because these
provider cuts and overhead savings would make the cost of insurance
about 20% less.

But there is also a concern that a public plan would lead to two-tiered health care for those under-age-65. That is the proverbial “push it here and it pops out there” result.

the concern goes, 85% of our under-age-65 citizens arguably get access
to first class health care because they have insurance. Granted, it may
be a level of health care that produces enormous waste but at least 85%
of us get it while 15% of us under the age of 65 struggle because they
are uninsured.

If a public health care plan
is created the current equation may just get turned upside-down. The
two-thirds of the market Lewin estimates may shift to the public plan
may no longer be in first class—they may be in coach.

The first
tier would be composed of those in the public plan—presumably a public
plan that balanced its books as Medicare does now by cutting provider
reimbursement as needed to meet the federal budget. Doctors and
hospitals would be “negotiating” with the federal government for their
reimbursement to serve these people—not a long list of private
insurers. And, it’s hard to see how any discussion between the
“thousand pound gorilla” that is government and health care providers
would be other than a very unilateral discussion.

Medicare has a
history of rarely if ever cutting benefits instead continually
tinkering with payments to providers—payments very few providers find

On the positive side, even a 20% to 30% cut in
reimbursements by a government plan paying at Medicare rates would be
better than getting nothing from those who can't now pay. Lewin
does assume this advantage would be somewhat limited with the number of
those uninsured only cut to about half under an Obama campaign-style

The second tier of coverage would be for those who could
still afford to pay the higher premiums for the better reimbursing
private plans. It is likely that the higher reimbursement levels
providers of these plans would get, as well as the likely desire for
private plans to keep their customers happy by granting them better
access to care, would create a “first class cabin” for health care.
Just as it is in Great Britain where citizens can opt out of the public
system, those wealthy enough to be able to afford, or have their
employer pay for, private insurance will have it.

A government-run health plan for those under-age-65
would also do nothing to bring our long-term Medicare entitlement costs
under control. This is a plan for the under-65 market—it would do
nothing to solve Medicare’s solvency problems.

In fact, a government-run plan for the under-65 market would likely make matters worse for Medicare’s long-term fiscal outlook.

the government making lower provider payments for those covered under
Medicare is possible because health care providers have a huge private
population of under-age-65 people to shift costs to in order to make up
for the lower payments they get from the government. The private pay
market has been large and rich enough to absorb these shifts from
Medicare providers, which have generally kept the provider community

But with two-thirds of the population in a Medicare-style
government-run plan, cost shifting would no longer be a tenable way for
the private sector to subsidize the public sector. Medicare providers
would pretty much be on their own with a much reduced ability to shift

It’s also ironic that Democrats have been fearful of doing anything that would create a two-tiered Medicare system
for seniors. The reasoning goes that if the rich and powerful are in
one plan and everyone else is in another there will not be the
political will to sustain a solid Medicare program for regular folks.
That reasoning has always made political sense to me. And, it has been
at the core of their opposition to the privatization of both Medicare
and Social Security.

Which makes the notion that Democrats would now support what will almost certainly evolve into a two-tired system of health insurance for those under-age-65 perplexing.

A public health insurance plan of the kind envisioned in Lewin’s
analysis is perhaps one way to pay for covering more people by cutting
out insurance company overhead and reducing provider reimbursements by
20% to 30%.

It is also a way to change the American health care
system—for consumers, providers, and insurers—in a dramatic way. “Push
it in here and it pops out there.”

America’s health care system
is unsustainable because it is too expensive partly because of the high
overhead produced by so many competing health plans. But mostly it is
unsustainable because we waste so much money on unnecessary and
wasteful care.

Fixing that problem, and therefore crafting a
sustainable system will require entirely new incentives and a focus on
paying for value.

It is also entirely possible that insurers, who would be desperate to survive in competition with a “Medicare for all model
would create their own “coach product” by doing everything in their
power to just whack provider reimbursement levels to Medicare levels
irrespective of which providers create value and which ones waste
money. What would they have to lose?

Making the politically
problematic decisions that would end the waste in our system is proving
to be very hard. It’s entirely possible there will be proposals to
create a government-run health plan to compete with the private sector and leave for another day dealing with the enormous waste already embedded in the system. Already, the Congressional Budget Office has said
that programs that the administration claims will deal with this
waste—introducing health information technology, comparative
effectiveness reviews, prevention, and wellness—will have only minor
impacts on spending.

If we kid ourselves into thinking that a public health plan program
will by itself create real savings—instead of artificial savings
produced by underpayments—and continue to avoid the real issue of value
for what we pay, we will only end up with a two-tiered health care
system (coach for most and first class for a few) for those
under-age-65, providers just as underpaid in most of the working age
market as they now are in Medicare, and nothing done to stem the
unsustainable cost of Medicare’s entitlement benefits.

For providers this would be a disaster—at
least two-thirds of the under-65 market would now be paid at Medicare
rates and the best providers would be hit as hard as those who under
perform. At worst, even the private health plans could be desperate to
drive the rest of the market down to Medicare payment levels in an
attempt to avoid losing two-thirds of their market share. There would
also be about no one left to shift costs to!

I’m trying to understand how a government-run health plan alternative in the under-age-65 market
that focuses on payment rates to control costs, absent changes that
produce a value-based payment system, would be any kind of policy
victory for Democrats—or the rest of us.

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    Turning next to relators’ claims based on alleged violations of the Anti-Kickback Statute, the court concluded relators failed to allege “that United Health certified compliance with the Anti-Kickback Act, nor did they allege that such compliance was relevant to the Government’s funding decisions.” The court then declined to exercise supplemental jurisdiction over relators’ state law claims and refused to grant relators leave to amend.
    The U.S. District Court for the District of New Jersey dismissed May 13 a qui tam action alleging violations of the False Claims Act (FCA) by United Health Group and its subsidiaries. According to the court, the complaint failed to state a claim upon which relief could be granted under the FCA. Relator Charles Wilkins began employment with United Health Group and its subsidiary AmeriChoice in October 2007 as a sales representative. Relator Darryl Willis began employment with United Health Group and AmeriChoice in 2007 as the general manager for Medicare/Medicaid marketing and sales.
    In their qui tam complaint, relators allege 11 violations of Medicare and Medicaid regulations. The United States declined to intervene in the case and the relators filed an amended complaint that stated one federal count—violation of 31 U.S.C. § 3729(a)(1)-(3)—and nine state law counts. United Health moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing relators failed to plead the elements of a “false certification” claim, they failed to plead any anti-kickback violations, and failed to adequately plead a conspiracy. Relators alleged that because United Health entered into a contract expressly certifying that it agreed with all “terms and conditions of payment,” they made a false claim when they submitted claims despite any one of the 11 purported regulatory violations alleged in the amended complaint. Rejecting relators’ express false certification claim, the court found “[not once in the Amended Complaint have Relators identified even a single claim for payment to the Government.”The court also held relators’ implied false certification claim failed. According to the court, relators argued that because United Health agreed to comply with all CMS regulations when it contracted to become a prescription drug plan sponsor, and because at times it was in violation of some regulations, it therefore committed fraud each time it submitted a claim for payment. The court found such a theory of liability overly broad. “If Relators’ theory were correct, the FCA would become a federal tort fountain, flowing claims for every trivial violation of Medicare/Medicaid regulations,” the court said. Relators next argued that under the recently enacted Fraud Enforcement and Recovery Act of 2009 (FERA) a relator need only show whether compliance with regulations would have a tendency to influence the government’s payment decision. While that argument is true, the court reasoned, “Relators must still show a claim . . . and [t]hey have not done so.” Turning next to relators’ claims based on alleged violations of the Anti-Kickback Statute, the court concluded relators failed to allege “that United Health certified compliance with the Anti-Kickback Act, nor did they allege that such compliance was relevant to the Government’s funding decisions.” The court then declined to exercise supplemental jurisdiction over relators’ state law claims and refused to grant relators leave to amend.
    United States ex rel. Wilkins v. United Health Grp. Inc., No. 08-3425 (D.N.J. May 13, 2010).
    FCA claim alleging aggressive marketing tactics by health plan provider dismissed
    Publication: Health Law Week
    Date: Friday, June 4 2010
    The U.S. District Court for the District of New Jersey dismissed a qui tam action brought by two former employees of healthcare plan providers alleging violations of the False Claims Act (FCA) arising from excessively aggressive marketing methods. United Health Group Inc., a provider of access to healthcare services, had as its subsidiaries AmeriChoice and AmeriChoice of New Jersey, which each offered Medicare Advantage plans. Charles Wilkins and Darryl Willis (the relators), who were each employed by United Health Group and AmeriChoice, initiated a qui tam claim against United and its two subsidiaries under the FCA alleging numerous violations of Medicare and Medicaid regulations governing administration of the Medicare Advantage plans. The complaint alleged that the defendants engaged in unauthorized and aggressive sales methods in marketing the plans — including the provision of illegal cash payments to providers to induce them to change beneficiaries to AmeriChoice and the provision of illegal kickbacks to doctors for obtaining the names of patients they could call and approach. The defendants moved to dismiss.
    The district court concluded that the complaint failed to identify a single instance in which the defendants submitted a false claim to the government for payment as required to prosecute a qui tam claim as relators under the FCA. Under applicable federal appellate court precedent, the absence of such an allegation was fatal to the relator’s false certification claim. The relators’ theory of liability at base was that because United Health agreed that it would comply with all Centers for Medicare and Medicaid Services regulations, and because it was at times in violation of some regulations, it committed fraud each time it submitted a claim for payment. The district court concluded that this contention confused the conditions of participation in a Medicare or Medicaid program with the conditions of payment, and would open the door to a flood of tort claims of a type not contemplated by the FCA. Moreover, the complaint failed to allege that the violation of any regulation was actually relevant to any funding decision. As a result, the complaint failed to state a claim on which relief could be granted and, accordingly, the defendants’ motion to dismiss was granted.
    Source: Health Law Week, 06/04/2010
    Copyright © 2010 by Strafford Publications, Inc. http://www.straffordpub.com / All rights reserved. Storage, reproduction or transmission by any means is prohibited except pursuant to a valid license agreement.

  2. i think that more money should be spent towards medicine. it takes time and effort for doctors to work on patients and to save them. im not saying that they will save them all im just saying that they have to have medicine to give to the patients and how can they do that if they run out of money to buy the medicine for the patients. but im just a 15 year old high school student and one voice but until we can all come together as one and stop being so hostile towards each other then we will never see that what we need is all right in front of us. we just don’t want to accept it.

  3. Excuse me but…..How about making individuals be accountable for their own health? Incentives to STAY HEALTHY? Our Health Care costs are thru the roof due to PREVENTABLE life style diseases. Let’s stop the problem at the root cause and then maybe we may have a chance to fix this system. TOO MANY PEOPLE USE IT!!! Because they want an “after the fact” fix instead of thinking to prevent it in the first place. Americans have become the laziest people on the planet they don’t even want to get up from a couch to change a channel. We created this monster by making everything too convenient that people don’t want to move their body or eat something that was actually grown (without a pesticide) they would rather ingest poison from a box…and you wonder why are healthcare costs are so high? Work in an incentive to KEEP PEOPLE ACCOUNTABLE for their own health instead of lining the pockets of BIG PHARMA to keep every individual on medication for the rest of their lives… it’s simple people…Move your body, EAT REAL food, mostly plants and NOT too much….

  4. For a long time I was totally against any type of government health care program, but as the cost of simple medical treatments continue to rise – I see no choice. While most people look at a government run health care system as the only affordable way for most people to obtain health insurance – I see this issue differently.
    Yes, there would be a benefit for the people who cannot afford health insurance – but there is a bigger side issue as well. If there was a government run health care system, the U.S. federal government could mandate changes in the costs associated with visiting your doctor or the amount charged by hospitals. Right now, there is no competition in U.S. health care – so the costs associated with even the most simple treatments are more expensive than they should be.

  5. Hi Peter,
    I agree UMC is a mess, they are bleeding something like 50 million a year, they hired some crook Administrator from Chicago who ripped them off big time and hired a bunch of unqualified friends who ripped them off. They ran their employee health plan illegally, and pratice systemic insurance fraud in billing for their services. They are a complete disaster.
    For those that don’t know UMC stands for University Medical Center and is a public hospital. Another example of why I don’t want government running my healthcare.
    To your other questions the same income you would need anywhere to afford $9,746. If you want more details go to Kaiser Family foundation, that is total premium cost. It’s the average cost of employer family coverage.

  6. Nate, what kind of an income in NV would you need to afford the $9,746? Of course you didn’t tell us what that covers (or doesn’t cover), the deductibles and co-pays, or the age to qualify for that rate, and if that’s the individual rate or employer rate.
    CBS 60 Minutes did a story on Las Vegas a week or so ago and hospitals (UMC) are cutting off (increased)charity and low income care due to the economic collapse while private insurance cuts coverage. I won’t justify how the NV economy was bubbled and preped for collapse, but that still doesn’t condone denying healthcare.

  7. Barry,
    Insurance premium in MN is cheaper then in NJ. Employer Family policy in MN is $11,395 versus $12,233 in NJ. Neither are considered good markets, MN is heavily regualted and sorta socialist. NJ is NJ, throw them NY, and MA out of the Union and half our problems would be solved. Compare to a couple less regualted markets;
    TN $9,996
    NV $9,746 my home…see how well I control cost:)
    OH $10,967 my other home, working on it, lots of corn fields to drive through to reach everyone.
    Hi Peter, how you been? Hope all has been well. Just wanted to point something out if it is OK.
    “Deron, it’s the rates that’s killing us.”
    If you take any old CPT code, 99213 basic office visit lets say, the reimbursement under most PPO contracts rises slower then inflation. What a doctor gets paid today under a PPO contract is usually less then what they got paid 20-30 years ago before PPOs existed. We are extremely efficient at what we pay per CPT we just have way to many CPTs, Rx, test, etc etc.
    “As for driving procedures I don’t think the pressure comes from docs, I think it comes from hosptials – unless the docs have a scratch my back, I’ll scratch your back agreement between them.”
    It is doctors in Hospitals who see patients. When we get billed we get a facility bill then multiple provider bills. It is both. Keep in mind in many parts of the country I can get a facility bed for $1500 per night per diem, no matter what the facility does they only get $1500 or so. It’s all the stuff doctors do while my member is in that bed that gets expensive.
    “If low utilization is the answer in “this system” then talk to the hospitals in financial difficulty because of economic low utilization going on right now.”

  8. If low utilization is the answer in “this system” then talk to the hospitals in financial difficulty because of economic low utilization going on right now. As for driving procedures I don’t think the pressure comes from docs, I think it comes from hosptials – unless the docs have a scratch my back, I’ll scratch your back agreement between them. As for the threat of lawsuit excuse I just don’t buy it and think it is used for cover to drive revenues. Rbar, when you came to practice here did you come with a fear of lawsuits, or did your U.S. colleagues scare the hell out of you?

  9. First, a correction for rbar. The web address for Maggie Mahar’s blog is: http://www.healthbeatblog.com.
    CMS will tell you that Medicare spends less than half as much per beneficiary in Minneapolis vs. Miami with no difference in outcomes. I’m quite sure that health insurance in general is cheaper in MN than in my state of NJ, though I don’t have access to insurers’ rates. Perhaps Nate or one of the other insurance industry folks on the blog could provide that. You might be interested to know that only non-profit insurers are allowed to sell health insurance in MN even though, ironically, UnitedHealth Group is headquartered in Minnetonka, MN. Medicare Advantage plans are an exception.
    As for Mayo, I’m told that they charge 25% or so more on average than Massachusetts General for major procedures but they do far fewer procedures relative to the patient population served. I have learned that Mayo doctors are on salary and, after the first five years, they are all paid the same. So, they have no incentive to drive revenue. Indeed, the doctors don’t know whether the patient in front of them is well insured, uninsured or on Medicaid or Medicare. Mayo does have a large endowment, though it attempts, usually successfully, to cover its costs without tapping it. It makes good money from executive physicals and from wealthy foreigners who come there and pay full list price.
    Lower utilization can come from strategies like trying physical therapy before back surgery or drug therapy before CABG unless the patient clearly fits the profile for a CABG. They are more likely to offer patients palliative care counseling at the end of life. The malpractice environment is less litigious in MN than in MA, NY, NJ, PA, etc. The population in general is healthier in MN because there is a lower incidence of poverty. You get the picture. There are lots of reasons and lots of strategies to achieve lower utilization and lower overall costs despite higher charges per procedure.

  10. Is Mayo charging more per procedure to make up for less less tests and unneccessary care – so where’s the saving? Do patients using Mayo pay less for insurance, or if there are savings do those savings go to the insurance company and not the patient? Are the “savings” encouraged by insurance that says, “If you use Mayo your co-pays and deductibles will be x less?

  11. rbar,
    I’m afraid I can’t answer your question directly. I was basically relaying information that was originally posted on Maggie Mahar’s blog, http://www.healthbeatblog.org, by a recently retired Minnesota doctor who posts frequently and very knowledgeably there under the name Pat S. He had extensive experience with Mayo.

  12. Barry,
    I have a question re: “the Mayo Clinic, which is widely cited as the gold standard for cost-effective care, actually charges more per procedure than just about anyone including Partners in Boston, which owns Massachusetts General and Brigham and Women’s Hospitals. Mayo just does far fewer tests and procedures per thousand patients served than most other providers.”
    When I refer patients to the Mayo Clinic (usually for a nonsurgical subspecialty tertiary care opinion, they are about 6 hrs or a very short plane ride away), they get basically every test under the sun … I seriously wonder whether they do less for their local (nonsubspecialty) patients only. I always wondered how Mayo got the cost effectiveness reputation (I guess it’s from the Dartmouth stuides) … if you can comment, please do.

  13. “Deron, it’s the rates that’s killing us. Addressing volume may make GDP/health costs look better but we still won’t be able to afford the procedures.”
    Believe it or not, the Mayo Clinic, which is widely cited as the gold standard for cost-effective care, actually charges more per procedure than just about anyone including Partners in Boston, which owns Massachusetts General and Brigham and Women’s Hospitals. Mayo just does far fewer tests and procedures per thousand patients served than most other providers.
    Bottom line: Deron is right. It’s the utilization that’s killing us. On rates, more price and quality transparency would be helpful, at least for care that is not provided on an emergency basis but can be scheduled in advance. While I agree that few people could afford to pay out of pocket for most hospital based care, if we could eliminate much of the cost-ineffective utilization, at least some of which is probably driven by defensive medicine, health insurance would be much more affordable.

  14. “It will be far more effective to address the volume of services than to address the rates.”
    Deron, it’s the rates that’s killing us. Addressing volume may make GDP/health costs look better but we still won’t be able to afford the procedures.

  15. It will be far more effective to address the volume of services than to address the rates. If we continue to keep rates flat or drive them down further, we will have additional volume problems.
    How do we address volume issues? 1) Have providers, payers and public health departments team up to improve the health of the population. 2) More aggressively measure utilization of services and adjust provider fee schedules upward or downward based on utilization as compared to risk-adjusted benchmarks.

  16. Why do we even use a phrase like “the insurance industry is not going to allow”? The insurance industry, except for their ability to buy legislators using citizens’ premium dollars, really does not have any power at all.

  17. The hurdle as always is too figure out how to keep private insurance happy and solve healthcare costs at the same time – IT CAN’T BE DONE!! Either get rid of private insurance for all but 10% of luxury market health insurance using tcoyote’s assessment of second tier; “So private plans would be shafted THREE TIMES”, “not flexible enough to survive all three hits”, or force them to compete (and go broke) under grueling regulation and price controls. This won’t be solved by the faint of heart.

  18. The private insurance industry is trying to persuade people that the public sector option will pay all providers less, in order to scare doctors and patients. It just isn’t true.
    Consider the FACTS on the Lewin Group:
    Remember Ingenix and UnitedHealth? Quoting from a Chicago Tribune article:
    “. . . allegations against UnitedHealth by New York Attorney General Andrew Cuomo said a UnitedHealth subsidiary known as Ingenix Inc. was rigged to limit payments to doctors and, therefore, forced consumers to pay more. Cuomo also alleged that there was a conflict of interest because UnitedHealth owns the database.” http://archives.chicagotribune.com/2009/jan/13/business/chi-biz-united-healthcare-scheme-jan13
    Ingenix databases . . . unfairly charged patients for out-of-network claims and underreimbursed physicians.
    Cuomo has conducted investigations and settled resulting lawsuits against 11 insurers operating in New York that had been using Ingenix.
    So before you believe anything the Lewin Group says, know clearly who they work for.

  19. Margalit is onto something here. Medicare’s current payment scheme is all resource-based (i.e., you do more, you get paid more, with caveats for the capitated systems). Yet primary care is less resource-intensive than procedure-performing specialists, so they get shortchanged.
    And, as others have noted, Medicare doesn’t do anything to determine if the resources expended actually have any value in relation to the diagnosis (that would add administration expenses, after all).

  20. tcoyote says it best: “Obama would be sensible to trade this radioactive bargaining chip away for concessions from the private plans. It is not worth cratering the whole deal for this poorly thought through idea.”
    The insurance industry is not going to allow a reform bill to pass that includes a specific public plan component. The hypothetical public plan’s real value in this discussion is as a straw man threat to insurers. What the Obama administration has to figure out is (1) What they want as a trade-off for abandoning the idea; and (2) How to keep the threat alive long enough to get the insurers to compromise. The answer to #1 may be real unrestricted price competition a la the Netherlands. The answer to #2 may be yet more commenters taking the idea seriously.

  21. The way I see it there are two competing goals that healthcare reform needs to accomplish: curtailing cost increase and extending care to the uninsured/under-insured. I think this “plan” is attempting to address the latter without much regard for the former. The problem is that unless these two goals are tackled simultaneously, we will achieve neither.
    The “carpet bombing” solution of cutting reimbursement across the board should be a non-starter. If anything, primary care reimbursement should be INCREASED, while the excess reimbursement for unneeded procedures should be decreased. I totally agree with CT IPA Doc that the only way to keep costs down is to spend more on coordination of care and quality outcomes and generally empower the dwindling primary care physician population.

  22. This is, of course, a political idea, not a practical solution to the cost problem. And it has become a litmus test item for the hard core lefties. The whole point of admitting private health plans to Medicare in the first place was to address Medicare’s inflexible fixation on unit payment rates, and actually address the appropriateness and co-ordination of care. Not clear if this experiment has failed, but with the former indemnity insurers like Humana and United Healthcare dominating Part C, “network savings” rather than care co-ordination was the main cost management strategy, and no real savings accrued to the program (tho beneficiaries themselves got more services).
    So private plans would be shafted THREE TIMES: once by the recession (shrinking commercial enrollment), once by Part C payment cust and once by “health reformers” by taking away a huge chunk of their individual and small group business. These firms are not flexible enough to survive all three hits.
    Medicare is fundamentally antiquated, and creating another program to mirror it using the same brute force, “here’s the deal” unit payment strategy would be a great leap backward for rational health policy. The comment about Orszag is perceptive; Orszag has focused on constraining inappropriate care, particularly geographic variation, as a core defect of traditional Medicare.
    I think the public plan is, in the end, too disruptive and unpredictable in its impact to be enacted this time, and Obama would be sensible to trade this radioactive bargaining chip away for concessions from the private plans. It is not worth cratering the whole deal for this poorly thought through idea.

  23. The problem I see with this “plan” is once you have paid into the second tier plan you’re next problem would be finding any provider willing take you on as a patient. How also would this prevent extra billing by providers who find the reimbursement rates not to their liking – EOB; This is the charge for services not covered by your insurance. This also does nothing to stop the massive over utilization, AKA, padding the bill.

  24. Where is Peter Orszag (Obama’s OMB Director) when you need him? I realize that Nancy-Ann DeParle and the MoveOn.Org wing of the Democratic Party have drunk Jacob Hacker’s Kool-Aid on why a public plan is a swell idea, but Orszag is too smart of an economist to believe this nonsense.

  25. by what measures is the Lewin group respected and non partison? Have they ever done any “studies” that are non political? Why do I only hear reference to their gold standard and quality on far left blogs propogandizing their work? If they where truely respected you wouldn’t need to trumpet their quality, it would be known, like say Milliman. Or Kaiser Family, or any of the truly respected research/analytical firms.
    I personally enjoy quite sunday mornings picking apart their “studies” and posting on their factual and phylosophical errors. I’ll agree they do have great respect amoung the left leaning ideology who uses them to support their left leaning political aspirations. Outside politics they have no respect.
    Perfect example of their poor work is here;
    “As Lewin found, a government-run Medicare-like plan in the commercial market covering those under-age-65 would save an enormous amount of money.
    It would do so in two ways:
    By eliminating the higher expense factors that private health plans have in order to do business. Right at the top of the list are costs built into insurance plans to pay brokers and agents, health plan profits, as well as state and federal taxes.”
    I haven’t read every word but did read the majority of it and tried to find where they adjusted for fraud. Medicare is cheaper to administer because they don’t perform any meaningful auditing or fraud prevention. They process transactions, just about anything submitted with 2 seconds of thought clears medicare. Becuase of this they lose 3-5 times as much to fraud as private plans. You can’t take the savings of cheap administation and not account for the increase in claims. They save $100 a year in administration but lose $600 in paying bad claims. I don’t see where Lewin, the respected Lewin, accounted for this at all. If they had the administrative savings would have more then been wiped out by waste producing no savings.

  26. rbar,
    I second this idea. Great comment.
    It is hard to imagine how medicare for everyone could work with fiat pricing, constantly falling to meet the current budget crisis. As the much maligned Newt has (correctly in this case) pointed out, Medicare for all will quickly become Medicaid for all.
    Two tiers are better than none.
    When the oil runs out, retirement pensions disappear, hyperinflation follows deflation, the polar ice caps melt, the southwest and California become truly deserts it is probably still more than we can afford.

  27. This discussion is cloudy because three very different words are being carelessly used interchangeably: RATE, BILL and COST.
    The business world makes distinctions.
    “RATE” means what is typically charged in the “whatever the market will bear” sense.
    “BILL” means how much we allow the customer to pay after “rate” has been tweaked by discounts for volume, cash or early payment, good customer, promotional/PR considerations, employee discount, etc.
    “COST” means actual expense of goods and/or service plus a reasonable profit. (Rule #1: COST must always be lower than either of the other two.)
    Unless and until realistic distinctions are made between these very different definitions the conversation will remain muddy.
    Rebates, kickbacks, referrals, discounts and Lord knows what else is part of all economic systems, in or out of the health care arena. Unfortunately the health care playing fields are not equivalent. Competition in the retail and services marketplace drives prices down. But thanks to certificates of need, insurance boundaries, geography and demographics there really is no “marketplace” for health care, i.e. no real competition.
    In addition, those who receive the care, the patients themselves, for a variety of reasons either have no idea how much the costs are or don’t care because in most cases they do not pay more than a token part.
    And while I’m at it, why isn’t anyone talking about better funding and recognition of community health departments. Seems to me with better funding these under-appreciated, over-used, already in place infrastructure features are long overdue for more funding, bigger staffs and even a physician or two on duty all the time.
    About forty or fifty years ago public health was dealt a serious deadly blow by deinstitutionalization, a badly needed move to remedy the abuse, neglect and ineffectiveness of keeping mental patients warehoused in big mental asylums across the country. The intent was to turn their care over to local mental health clinics better equipped to deal with smaller case loads, better able to deliver higher quality attention and aftercare. The results were and continue to be a national embarrassment as well as part of the problem we are discussing. I’m hoping we don’t make it even worse.

  28. Extending Medicare and Mediciad fee-for-service rates to the commercial population without some offest (P4P, medical home $, etc.) for primary care will serve to accelerate the total eviseration of the US primary care physician population. Medicare rates have been close to flat for a few years and in my state (CT) adult PCPs are paid at 57% of Medicare (as are most specialists) by Medicaid. Few US docs are going into primary care these days and this will just acclerate that trend. Most other countries have 2/3 PCPs and 1/2 specialists, but in the US it’s just the opposite. It’s time to stop paying docs for piecework and pay for value..for access (avoid ER$), for helping to keep people healthy and to manage chronic illness where 2/3 of costs are now.

  29. How about a true bare bones/essential medicare plan for the uncovered? With slightly improved (e.g. +5%) rates for cognitive medicine and a set of simple rules:
    -generic coverage only
    -certain surgeries such as elective neck/back surgery only after consultation with independent nonsurgical physicians
    -expensive testing (MRI, CT) only in the ER or in combination with specialty discussion/referral, and with certain exclusions (e.g. no MRI for stable axial back pain)
    -specialty consultations for new problems only via PCP
    -feeding tubes only for reversible conditions, or explicitely demanded by the patient, or with a living will explicitely desiring it as end of life care
    -aggressive screening for fraud and poor performance (e.g. telling the patient in the benefits statement that the office visit as coded by the doctor on average involves roughly 15 min. face to face time).
    -litigation would be against the federal government, like in the VA system
    And everyone who wants more can pay for it.
    Cost will be substantially less. Outcomes will be equal or even better than (less iatrogenic disease) in the bare bones plan than in our current system of overdiagnostics and hypertherapeutics. Some doctors and patients will start to like this last resort plan.

  30. Mr Laszewski correctly talks about a “value based payment system”
    But (and this has been said many times before) the debate continues rage about how we pay -not what we pay for!
    Yet I believe many Americans are finally realizing that “more is not necessarily better” in Medicine.
    So to use Mr Laszewski’s metaphor -maybe sitting in “coach class in Medicine” is the less “dangerous part of the airplane”
    Dr. Rick Lippin

  31. I think there is going to be something for everyone to dislike about this plan.