The Public Plan–Mutual Assured Destruction?

6a00d8341c909d53ef01157023e340970b-piI typically don’t talk about my travels on this blog but something happened this week that bears reporting.

the federal government should or should not offer a public health plan
alternative to compete with private insurers in the under-age-65 market
is a hot topic in Washington and in the market.

I recently posted on it in detail: The Public Plan Option for the Under-Age-65 Market—The Biggest Health Care Controversy on the HillThis
past week I met separately with two health insurance CEOs—both
well-known leaders in the business and both from highly regarded
not-for-profit plans.

They read the Lewin Group analysis of the proposal for a public health plan. They both concluded the Lewin analysis made sense. Lewin
projects the public plan would gain two-thirds market share in what is
now the private health insurance market because it would pay
Medicare-like provider reimbursement levels that are 20% to 30% lower
than they pay. Simply, if one player has “raw material costs” 20% to
30% lower than everyone else that’s a game changer—that player will win.

both see having to go up against such long odds and compete with a
public plan as a life and death issue for their organizations.

both believe the provider community does not understand what this would
mean—much lower reimbursement in what is now the under-age-65 market
and nowhere to shift Medicare and Medicaid costs to.

The both
believe the only way for their health plans to survive in this scenario
is to just unilaterally whack the providers with the same payment cuts
that the government would impose—chop existing reimbursement 20% to
30%. In short, get their “raw material” costs down to the same level so
they can compete on a level playing field.

The providers won’t
like it. They will threaten to refuse to provide care under those
terms. So what? It’s life and death for these health plans. “Them or
us.” If someone is going to have to get clobbered it won’t be them.
Just what would a health plan have to lose?

And these guys are the not-for-profit fellows.

It would be billion dollar corporations desperate to survive up against doctors and hospitals and all the other providers.

the past 10 years (post the "patients'/provider rights rebellion")
there has been a truce of sorts between providers and payers. There is
a tension and neither is ever very happy—but there is equilibrium
between them because everyone understands the other has to survive and
make a decent living.

A public plan would end it.

I am
not going to predict which side would win. But I will tell you it would
be one bloody mess way past anything we have ever seen.

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Dr. Daniel HellmaniBlogWestHartfordmoore76RayDeron S. Recent comment authors
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Dr. Daniel Hellman
Dr. Daniel Hellman

Finally a realistic prediction for still independent providers on the ground. As expenses have risen and reimbursement dropped, provider salaries have been maintained by increased patient load and hours. The Lewin analysis underestimates the effect on regions where the differential between Medicare rates and private payers is significantly greater than 20%. Some specialties would face catastrophic cuts, e.g. anesthesia. Office practices will discover even increased services will not cover their rising expenses because the profit accrued from that service is insufficient. While “government” plans have decreased administrative cost, “government” programs and best intentioned directives result in increased cost for providers.… Read more »


We need not search far for a model reform plan with a REAL public option – built around expansion of a state employee insurance pool. In Connecticut, where we have more than 325,000 uninsured, HB6600, or “SustiNet,” just got a favorable report from the state legislature’s Public Health Committee and is gaining momentum. SustiNet ensures that the state wisely uses the dollars it is already spending on state employees, HUSKY (for low-income children) and SAGA by uniting them into a large self-insured health plan. SustiNet (which is Latin for “sustains” and is taken from our state motto) uses this critical… Read more »


Private health insurance is sooooo inefficient because there is no need for them to be otherwise…no competition. Bring in the competition in the name of public plan.
Another critical need is to involve patients more in the process, maybe by way of higher co-pays, etc to make it more efficient; it would reduce avoidable services (MRI, etc), reduce expensive procedures when cheaper alternative is available, encourage life style changes like diet & exercise, etc.


How credible is this Lewin group’s analysis? Why don’t private insurances go after wastages? Why do their immediate reflex have to be higher premiums. Why are they not more nimbler and cost effective if they are private? How come they don’t care about how many unnecessary stents are being placed or how some doctors over utilize tests and referrals? They are so inefficent and await for Medicare to lead and just follow when it suits their bottom line. They certainly don’t have the customer’s interest but rather their sharholder’s interest, so how the hell will that be a good situation… Read more »

Deron S.

I think we’re spending too much time worrying about lower rates, when we should be more focused on decreasing the volume of healthcare transactions. There are too many unnecessary transactions taking place because 1) we have a high prevalence of chronic conditions that could have been prevented and 2) we have a lot of testing and procedures done that provide questionable value. Putting an under 65 Medicare plan in place will cause certain stakeholders to give a lot while others give nothing, and that is a recipe for disaster. All stakeholders, including patients need to be giving something for the… Read more »


Atlas is not going to just shrug. He is going bowling.

Dr.Rick Lippin

Often when my physician friends/colleagues,in reacting to reimbursement rate cuts,would use the phrase “they’re killing me” despite their still very handsome incomes.
Mr. Laszewski- you use the phrase “decent living” (what is that dollar figure for Docs?)
(I am not boasting but I have been a salaried physician all of my career of 30 years plus)
It’s time that US physicians accept incomes that are more in line with other nations.
So I say, Mr. Laszewski, let the insurers “whack away”. The younger docs know it’s coming anyway.
Dr. Rick Lippin