Careful What You Wish For

On the left are those who would like health reform to include a strong public plan, one that could negotiate large provider discounts, driving down the cost of medical care. On the right are those who think health insurance should be provided only privately. I’m neither left nor right. I consider myself a realist and an empiricist.

A reasonable reading of the political tea leaves suggests that health insurance for the non-elderly will remain largely a private affair. (See the Debating the Public Option in The American Prospect by Paul Starr, Robert Reich, and Robert Kuttner.) Therefore, I’d like the private insurance market to work well. I’m also very familiar with the Medicare experience (and its problems) with both public and private provision of insurance.

So is Kerry Weems, the former acting administrator of the Centers for Medicare and Medicaid Services (CMS), the agency that oversees Medicare and Medicaid. Weems was interviewed recently by John Iglehart, the founding editor of Health Affairs, a respected journal of health policy (Doing More With Less: A Conversation With Kerry Weems, Health Affairs, 18 June 2009). Based on his experience managing Medicare and Medicaid, Weems had some interesting things to say, some of which I summarize below.

In general he paints an ugly picture of a public plan. If you’re hoping health reform includes a strong public plan you should be careful what you wish for, and you should read the interview to see what problems a public plan might have. This is not to say a public plan is better or worse than private plans. It is just to say that one should expect that a public plan will likely experience certain types of problems. Now on to the summary of the Weems-Iglehart interview.

On Congress. Congress has not treated CMS well because funding it is not as sexy as funding other agencies overseen by the same appropriation subcommittees: the National Institutes of Health and the Centers for Disease Control and Prevention. A consequence is that CMS has insufficient resources to fight waste, fraud, and abuse. For example, according to Weems,

“CMS’ annual expenditures [are]…more than the economies of all but twelve nations, and CMS carries out its responsibilities with a staff of 4,600 people. Social Security is of comparable budget size and handles its dollars with about 66,000 people…”

On Medicare Advantage. Weems feels that private plans under Medicare advantage can offer “better care at lower or the same costs” as traditional fee-for-service Medicare.

On Payment Errors. Medicaid has a payment error rate of 24 percent, meaning that the payments paid to providers are either incorrect or unverifiable 24 percent of the time.

On Waste, Fraud, and Abuse. Investigations of waste, fraud, and abuse under Medicare and Medicaid have yielded a return of $17 for every $1 spent. However, far too little is spent in the fight. Therefore, a considerable amount of waste, fraud, and abuse exist under Medicare and Medicaid. (See the recent stories on fraud in Miami, Detroit, and Denver.)

On a Public Plan under Health Reform. Weems thinks a public plan is “a bad idea because the government has a difficult time selecting only those providers who deliver high-quality care. There is a risk that a lot of resources will be wasted on poor care.

On Political Pressure. CMS administrators get a lot of pressure from Congress to treat certain providers more favorably than they might deserve. Such political meddling is a handicap in properly administering a public insurance plan.

On Physician Payments. The American Medical Association (AMA) has considerable influence on physician payments through its Resource Based Relative Value Scale (RBRVS) Update Committee (RUC). Weems thinks the resulting payments have “contributed to the poor state of primary care in the United States.” (Weems’ anti-RUC statements sparked a blogosphere debate (hat tip: Kate Steadman of Kaiser Health News). Rebecca Patchin, Chair of the Board of Trustees for the American Medical Association wrote on the Health Affairs blog that CMS is under no obligation to follow the RUC’s recommendations and she cites examples where it has not done so. On the Health Care Renewal blog, physician and Brown University professor Roy Poses asks “why does CMS rely exclusively on the RUC to update the RBRVS system, apparently making the RUC de facto a government agency, yet without any accountability to CMS, or the government at large?”)

On balance, it is clear that Weems is not impressed with the public provision of health insurance under Medicare and Medicaid. Some of the sources of problems could in principle be remedied. However, if Congress were to implement a public plan under health reform there is no assurance it would not suffer from at least some of the problems that plague traditional Medicare and Medicaid. I think the most challenging are political pressures, including rent seeking on the part of providers, and a potential inability for a public entity to selectively contract based on quality.

The Incidental Economist holds a joint appointment at a major research
university and a federal government agency.  In his current position,
he studies economic issues pertaining to U.S. health care policy with a
focus on Medicare. His writings can be found at www.theincidentaleconomist.com

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Scott BryanMaryWaynekızlık zarıJoe Recent comment authors
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Scott Bryan
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I think we need a single transactor system–an entity like the NIH that would act as a go between for any payment for health care or health care insurance. The reasons for this are too many to list here but basically it’s to ensure that providers of both HC and HC insurance comply with regulated standards to best protect all parties and remove the conflicts of interest that currently leave too many HC dollars in the pockets of people who have nothing to do with HC, like insurance brokers, financial advisors, lawyers, marketing agencies, lobbyists, etc. This approach seems like… Read more »

Mary
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Mary

From a smart Congressman….John Fleming….Under the current draft of the Democrat healthcare legislation, members of Congress are curiously exempt from the government-run health care option, keeping their existing health plans and services on Capitol Hill. If Members of Congress believe so strongly that government-run health care is the best solution for hard working American families, I think it only fitting that Americans see them lead the way. Public servants should always be accountable and responsible for what they are advocating, and I challenge the American people to demand this from their representatives.

Wayne
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Wayne

I don’t understand why in our health care system natural healing products aren’t part of the healing process? My wife was cured of arthritis and colitis. I was cured of life long sinus and allergy problems. Our daughters bad vision was cured with vitamins and herbs, caused by child cold medications. Most educated people know chemicals cause uncontrolled cell division in test animals. The drugs we take are made of chemicals and yet everyone wonders why the cancer rate is approaching 1 in 3. I have not had the flu in five years. Sad to the public this knowledge is… Read more »

kızlık zarı
Guest

thank you post admin

Joe
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Joe

If you guys only knew what a complete fraud Kerry Weems is. Let’s just say he is not a model for a public servant, although he was quite successful atbureacratic politics.

Mike McBride
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Find how Healthy Eating can help you loose weight, gain energy, and help your body help it’s self at http://www.shopherbalife.com/freeoffer Give your body what it needs to live a healthy life.

Nate
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Nate

I don’t think the comparison between CMS and SSA is accurate at all. I might be mistaken but I beleive SSA processes all of it’s payments and claims with staff? CMS outsources all of its work to Medicare Intermedaries. CMS is just a huge midlevel management company sitting between the suits, Congress, and the workers, the private insurers the left wants to get rid of. What we need to be asking is what in the heck are 4000+ mid level managers doing all day? No the true cost of CMS and Medicare is not aggregated by the government or the… Read more »

Deron S.
Guest

The comparison in staff sizes between CMS and SSA is very telling. It’s yet another example of how government is not an efficient means for handling certain responsibilities and deploying resources. The more government gets into, the more thinly it is spread and the more bureaucracy it requires. Throw politics into the mix and it gets even more inefficient. Here’s a question: Is the indirect overhead that CMS requires from outside of its agency being allocated to its budget like a subsidiary would see from a parent? In other words, do we really know how much Medicare truly costs?

SAĞLIK
Guest

And that’s just on the relatively apolitical topic of self-funding vs. fully-insured plans! I won’t even get started on the more politically charged topics.

jd
Guest
jd

Nate, you often have good insights from your years in the industry that are seldom heard, and for that you provide a service, but you are absolutely not a reliable guide to a fair assessment of issues related to policy. Regarding self-funding, ERISA, a federal law, is a gift to the self-funded market more powerful than anything Congress has passed helping fully-insured group plans or the individual market. So get off your damned whine-wagon about how Congress is unfair to self-funded plans. That point may make you go ballistic, but the more you try to refute it the deeper the… Read more »

Nate
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Nate

“Recent work reveals tremendous market concentration among insurers.” The quickest and cheapest way to fix this is support more self funding amoung employers. What does Congress propose….outlawing self funding for groups under 250 employees. They pass laws like ARRA COBRA, HIPAA, and the NY surcharge that make it prohibitivly expensive for employers to self fund. When will people wake up and realize Congress doesn’t want an efficient and effective private system they want the tax dollars and they want them 103 years ago. Alison can you string together a long enough thought to attack the argument instead of the person?… Read more »

Nate
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Nate

“The Centers for Medicare and Medicaid Services (CMS) has become the object of criticism in Congress,”
Did anyone else get a rolling on the floor laugh out of this? Congress publicly criticizing CMS, when have you ever seen a CEO do that to his company? Congress is the CEO, CFO, CEO etc of both of these plans, if CMS isn’t getting the job done that means the executive suite is failing, wonder if these same members of congress are willing to fire themselves for this poor performance?

Tom Leith
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Tom Leith

I’m generally familiar with Arrow and Public Choice Theory but certainly not at the PhD level, more like the Wikipedia level. I’ll be interested to read Robinson’s reply to Arrow. I’ll just have to order the whole issue of Journal of Health Politics, Policy, and Law — it looks very interesting. When you say you’re in favor of single payer, what do you mean by “single payer”? Is that German or Dutch style “single payer”, or UK style “single payer” or have you got something else in mind? I have talked about a distinction between “single purchaser” (German/Dutch) and “single… Read more »

Alison Bass
Guest

A question and a comment about your blog, Matthew. How come you don’t have the guts to put your full name out there, if you’re really an independent-minded economist? And second, it seems obvious that Kerry Weems, now that he’s left the Bush administration, is out marketing himself as a management consultant to the health-care industry (as owner of Communix, a management consulting company in Kansas). So it comes as no surprise that Mr. Weems is opposed to a public health option. And this is not the only time he has shilled for the industry. He cast stones at a… Read more »

Dan maceda
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Dan maceda

Let’s bear in mind that Weems was a Bush appointee.
What evidence is there that private plans are not subject to waste, fraud and abuse as much as a public plan? Is that Ok if it’s private for profit payments?