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CBO: HELP Bill’s Public Plan Not Much Help on Costs

The green-eyeshade meanies in the Congressional Budget Office took another whack at the public plan today, at least the one contained in the health reform bill passed by the Senate Health Education Labor and Pensions committee last June. Responding to queries from ranking member Michael Enzi (R-WY), CBO chief Doug Elmendorf noted on his blog that “premiums for the public plan would typically be comparable to the average premiums of private plans offered in the insurance exchanges.”

The reason given was the HELP bill emasculated the public plan’s ability to piggyback on the administrative efficiencies of Medicare and required it to be “financially self-sufficient.”

Meanwhile, it would have only a small effect on lowering overall costs, CBO said. Despite attracting “a substantial minority of enrollees” with its broad physician and hospital network, it would have a “limited” ability manage health care benefits. The only real cost savings would come in a few markets served by a limited number of private insurers where the public plan would add a “small amount of competitive pressure.”

Princeton University sociologist Paul Starr has been warning for months that a poorly constructed public plan could wind up as a dumping ground for the sickest and most expensive patients. CBO today assumed that would be the case. The HELP public plan probably would:

Attract enrollees who, overall, are less healthy than average (for the same reasons it would attract a substantial number of enrollees). Although the payments received by all plans in the exchanges would be adjusted to account for differences in the health of their enrollees, the methods used to make such adjustments are imperfect. As a result, the higher costs of those less healthy enrollees in the public plan would probably be offset partially but not entirely; the rest of the added costs would be reflected in the public plan’s premiums. Correspondingly, the costs and premiums of competing private plans would, on average, be slightly lower than if no public plan was available.

CBO’s numbers suggest establishing a totally powerless public plan that serves as a dumping ground for the sick and near-poor may be worse than no public plan at all. Better the insurance industry should be forced to take all comers and have a tough and totally independent national regulator overseeing their behavior.

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Greg PawelskiGary O.NateDennisClijster Recent comment authors
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Greg Pawelski
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Greg Pawelski

A new study just published in the NEJM, found that a majority of physicians support the creation of a public health care option. The Robert Wood Johnson Foundation study showed that 63 percent of physicians support a health reform proposal that includes both a public option and traditional private insurance. If the additional 10 percent of doctors who support an entirely public health system are included, then approximately three out of four physicians nationwide support inclusion of a public option. Only 27 percent support a private-only reform that would provide subsidies for low-income individuals to purchase private insurance. The researchers… Read more »

Gary O.
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Gary O.

@Nate “What administrative efficiencies?” The absence of underwriting and profits. From a July, 16, 2009 news release from The Commonwealth Fund: About 12.4 percent—or $96 billion—of the $775 billion in privately insured health care spending went for administrative costs in 2007. That $96 billion—representing what insurance companies received in premiums, minus what was paid in medical claims—included claims processing, advertising, sales commissions, underwriting, and other administrative functions; net additions to reserves; rate credits and dividends; premium taxes; and profits. By contrast about 6.1 percent—or $60 billion—of the $974 billion in public program health care spending went for administrative costs in… Read more »

Nate
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Nate

“the HELP bill emasculated the public plan’s ability to piggyback on the administrative efficiencies of Medicare”
What administrative efficiencies? Medicare cost as much or more to administer then efficient private plans and does are far less efficient job doing it. Private plans don’t lose 10% to fraud and abuse.

Dennis
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Dennis

Sounds like the true Trojan Horse in the health care debate is the battle over the “public plan.” By making it the centerpiece of the left v. moderate factions, its inevitable exclusion from the final bill (to get it through the Senate) will result in a health care system where the private insurers will actually have to enroll the high risk pool, instead of dumping them on the “public plan.” Then, in a few years, when the private insurers complain about how costly those people are to them, they’ll be begging Congress to create a public plan — a real… Read more »

Clijster
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