Matthew Holt

Why AHIP needs the public option

It’s been a fun week. After years of THCB explaining that neither could AHIP do genuine research nor could its venerable President open her mouth without lying, the rest of the world has caught on. I won’t rehash the blow by blow here—Jonathan Cohn is among many who’s done that already—but essentially AHIP commissioned PWC to include the half of the analysis about the Baucus bill that was favorable to them and leave the rest out. And the fall from grace has been particularly fun to watch. Even the whores from PWC who wrote the report criticizing the bill have been backing away from it. And some astute commentators think that the debacle has helped the likelihood of a more liberal bill’s passage.

Now to be fair (or overly fair as they’d never concede this to the other side), the insurers have a point. They loaded Baucus up with lots of cash and put a former Wellpoint exec in as his chief of staff. They romanced the White House and kept quiet when Pelosi and the rabble criticized them. The deal they thought they’d cut was that they would give up the way they currently make money by underwriting and risk skimming in individual-small group and being overpaid for Medicare Advantage, and in return they’d get 45 million more customers, all forced to buy insurance and subsidized by the government to do so.

But somehow along the way the Democrats, despite lots of tough talk about “bending the curve,” lost the cojones to find even a mere $100 billion a year to redistribute from the probably $1 trillion waste in our $2.5 trillion health care system.

So they had to go look for new taxes, and also decided that the “cost” of the changes had to come in at under $100 billion a year. Joe Flower eloquently asked why $1 trillion over 10 years was a relevant number, but it’s somehow become politically sacrosanct. But if you can’t find all the money elsewhere in health care, and yet you still want the uninsured to buy real insurance, you have to subsidize them.

If you decide that you have to spend less than $100 billion, you have to lower those subsidies, which means fewer customers for the insurers. And worse, in the Baucus bill, the rules on the insurers forbidding them from business as usual on underwriting are not matched by a serious individual mandate and there’s no employer mandate at all. So that was the reward the insurers got for their money and pliability. A glass they perceive to be half empty.

Employers get more or less what they want—no employer mandate. The unions get what they want, no real tax on health benefits and the maintenance of the awful employer-based health benefits system. And the poor suckers now are the insurers, especially the Blues (including Wellpoint) who stand to lose their very profitable small business and individual market business. And yet they are not going to get many more enrollees. So they can’t make it up on volume!

The insurers are terrified that they’re going to have to sell insurance to a bunch of sickies who’ll game the system (and from Charlie Baker’s story of his experience in MA they will!) and they won’t be able to use their usual self-protection techniques of underwriting and price discrimination. Soon, or in 2013 anyway, hordes of sick people will begin to buy insurance that’s effectively guaranteed issue at a regulated price, and yet no hordes of healthy people will also buy to expand the risk pool. For insurers this becomes a very difficult situation.

What then would be their way out?

Wouldn’t it be good for the insurers to find a greater fool on whom to pawn off these sickies? Someone who had by law to take all comers, who had to do it at a lower price, and who could lose money without going out of business? Wouldn’t it be good if there was that type of pool to risk shift against?

Doesn’t that sound like a government-run public insurance option?

I said a few weeks back that the liberals advocating a government option might be surprised because private insurers are very good at risk shifting against it. But it’s only recently occurred to me that AHIP and its fellow travelers not only need higher subsidies for so that poorer people can buy their products, they also really need a public pool to surreptitiously dump their bad risks into.

So it seems to me that AHIP will have to quietly support the public option. Otherwise they’re really in trouble. If they don’t they may actually have to think about trying to reduce overall costs in the system. Something historically you might say they are not best suited for.

I await Ms Ignagni’s next public pronouncements with interest.

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ArchieJMKjohnJeff Goldsmithmaggiemahar Recent comment authors
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Archie
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Bottom line: The Hawks simply cannot keep all of their good players, so they need to cut down
on the penalties and turn those Red Zone field goals into touchdowns.
And a number of players who took a little longer than anyone would have preferred.

JMK
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JMK

Matthew: New reader here. Re Ms. Ignani: Perhaps I’ve missed it, but I’ve not heard mention that, in a previous incarnation, she was the voice of union healthcare at the AFL/CIO (where I worked with her). So, as the parable goes:
“Miss, would you sleep with me for a million dollars?”
“Sir, for a million dollars I might.”
“Miss, would you sleep with me for ten dollars?”
“Ten dollars? What sort of woman do you think I am?!”
“Miss, we’ve already established that; now we’re just negotiating the price.”
And, for Karen Ignani, the price was right.

john
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john

Wow! What a crock. Worst article related to health care reform lobbying I’ve read yet. Don’t quit your day job, especially if it involves writing/research!

Margalit Gur-Arie
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Margalit Gur-Arie

Wow, Nate, very progressive indeed, so I’m not going to push my luck any further…. 🙂

Nate
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Nate

the benefit plan requirements would depend how you worded it. If you said carriers had to offer a series if plans like medigap in addition to anything else they came up with cool, if they could only offer the government desgined plans deal breaker. Government designed plans is why Medicare didn’t have Rx coverage until 2006, unacceptable. Keep in mind most Americans with private insurance don’t have any insurance carrier, they are in self funded ERISA plans, this clouds discussions of what has to be offered, we don’t want an employer being forced to offer 10 different plan designs to… Read more »

val
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val

Nate
I could still counter some of your claims but I think we’ve agreed that the PWC study doesn’t add much to the conversation. There are bigger fish to fry than debating the science of policy analysis. Maggie and the others are having a much more interesting and substantial conversation.
One day, I will tell you exactly my take on insurance companies but don’t have the time now.

Margalit Gur-Arie
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Margalit Gur-Arie

Nate, I think we’re making some progress here. You just agreed that covering folks cradle to grave is more economical and if you had 2-3 years you could cut coverage cost down by 15% to 20%. So the only thing left to debate is who should administer these plans. I have no objection to privately administered plans, as long as they are all equal in basic benefits and price and barred from excluding people. By basic, I mean FEHBP. Extra perks, should sell for extra prices. If you have no objections, and to assure that everybody pays premiums, I would… Read more »

Nate
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Nate

Margalit, This is going to be tough to answer in a way that makes an sense. Insurance is sold on an annual basis, consider each year a coin toss. The probability of landing on heads does not change based upon what your last flip was, in this case what you previous premium was. Each year you are buying new protection for what might happen in the future. That being said not many people make it to 65 without experiencing at least a couple years where claims exceed premium. There is almost always a couple rainy days before you hit 65… Read more »

Alexander Saip
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Margalit,
actually, I wouldn’t place the equal sign between values and outcomes. I don’t even think that we should completely eliminate the fee-for-service system. If you come to your doctor for a regular check-up, this is where it makes perfect sense. In one of my comments on an earlier post here, I said that in the future, I would expect a mix of payment models. What you are suggesting is pretty close to paying doctors a salary, which may be absolutely appropriate in some cases too, and the Cleveland Clinic makes that work just fine.

MD as HELL
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MD as HELL

In health care there is not always an “outcome”. Often it is verification…Yes, you are still old and don’t feel good, but there is nothing new tonight. Do you want fries with that? We overtreat because we are over-litigated. My fee is the same whether or not i write a prescrition or order an expensive test. The big money in medicine comes from the government, not the private insurers. But not for office work. Dialysis. Imaging. Home Health. Long term care. These were never on the radar when medicare was hatched. Neither was disability. Neither were lift chairs or scooters.… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

How exactly do you pay for outcomes? Outcomes are something that is measured over a long period of time, over a statistically significant sample of population. Are we suggesting that physicians get payed once every year or so? Do they get payed only for services rendered to diabetics that are shown to be successfully under control, and payed nothing for the other diabetics? It doesn’t make sense. Attorneys are paid regardless of the verdict. Sure, there are incentives for successful litigation, but the base pay, for time and materials, is a given. Almost every other professional worker is paid the… Read more »

Alexander Saip
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I completely agree with Maggie that healthcare needs to be more regulated, primarily, on the delivery side. One aspect of this is that the current fee-for-service reimbursement system is perfect for accountants, but turns physicians into salespeople. When it goes about a care plan, we definitely need to pay for the value rather than the amount of care. The trick is to define that value and provide medical practitioners with some sort of decision support system that would give them moral and legal grounds to refuse patients’ requests for unnecessary diagnostic or treatment options, unless they want to pay for… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Thanks, Maggie, for the beautiful summary. However, what I don’t understand is why do I have to “follow the money” in the US and not in other developed countries. Surely there are big corporations in Europe that would be as willing to profit from sickness as the esteemed members of AHIP in the US. Somehow, those governments are not allowing that to happen. As to opening Medicare to the public immediately, I don’t think we need to wait until all the kinks are worked out and all the excess is trimmed. The premiums for younger folks joining Medicare should not… Read more »

Jeff Goldsmith
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Jeff Goldsmith

Maggie- There is no “public plan” in Germany. All health insurers in Germany are private. When people lose their jobs or otherwise become unemployed, the state social security agency pays to continue their private coverage- COBRA with teeth (and funding). The destitute also receive state welfare subsidies that cover their private premiums- a far better system than multiple public payers for different entitled groups as we have here. The German government does the dirty work in constraining cost by aggressively regulating physician fees, hospital budgets and drug coverage and costs. The health plans basically pay the bills; the government determines… Read more »

val
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val

Nate Frankly you confuse me but I’ll try to adress your concerns nonetheless. The study should have included the impact of health insurance exchange on premiums in its analysis. Since many people argue that the competion created by the exchange would reduce premiums,you would think that’s something worth looking at even if just for scientific rigor. There are statistical methods that allow you to pick which independent variables to include to include in your final analysis. That’s the least they could’ve done. If you want to exclude a variable that other experts think is significant, you should do it scientifically.… Read more »