Matthew Holt

What’s got lost in the public option kerfuffle

Not so long ago, July this year in fact, PhRMA boss and former Dem Blue Dog & Republican Billy Tauzin told the Aspen Health Forum that a straw poll of Democrats at dinner with him in DC all said that they didn’t think there’d be a public option in the final bill arriving on Obama’s desk. By the way Tauzin, Dashle, and the rest all said that there would be a health care bill passed in 2009 even though the summer of “death panels’ was just getting under way.

Now Jonathan Cohn at TNR is reporting (along with others) that Harry Reid is going to include the public option with an opt-out for states that don’t want it (think Red states), rather than the trigger (public option to come later if health care costs go up) or the co-op (moving the rest of the US to Seattle) alternatives.

This is a turn around—no question. It’s apparent that the summer of death panels actually hurt the anti-reform crowd. It’s also clear that the recent barrage from AHIP actually hurt its stated case against the public option—although as I’ve said on THCB I think that AHIP will do better with one in place.

But the problem is that this all disguises the real questions about the minor insurance reform we’re about to pass.

Instead the really important stuff is not being discussed. The key issues being lost are these:

  1. How stringent are the rules going to be for insurers? Theoretically they wont be able to reject applicants based on pre-existing conditions. But we know that, even in the group market where theoretically the cost of individuals is not a factor, health insurers have found a way to play pricing games to get rid of people they don’t want. Meanwhile we know that right now insurers are putting costs up as much as possible—presumably to drive the worse risks out into the as yet non-existent public pool. A pool which, by the way, won’t be here for three long years. So will benefit levels, pricing, network rules, and lots more wrinkles, be clear and be enforced? And if so by whom. The Feds? Or the rather more pliable state insurance commissioners?
  2. Who can be in the exchange? The assumption is that only a relatively small fraction of people will buy their care through the exchanges, and that the exchanges will end up looking more like the weak high-risk pools in states like California than the powerful public purchasers. Don’t forget that the Clinton plan was going to put basically half the population including all small business and Medicaid into its HIPCs. So the 2009 version starts as a 97 lb weakling. It’s still very unclear who will end up being able to purchase through the exchanges and what rules they’ll be under—although the backwards thinking of the unions means that Ron Wyden’s hope of making them a large factor is not going to happen. However, the more people who can buy through the exchange the more important they, and their regulatory structure, will be.
  3. How are we going to make insurers compete on cost & quality? Here I channel my inner Alain Enthoven. It’s evident that we’re going to add more people to Medicaid and to private insurance. But there’s no mechanism that will force the insurers to actually take responsibility for the populations they are covering, and concentrate on delivering them better care for a lower cost. In fact that’s been absent from the insurance reform debate, no matter how much Peter Orzsag complains. Enthoven would say, give the people a voucher for the lowest cost plan and that will force the rest of the market to reduce cost to similar levels. Eliot Fisher might say, force insurers and Medicare to purchase using bundled payments tied to overall sensible population utilization metrics. More likely, none of the above will be in the legislation, and from adding 25–40 million people into the system we'll get inflationary tendencies only.

So the politics will continue, but the wrangling over the public option will obscure these rather more important points. Don’t get me wrong—as a taxpayer and a customer I don’t trust the health insurers at all and have no problem with a public option to keep them “honest” or provide competition. It’s just that I worry not enough attention is being paid to the portion of the market that’s being left outside of the public option conversation. 

Of course, back in the day Jonathan Cohn always made me answer the tough questions he didn't want to deal with. Perhaps he’ll do the honors this time and answer these three! 

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Categories: Matthew Holt

10 replies »

  1. I am activly working in CA, NV, OH, IN, GA, IL, WV and minor work in NE, FL, UT, NY so I won’t claim to know every market but I have a very good idea what is going on in the country. Indirectly I’m a member of a TPA association that meets twice a year to share ideas and info on what is happening in the nation, Their are TPAs from every state present.
    It is very fair to say my statement is far less sweeping then Mr. Holts.
    A lack of competition would be the fault of employers not making an effort not of the plans not offering a product. I can lease a competitive PPO and do business in every state but HI. If I wanted to front the money I could lease the Blue’s network which would eliminate any claim of missing competition.
    Anyone that feels they are suffering due to a lack of competition is free to pick up the phone and call me and I will be more then happy to solve their problem or refer them to another TPA more local that can. Unless the employer is willing to buy you can’t fault the plan for not selling it.
    I disagree with the premis of plans being responsible for care. Insurance companies should insure and providers should care, any basardization of this is asking for trouble. Not saying employers shouldn’t purchase wellness and disease management but it should be from independent third parties who specialise in that.

  2. This is why I love this blog so much – I get to see the word “kerfuffle” used. Love it.
    Nate – Clearly you (claim to) have some experience in this (#3), but I would suggest that different markets behave diffently. My market does not have good competition at the plan level, in part because the providers actively work to keep new health plans out. And we know that when they do compete it is not on any kind of value or quality – it is price only. And as a result we get large swings from one plan to another with discontinuity of records and care. And I believe one of Matthews points was getting the plans to take responsibility for the care of a population. I can tell you that this is not happening in my market and the plans have no “plans” to do so. And I can tell you that there are places around the country where the plans do in fact do this with good outcomes in both cost and quality. So be careful yourself with these broad sweeping statements about the way things work.

  3. “It’s apparent that the summer of death panels actually hurt the anti-reform crowd.”
    Besides in your liberal fantasy land how do you determine this? Everything I am hearing is Reid is offering it to appease members of the left with full intent to let it get struck down. What has taken place that would lead anyone to think death panel discussions have hurt anti screwing up the healthcare systems more then liberals already have legislation?
    I’ll also take this time to point out how quite you have been on the Liverpool death panels. Oddly after much research I don’t find any English law forming death panels yet there they are. Funny how legislation that doesn’t specifically create something called a death panel still leads to death panels.
    Not so odd liberals try denying this truth, guess it is to nuanced for them?
    Now that it is out there Matt what do you think of the Liverpool death panels and the mysterios way they came to be with no direct law creating them? Why is it impossible for the same thing to happen in the US? Obama said so is not an acceptable answer.
    To debunk the rest;
    Item one, if carriers are artiically inflating rates to drive off bad risk where is the money going? Profitablility is down and they only make 2.2%, going to call BS on this one buddy, it’s aint happening, they are barely charging sufficient premium to make a profit, obviously no overchargeing to run off risk.
    item 2 the more people in the exchange the more money we lose and the more employers that pay more for insurance then they otherwise would. An ideal exchange would only cover the 5 million or so who can’t currently buy coverage, minimize the government involvement the lower the cost and eventual damage from it’s failure. Imagine how much better shape our system would be in today if Medicare was originally limited to the 13% that needed help.
    Item three is ignorance and politics. You have no experience or knowledge to make such a claim. I was on a renewal meeting today, last year the group initially got an 18% increase. Broker worked it down to 14% then 9%. Still unhappy and knowing they where healthy from the work I do, he got apps and took the case out to market. From there he got them down to a 2% reduction then finally a 5% reduction. This was all from competition. THis year they came out asking for 7% but once again we know how healthy they are so they are going to market and will once again recieve a rate reduction.
    If everything stays together 1/1 I wrote 80 new small employer clients for what we do. We took this block of business with a good loss ratio out to market and played the carriers against each other, expected savings around $500,000.
    This is the difference between reality and your partisian BS, you just make stuff up with no pretention of honesty. You have nothing to support your claim there is a lack of competition in insurance. If anything there is a lack of effort from employers to take advantage of the avialable competition. Something I bet you didn’t know reading your studies. If I had a dollar every time a client accpeted higher rates to avoid employees compelting applications I would be retired.

  4. Are there benefit minimums? If there are, are they good enough for the non-healthy?

  5. While I wish the exchange were much larger, one possible advantage of a small one is that it might make it possible to use Medicare-like rates for the public plan. A public plan that is widely accessible would never be able to get Medicare-like rates past the various lobbies, but there is at least a chance a smaller plan could. Of course, that would only work if accepting the new public plan were tied to accepting Medicare.
    Even a public plan available to 10% of the market would force insurers to cut rates to compete, and start doing it at least a year before the public plan gets underway. But the public plan would need to be lower priced based on medical costs. Admin cost advantages are going to be meager.
    About risk selection and cherry-picking In a universal health care context: If all have coverage and it is guaranteed issue, then this matters less than you think. Even if a modest amount of gaming occurs (through inadequate regulation) all that means is sick people will shift a bit from one plan to another. Unlike today, this will not set off a death spiral because as one plan gets more sick people and thus (after a one year lag) more expensive, people will eventually jump ship to cheaper plans. Not just the healthy, but everyone, because other plans will have to accept them. And that will make those plans more expensive, re-establishing equilibrium. Guaranteed issue is a game changer when it comes to death spirals if there are benefit minimums.

  6. Thanks for targeting the for profit health insurers as the bogeymen because THEY ARE!
    Here howevever is the unspoken reality we all have to face someday-
    To say that we have been both duped and swindled by Organized Medicine is a gross understement
    Dr. Rick Lippin

  7. You can see how political it has been just to get this far. The insurance lobby is huge and powerful. This is a good first step. It will evolve over years. The important thing is the train has left the station and healthcare reform is going to happen over the next few years. It cannot be put back in the bottle. Like in Massachusetts this reform will unleash all kinds of new pressures on trying to find ways to reduce costs.
    We were not even talking about this stuff a year ago. Credit Obama for making it an issue and pushing this forward. If not a single Republican votes for this, they will be shooting themselves in the foot.

  8. This has been one of my main concerns all along as we continue to barrel down the health reform path – that the debate about the public plan has focused too much attention on the wrong issues. The three questions you raise are certainly important, but I think we need to go even deeper than that. Regardless of whether or not we get a public option, we need more significant changes in delivery of care, payment of care, and how to keep our system competitive and cost-efficient. Thanks for raising the need to get out of the rut of the public option and into some of the more fundamental questions.

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