Convergence and the Death of the Public Option

Tim-greaneySo maybe the two parties are coming together on health reform after all. Last night we learned that after days of “secret talks” among the “gang of ten” the Democrats have reached agreement to restructure their health care proposal. The changes are significant:

– ditch the already-watered-down public option plan;

– create a new insurance exchange “option” for individuals and small groups consisting of a nonprofit plan as negotiated by the Office of Personnel Management;

– expand Medicare eligibility to cover uninsured individuals aged 55-64.

What does the Democrats’ “public option ultralight” compromise have in common with Republicans’ alternative universe? Well, consider the latter’s proposal to open interstate competition for all health insurers–a move they promise will immediately lower health care costs. Besides being shameless attempts to offer simple solutions to complex problems, the two proposals are guilty of the same fundamental misunderstanding of health insurance. Simply put, they both ignore a critical economic truth of health insurance today: insurers require a provider network of hospitals and doctors or must have market leverage in order to negotiate for lower provider prices and for controls on excessive volume.

How, then, would a nonprofit insurer not presently competing in one of the concentrated markets succeed in putting competitive pressure on the incumbents? As one insurance industry observer put it,

So, Kaiser Permanente, which operates with highly organized and capital intensive networks in its markets, would now come into a state where it has no networks and offer a plan? Blue Cross of Nebraska might offer an individual and small group plan in Rhode Island? Tufts Health Plan out of Boston might offer a plan in Oregon?

Based upon what network of providers in those places where they do not now do business?

Likewise, in expanding Medicare, the Dems are taking a page out of the Republican playbook. For the last several weeks, Senate Republicans have been loudly touting the benefits of Medicare. By their lights, not only does the program produce unmatched (and untouchable) health care services in terms of quality of care and beneficiary satisfaction, but any cost-cutting constitutes a betrayal of our commitment to seniors. As far as one can tell, the expansion proposal will do just that: offer the now-sacrosanct program to a few million almost-seniors. As to the other 20 million citizens, forced to shop for insurance through an exchange flawed by inadequate competition and inadequate subsidies? Well, maybe the Democrats will borrow the rhetoric of Republican National Chairman Michael Steele: this is no time for a “government-run health-care experiment.”

Professor Thomas (Tim) Greaney is the Chester A. Myers Professor of Law and the Director, Center for Health Law Studies, St. Louis University School of Law. A frequent contributor toHealth Reform Watch, he is a nationally recognized expert on health care law; Thomas Greaney has spent the last two decades examining the evolution of the health care industry. His bio may be accessed here; his recent testimony to the Senate on “Competition in the Health Care Marketplace” may be found here

9 replies »

  1. Great points Tim. Market leverage – who has it and who doesn’t – is indeed a critical piece of the debate that is likely not understood.
    For instance, I’m all for opening interstate commerce, if we also enforce controls on consolidation.
    Interstate commerce for health insurers could bring improvements or it could push us backwards. The final outcome all depends upon the impact to competition. If more insurers compete – and by compete I mean have a meaningful presence in a market, not just an offering – there should be a positive outcome. However, if interstate commerce creates more consolidation – because only a few insurers can aggressively invest in new markets – then we’ll do more harm than good.
    While we’re talking about increasing competition, what about hospital competition? This Robert Wood Johnson Foundation study – http://www.rwjf.org/files/research/no9policybrief.pdf – describes how hospital consolidation decreases market choices and increases costs. My experience matches their conclusion – markets with less hospital competition experience greater cost growth. And, in these same markets, insurers have less power to force hospitals to control their costs.

  2. If we get a compromise reform Bill through this Congress that extends coverage to millions of people, ends the pre-existing conditions exclusions, adds full insurance portability, makes it illegal for insurers to drop patients or raise their rates just because they get sick, repeals the anti-trust exemption, allow for national programs and get the same prices congressmen and women get as well as exchanges to increase competition, then we will really have done something important.
    Paul Burke
    Author-Journey Home

  3. this is a great example of the fallacy of academia. Tim have you ever heard of a self funded plan? They range in size from a couple lives up to hundreds of thousands. Lets discuss the small ones, the ones I have as clients. How does my 50 life group compete and beat the insurance companies? If my 50 life group can run a plan in Anthem’s backyard and do it cheaper then Anthem can that would lead me to believe you and your observer have no clue what your talking about.
    Look up First Health, Health Smart, PHCS and any of the 100s of companies just like them. Then check out Kaiser in NE Ohio, they don’t have much size and they sure don;t have a capital intensive network they rent Cleveland Clinic.
    How is it someone who’s career is based on the theory of study can write without doing any research?
    To really rock your world you might want to open a history book and see PPO and networks are only about 30 years old. Insurance operated just fine long before there ever was a PPO. We could go back to scheduled benefits and simplify the whole system.
    Finally, not that you would bother to actually learn this, but the move is away from PPOs, the cutting edge plans now are dropping facility contracts.
    When you sit down to write this factless propoganda what exactly do you expect as a responce? Are you so insulated in your normal life you get away with making stuff up like this?

  4. Over the course of time what difference does the fact an out of state insurance provider did not have provider contracts in new markets the afternoon enabling health care legislation is signed into law?
    Why couldn’t insurance companies competing for business in states which they did not prior to 2009/2010’s vision of health care reform contract with local provider groups to do so?
    There maybe a great many regions where one provider so dominates no competitive market exits, but most regions do have many more.
    Why would not these institutions be expected to compete for out of state insurance providers contracts, since the purchasers of said plans are locals who will otherwise seek their medical service from other local providers who do?
    I agree that the suggestion coming from the loyal opposition as it did, may not have been made in completely good faith.
    Nevertheless if adopted as part of the majority parties health care reform initiative why would not markets be expected to behave as markets always do where completion exists?
    Etienne Taylor
    Clinical Trial Semantics, Inc.

  5. Your argument is a bit ridiculous. How can you say these insurers haven’t ‘done business’in other states before? Perhaps they haven’t ‘sold’ insurance to folks but they have certainly administered out of network claims and dealt with many hospitals/clinics that are not in their state. The only thing they haven’t done is marketed to folks in those states and I don’t have any question they’ll be able to do that easily. Kaiser has, I’m sure, covered its participants’ health care events in every single state at one time or another.

  6. Robert, you (and others) being turned off is the immediate objective. Wait until something is final and it is too late. And, by the way, it is never final. Did the tax code stop at 2100 pages? I am purposefully turning my fury at the gall of these nimrod, charlatans into a crusade. If you are not against this federal crap you are either ignorant, stupid, brain washed, or one of the nimrods that thinks they will get something for nothing or profit from selling it to (or forcing it on) others. Regardless of which cateory you fall into (or step into) you are the enemy to the survival of this once great country and I will do what I can to defeat you. Thanks for listening. LD

  7. “Simply put, they both ignore a critical economic truth of health insurance today: insurers require a provider network of hospitals and doctors or must have market leverage in order to negotiate for lower provider prices and for controls on excessive volume.”
    Exactly! The myth that more “competition” in insurance will rein in providers is alive and well. That’s why government run/control healthcare can produce half our costs because the government IS the leverage. The prospect of stripped down plans (“cheap and useless”) offered to desparate consumers who will be forced into coverage by mandate will more than likely happen as well. If they’re going to offer me into the FEHBP then also let them pay the 75% subsidy they provide employees and congress or at least allow me a tax credit that will put me on the same plane as tax free employer healthcare.

  8. It’s not about Kaiser or Tufts offering good plans in states where they have not done business before.
    It’s about the mega insurers avoiding local state regulations. It’s about creating cheap and useless plans in states where regulations are lax and offering them to unsuspecting customers across the land.

  9. Like many Americans, I’m turned off to the whole health care debate until something is final and I can actually understand what’s being presented.

Leave a Reply

Your email address will not be published. Required fields are marked *