Sunday, June 28, 2009

Please come clean on the public health plan

A few days ago, I wrote about the inconsistencies in the President's and Congressional descriptions of a public health insurance plan and suggested that it had other purposes than the ones they were describing. I now find a kindred spirit in Clive Crook at The Atlantic, who notes:

[I]t is surely disingenuous to say that a public plan can be just another competitor. How can just another competitor "keep them [the private insurers] honest"? If the public plan makes a difference it will be because of its market and political power, and because of its ability to attract subsidy--in short, because it is not just another competitor. If in turn it exerts those pressures, Obama's pledge that nothing will change for Americans who have private health insurance they like will be impossible to honor.

As I note above, if Congress wants to do this, it must be for the express purpose, first, of giving access to insurance to people at a lower cost, thereby reducing the amount of appropriations needed for subsidies of lower income people. And, second, over time, using those cost advantages to cause more and more people to migrate to the public plan. Perhaps those are the right answers for the country, perhaps not. But let's debate those directly, instead of using fuzzy arguments.


Anonymous said...

What are the implications of a public plan for hospitals? Obviously you seem to oppose such a plan, so I assume it would have negative effects.
Personally, I think everyone is concentrating on the wrong issue (e.g. insurance rather than cutting costs first through reform of the delivery/payment system), so once again any progress is doomed. It's very discouraging.


John G said...

Mr Crook's observations are spot on, he gently describes the conversation around the public plan as disingenuous rather than fundamentally dishonest. There has been quite a bit of conversation about the public plan as a "Trojan horse" for a single payer plan. If the administration is so supportive of retaining elements of the current system they should elucidate the values of their proposal rather than stating that it will serve to keep insurers honest. While none of the major insurers will win any prizes for their candor and public service implying that they are dishonest takes the focus off of the much harder job of reducing fraud, waste and inefficiency in the healthcare system.

Paul Levy said...

To nonlocal and others, there is a parallel discussion going on on my Facebook page, where this blog is posted as a note:

The Medical Quack said...

To be a bit analytical, it's a new set of geeks with a new set of algorithms coming in to offer some competition just not from the private sector:)
We all use those formulas to make about all our decisions today and perhaps adding some premium payment revenue instead of all coming from taxes could be a positive.

Almost all industries have taken cuts and have lost the big profit margins they have seen for years, but we have 2 exceptions in healthcare, the pharma and insurance business who are now just getting some of the sane pressure.

Pharma is getting the heat from bio idential and biosimilar or also called "follow me" drugs and we are starting to see some, not a huge amount yet, competition for less expensive drugs, but the downside of some of it is that portions of the business move off shore. Biosimilar drugs are still being debated by Congress, if they understand what they are and the likes of Amgen and Genetech of course are not too happy with the prospects as it would represent some large potential losses of revenue.

This brings around the other side of the coin, how do we also reduce costs from the R and D side with Pharma so we can afford the medications and devices we need? If products were less expensive, would the insurers work better with all?

I guess in short pharma has their thorns to work with so in order for anything to move along, some type of thorn needs to be in the sides of the insurance industry for any change to take place too. The business has never been known to be transparent and runs off a very antiquated business model designed for profits only.

Somewhat disturbing as well was the report from the Congressional Budget Office saying that prevention in healthcare is not saving money.

It kind of goes against everything we are trying to accomplish with better healthcare and prevention, so go figure where all of this may end up:)

The report did say discussing taking aspirin every day for people at risk for heart disease saves money, but we all know there's a lot more than that involved by a long shot, so in short, we need some new geeks everywhere to sort this all out for us.

Anonymous said...

Well, at least somebody else agrees with me: Jeff Goldsmith over at the Health Care Blog:

"Rather than wasting scarce political capital on the public plan, health reformers need to focus on hospital and primary care physician payment reform, expanding Medicare coverage for the almost 11 million uninsured boomers and sensible design of a federal health insurance exchange."


Paul Levy said...

And more here, too, from Greg Mankiw:

Paul Levy said...

An excerpt:

Even if one accepts the president’s broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.

... In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.

Paul Levy said...

Dear new intern, Thanks for your note. Please contact Jane Matlaw to get involved.

Engineer on Medicare said...

Costs will be contained or reduced only if productivity is increased in some way. How can the necessary health care be delivered with fewer minutes of interaction with patients? How can care be provided with fewer interactions? What can be done to keep people healthier so they need less care?

Much of the cost is incurred because people who make decisions are spending OPM (other people's money). If they were spending their own money they would not do it.

Barry Carol said...

The profit margin earned by the for profit health insurance industry as measured by net after tax income as a percentage of revenue is in the 4%-6% range on average over an economic cycle. That is not especially high as compared to the average S&P 500 company. Their return on capital is also only about average. The non-profit health insurance sector, which controls about 40%-50% of the commercial insurance market nationally, and up to 100% in some states, is in the 1%-2% range at best.

Yet the Obama Administration wants a public health insurance plan that would provide unlevel playing field, dishonest competition in order to keep the private insurers honest. If their real goal is to force private insurers out of business and move us toward a Canadian style single payer system, they should have the courage, honesty and decency to say so and debate it openly. It’s just this sort of dishonesty and deviousness that gives the political class a bad name.

Anonymous said...

Paul, what is the value-add of private insurers? I can understand competition among health care providers, but why are you so adamant about keeping private insurers around? To answer your question about why there are no public run grocery stores and gas stations, it's because they don't price gouge their customers and they provide services without discrimation. Maybe you should come clean about what your agenda is.

Paul Levy said...

My agenda is public policy that is based on a clear assessment of the purposes and goals. The value of insurers is that they bear the actuarial risk of unseen events -- and, yes, get compensated for that if they are good at it. If they do not exist, the taxpayers bear that risk. It is all right for us to bear that risk if we do so knowingly and with a purpose.

You can have insurers that don't gouge customers and that offer service without discrimination. They can even be non-profit organizations, like we mainly have in MA. And, real competition among insurers can actually create benefits for the public beyond the assumption of actuarial risk.

I wonder why you assume I have some other agenda. This seems very straightforward to me.

Ray Brown Scholar said...

I would like to have Herb Kelleher create a new national health care plan, either private or a government public plan. I would like to see him change the health care industry like he changed the airline industry. As President Obama noted in his AMA speech on June 15th, " of these options needs to be a public option that will give people a broader range of choices and inject competition into the health care market so to force waste out of the system and keep the insurance companies honest." United, Aetna, CIGNA, Blue Cross/Shield the party is over. One of you can be an industry reform leader or otherwise watch our for what is about to come on the horizon. As the Bob Dylan song goes, "The Times They Are A Changing".

JTG said...

Is this a likely scenario?

Private health insurance providers lobby to keep the public premiums higher than necessary. Since profit is not a concern for the public plan, this overpaying will be siphoned into trying to keep social security solvent - over time leading lawmakers to seek to merge social security and a medicare like national plan into one massive payroll-tax funded social entitlement program.

Why try to introduce a national health care system when social security is collapsing under its own weight? A trojan horse?

Anonymous said...

The excerpt comparing government run health care to government-run gas stations and grocery stores is an inaccurate analogy, because true competition does not exist within the health care industry. For an example, see the link below regarding why implantable defibrillators have not come down in price despite being around for quite awhile - compare that to computers, for instance.

nonlocal MD

Engineer on Medicare said...

Medicare defines Part A and Part B requirements and a moderate number of defined supplemental plans. I have selected Medicare Supplement F. As far as I can tell the competition for Medicare supplemtntal plans is based on price. Some of the companies that provide the coverage require you to be a member of some affinity group. By defining requirements and setting rules there is an opportunity for competition that leads to cost control.

There must also be some means of making the health care consumer share enough of the cost associated with treatment decisions so they will get out of the mode of "I want everything; cost is no object." And I have signed an advance directive to the effect that I don't want to be preserved as some kind of lab organism when I am no longer capable of any meaningful existence.

Anonymous said...

To Barry Carol: You're quoting the health insurance industry's profit margins while ignoring expenses that a public plan could reduce or eliminate. Items like multimillion dollar CEO salaries and insurance plan marketing expenses drive up the cost of everyone's premiums without contributing anything to healthcare.

MjL said...

I agree with your assessment that the proposed public plan would not be a simple competitor playing on the same level as privates.

I know this is not on the agenda explicitly, but what would you think of a "government plan" which covered primary care and prevention only, available to all U.S. citizens - basically universal primary care. This would leave prevention to government which has more of a stake in the long-term wellbeing of its citizens (eg. savings in Medicare, increased tax revenues & GDP, stronger military etc.) and would explicitly leave specialty care, advanced medicine, to private insurance, which could function as such (instead of half-hearted providing wellness-oriented care).

I feel like this kind of plan would not have to be covered in some sort of shrouded agenda... Government would take over basic care (which does not require as much technological innovation if that is a concern) and the private industry would be better able to function without being in direct competition with a govt plan.. They could be kept "honest" through a system like the Connector here in MA. Any thoughts?

Barry Carol said...

The main problem with a Medicare for all health insurance system, as I see it, is that it relies on dictated as opposed to negotiated prices. I just don’t think that is a sustainable model. The current Medicare system is able to get away with it, at least so far, because there is still a large private sector to shift costs to.

From August, 1971 to April, 1974, we had wage and price controls across the entire economy as part of an attempt to control incipient inflationary pressure. All sorts of distortions and shortages were created as a result of that program until it was finally abolished effective April 30, 1974. After that, there was a significant spike in prices, especially for commodities like steel, paper, chemicals, and aluminum as the economy tried to right itself. We also had price controls on oil and gas for a longer period in the 1970’s which distorted production incentives and restricted supply.

As for healthcare, there are 3,141 counties or county equivalents in the U.S. and many thousands of medical procedure codes. There is no way that CMS, through dictated pricing, can get all or most of these prices right based on its calculations of medical input costs, RBRVS metrics and the like. It overpays for some procedures and underpays for others. In the process, it basically ruined primary care while much of the private sector’s payment and coverage approach is heavily influenced by what Medicare does. Medicare has not demonstrated much ability to control healthcare cost growth, and, if it were in charge of the entire system, there is a significant risk that innovation will be stifled. Even if Medicare could offer insurance for less than the private sector in the short term because it would benefit from its lower dictated prices, it’s a prescription for disaster in the intermediate to longer term. CMS already has enough market power to drive sensible changes in coverage and payment policy. That’s where it should focus its efforts.

Paul Levy said...

Interesting idea. There is nothing to keep Medicare from doing that right now for the elderly, but for some reason, that has been a non-starter.

Anonymous said...

It's me again. Perhaps your agenda is ideology driven or we can take your words at face value. But I find it strange that you are shocked to have someone question your motives when you so readily question others'. As a public figure, you should accept the fact that you should be open to the same scrutiny to which you subject elected officials. I on the other hand am a random figment of the internet so I don't have to be accountable.

It is one thing to say that someone's argument does work for you; it is another to inject motives into the conversation. I don't see it that far-fetched to take those who support a public option at their word, because under the objective of 1) universal access and 2) lower costs, I don't think it matters for supporters whether or not the public plan crowds out private insurers.

One can even make the argument that being the centrist that he is, Obama would find it better for him politically if there was a way for public and private plans to coexist. It would help deflect those criticisms of him being socialist.

Regardless, I think most people want to try something fundamentally different. Massachusetts has tried the insurance mandate, but I have not seen how it has lowered costs, and it still does not provide universal coverage.

The Dutch model you cited is interesting, but as evidenced by congressional testimony, insurance companies have said they will continue to drop people from plans after they develop illnesses. I don't see how they would be willing to operate in an environment where you must provide coverage to someone who has a preexisting condition.

I value the discussion, but I don't want to see it devolve into accusations.

Paul Levy said...

Dear Anon 8:35,

I said, "I wonder why you assume I have some other agenda. This seems very straightforward to me." Does that sound shocked? You are the person who suggested I might have another agenda, and so I asked you why in a pretty straightforward way. I thought it was a logical extension of your point.

And where does this come from? "As a public figure, you should accept the fact that you should be open to the same scrutiny to which you subject elected officials." As you might have noticed, I write this blog with my actual name for all to see. Of course, I expect to be held accountable for what I say.

And finally you say, "I don't want to see it devolve into accusations." You've lost me there. Your writing style reminds me of some of the comments from SEIU people in previous posts: Create a misrepresentation of what I have said and then criticize me for it. Maybe you are not, after all, "a random figment of the internet." You could clear that up by identifying yourself.

On a more substantive level, I'm not sure what your point is about Holland versus the US. We could pass a law that would require insurers to comply with similar standards . . . even if they don't want to.

Anonymous said...

Paul, I assure you I have nothing to do with the SEIU and I want nothing to do with them. I'm simply an average citizen who wants a choice other than what we've had for so long. I don't want my health insurance to go away should I lose my job, and I also think it's wrong to allow so many people to not have access to affordable care.

My impression was that you meant that it should be clear what your agenda is and that we should accept it. At the same time you are saying those who support a public plan are being dishonest and their actual intentions are to undermine private insurers completely. I apologize if I misunderstood what you said.

My point regarding Holland vs US is that the private insurers in the US have publicly stated that they do not have the means to cover people with preexisting conditions and that they will do everything in their power to not honor policies of those who become ill. So to me, that means the only way for them to compete is to offer cheaper plans for healthy people and/or premium services on top of what a public plan would offer.

Paul Levy said...

Thank you. Mutual apologies!

Engineer on Medicare said...

Some cost saving processes actually save lives. There are reports that a polypill of a statin, multiple blood pressure medications, and aspirin, reduces death from all causes.

However, there isn't much money to be made on such a generic pill and the effect would be that longer lives would increase the cost of Social Security. Perhaps even Medicare costs would increase as more people would live long enough to contract chronic diseases that cost a lot to treat, instead of dying quickly from heart attacks and strokes.