Sunday, June 21, 2009

What a public plan is really for

The current Washington debate about creating a public health plan has a lot of fuzzy arguments. I think everybody can agree that a government insurance company would have lots of cost advantages over private insurers -- lower or no reserve requirements; avoiding regulatory requirements of the states; and, with regard to the for-profit companies, not paying taxes and trying to meet the expectations of equity shareholders.

So, 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.

If the purpose were just to provide access to people, the existing insurers could be ordered to provide it in much the way the Netherlands has, and also the way Massachusetts has. Then, the full amount of public subsidies for low income people would require appropriations and would be evident to all.

So, I think the proponents of a public health plan really want two things. They want to hide the cost of universal health care access. And, ultimately, they want a greater and greater percentage of the population to be on the public plan.

Thus, the arguments you see about a public plan being set up to encourage more competition among health insurers just don't hold water. So, let's be more direct about the real purposes and vote those up or down.

14 comments:

James said...

Paul -

If we start with the premise that those who benefit the most from universal health insurance, society (gov't), employer and individual, and should all participate in payment, then we can go back to what level of payment is needed to maintain good clinicians (primary care), and who can deliver this through the most efficient means - public vs private.

Paul Levy said...

Sorry, but what is "efficiency" in your point?

James said...

While this is a rather simplistic perspective and doesn't address the concerns of quality - it does assume access. 'Most efficient' would be the group that can 'administer' the same set of benefits with the lowest cost.

Anonymous said...

Different views of this public plan subject can be found in 3 consecutive editorials in the New England Journal of Medicine 360:2269-75, May 28,2009. (should be available, I hope, at www.nejm.org.)

nonlocal MD

Farmer Bob said...

The Public Option is another phrase for the Public Teat. Congress would love to have another bureacracy to control, another agency to staff with political appointees. As far as Congress and the Executive Branch are concerned, this is about power and money, and nothing else. They may invoke platitudes and morality in debating the details, but it all comes down power and money.

I am skeptical of any plan invented by Congress, as I am cynical about Congresscritters. They are motivated solely by self-interest. Why else would you spend a fortune to obtain a job that pays less than most executive positions? It ain't public service and nobility, folks. It's self-interest, that sometimes coincides with the interests of the constituency.

shadowfax said...

You're almost there, I think. The point of the public plan is that the insurers need to compete against it. If they can lower costs (any way -- by cutting provider reimbursement, by streamlining administration, by reducing advertising, by improving care quality) then cost savings will have been effective.

If the private insurers can't effectively compete on cost or quality, then yes, the public will migrate to the public plan.

This is all predicated on a public plan that is strong enough to compete with private plans, but not so overwhelmingly strong that insurers have no chance. That's a tough window to hit...

Anonymous said...

Paul,

Do you think at some point it has to be accepted that health care just costs more than it did 10 years ago? Americans seem to readily accept that housing costs more than 10 years ago. Consumer goods cost less, only because we can import items at a lower cost. Perhaps we should go to Mexico/China for health care?

Seriously though, there are multiple diseases from Cardiac Disease to Cancer that would have killed patients 10 years ago that are now treatable. This allows the patient to have the oppurtunity to develop another disease that would require costly treatment. Since most of these events occur later in life, not sure what can be done about it.

Anonymous said...

Here are the three articles I referenced above:

http://content.nejm.org/cgi/content/full/360/22/2273

http://content.nejm.org/cgi/content/full/360/22/2271

http://content.nejm.org/cgi/content/full/360/22/2269

nonlocal MD

Farmer Bob said...

shadowfax: you are almost out of the real world, I think. One cannot compete against an entity with infinitely deep pockets that sets reimbursement rates by fiat.

A tough window to hit? It is, especially when it is not really like a window, but rather like a windsock, blowing in the prevailing political direction and subject to political hijacking. We are buying trouble, if we buy a government-payer system. You need only look at the way the Federal Government currently spends our money to know that. Look at the fraud waste and abuse in Medicare and Medicaid. Is it not higher than in the private sector? What incentive is there for correction? A private company cares about losing their profit. The government doesn't make a profit. Only ethics and politics oversee its workings; two things we can count upon to mix like oil and water. We don't even have healthcare system yet, but we already have a Federal Healthcare Czar. How much are we paying the Czar? For what? And how did they get the job? By political appointment. Did Congress authorize a Czar? No, the President created it. Ain't democracy wunnerfull?

And anonymous: yes it costs more, but cost has risen at a rate much higher than other services, even with government underpayment of fees. I give some creedence to your better-care/longer-life scenario, as I am a testament to it, but there is also a business greed factor that has transformed what used to be cost centers into profit centers, and that is something we must address.

Barry Carol said...

I’ve read in several places that Medicare pays hospitals 30% less on average than private insurers pay and it pays physicians about 20% less. Put another way, private insurers are paying hospitals 143% of Medicare (100/70) while they pay doctors 125% of Medicare (100/80). A public plan that paid Medicare rates or even 110% of Medicare would be virtually impossible for private insurers to compete with.

Before long, the public insurer would win most of the business and could ultimately evolve into a single payer system. Hospitals and doctors may find that they can no longer provide their current level and quality of care if they have to accept Medicare rates from all comers and no longer have a large private sector to shift costs to. This is likely to be the case even with no uncompensated care and upgrading Medicaid rates to the Medicare level. Some have suggested that most hospitals can currently at least breakeven or even make money on their Medicare business. Presumably, however, if Medicare business is profitable, providers should be willing to accept those rates on a negotiated as opposed to dictated basis.

I find it hard to understand why we need dishonest competition from the government in the form of dictated rates to keep private insurers honest. The for profit health insurance sector earns a return on capital over a cycle that is no better than most other industries across the economy. Moreover, between 40% and 50% of the commercially insured population is insured by non-profit insurers including virtually the entire market in Massachusetts. Yet, healthcare costs in Massachusetts are among the highest in the country.

I think policymakers would serve us better if they worked on getting the provider payment incentives right. We need to move away from fee for service and toward bundled pricing for expensive surgical procedures, shared decision making, more widespread use of living wills and advance directives, sensible tort reforms like specialized health courts and protecting doctors from lawsuits based on a failure to diagnose a disease or condition if they followed evidence based protocols. Capitated payments for the management of chronic disease will be a heavier lift because of the difficulty of estimating healthcare costs a year in advance and the need for a sufficiently large patient population to allow the law of large numbers to work.

MC said...

This quote from Kerry Weems, acting Commissioner of CMS, should give us a healthy dose of skepticism that a public system will support innovation and a rational system of incentives.
Weems: "CMS is a weakened organization. It has the capacity to pay bills and prepare the annual payment notices. But after that, there is little capacity, much less time, left to develop innovative approaches to health care, to think through what a system of higher quality would look like. A major reason that Congress frowns on the "bureaucrats in CMS" is that the political interests of legislators are far better served by increasing the budget of the National Institutes of Health [NIH] or the CDC [Centers for Disease Control and Prevention] or protecting one of their threatened hospitals or nursing homes. These three agencies [CMS, NIH, CDC] all derive their budgets from the same appropriation subcommittees. When the resources are limited, you can imagine which agencies win out...."

Anonymous said...

I don't see how "bundled payments" are going to be any more palatable to the public than "capitated payments," which have already failed the marketplace test because every patient realizes these schemes financially reward providers for withholding services rather than providing them. X amount of dollars for, say, a mastectomy doesn't take into account possible comorbidities (diabetes, vascular disease, heart disease, etc.) that may complicate the surgery and affect the course of recovery and follow-up treatment.

Perhaps we need to replace the entire fee-for-service system with a by-the-hour system (which seems to work just fine for lawyers) for office visits.

No plan is going to work, however, if "savings" are produced by slashing payments to providers; they just make up the difference by charging ever more outrageous fees to the uninsured.

Anonymous said...

Not to worry.
As Malcolm Sparrow of JFK School at Harvard recently testified to the Senate Subcommittee on Crime; healtcare fraud is $200 to $300 billion per year. This would only grow if another "government plan arrives" so before 10 years all government plans will "break the bank" costing $2 to $3 trillion or more, not the $1.6 trillion projected in Teddy's Plan, leaving no "customers" for insurance plans or providers.
Only by engaging a large number of knowlegable people to "Fight Fraud" will any organization be able to keep the country from declairing a "Medical Emergency" in the next few years and moving to a single payer system to avoid National bankruptcy.
Signed,
Nota Harvardgrad

Mark Graban said...

When our leaders say the so called "public option" is just another competitor, they are banking on people not thinking even two steps ahead in this chess game.