23 April 2009

Incoherent opposition to the public plan

The real fight in the Senate over healthcare market reform is whether a "public plan" will be included.

Put simply, a public plan would be something akin to Medicare -- a government-administered insurance plan that consumers could choose to purchase if they were unable to buy private insurance, or perhaps even if they preferred the public plan over the private insurance products available.

It's important to know that this is not a new concept.  In fact, similar plans exist today in many states -- with some key differences.  Mostly, the state-run plans are designated "high-risk" insurance pools and are restricted to individuals who have been rejected or are unable to find insurance in the open market, usually due to pre-existing conditions.   This "adverse selection" ensures that only the sicker, more expensive patients enroll in this plan, which results in the plan premiums being much much higher than is typical in group insurance products.  Ironically, the consequence is that most individuals who need the insurance are therefore unable to afford it, and the state plans usually wind up terribly underutilized.

The public plan in the proposed market reforms differs only in terms of the overall insurance environment.   Since insurers, hypothetically, would be required to charge all applicants the same price (which is called "community rating") and they would not be allowed to reject people with pre-existing conditions ("guaranteed issue"), the higher-risk individuals ought to be able to find affordable insurance from a variety of sources, private or public.   The absence of adverse selection should ensure that the public plan is no more expensive than the private products available.

At least, in theory.  There are a large number of people, myself included, who are skeptical that the public plan will not suffer from adverse selection.  Insurers have a great motive to select only the healthiest, most profitable patients to cover.  Currently, they are able to do so easily and directly: reject those with pre-existing conditions.   Under guaranteed issue and community rating, they will have to be creative in finding ways to get the young and healthy to choose their plans, but I do not doubt that they will do so to some degree.  The consequence of this is that the public plan should eventually become loaded with sicker patients and burdened by higher premiums.  this would produce a self-reinforcing cycle as patients fled the public plan to cheaper private plans.  Eventually, it would wind up like the small, expensive, and underutilized state high risk pools.

The other possibility is that the public plan will have some advantages due to lower overhead, executive compensation, provider networking, lack of profit motive, etc, which will lead to the public plan being cheaper, and thus patients would prefer the public plan and shun the private insurers.

This is the possibilty which strikes fear into the hearts of the insurance lobby and their allies on the Hill.   Republican leadership has opposed this public plan, citing that it would "create an unlevel playing field and inevitably doom true competition. [...] Ultimately, we would be left with a single government-run program controlling all of the market. This would take health care decisions out of doctors and patients and place them in the hands of another Washington bureaucracy.”  Just today there was an article in Modern Healthcare citing the opposition of Blue Cross/Blue Shield to the public plan: "innovations would be impossible if they had to compete with a government-run plan."

The premise of this opposition is, however, based on some self-contradictory logic, and on an assumption that the public plan will have Medicare reimbursement rates.   If the goverment-run plan turns out to be an NHS-style nightmare of byzantine rules, rationing care, and bureaucratic interference in the doctor-patient relationship, wy would patients choose it?   Seems to me that the marvels of competition would ensure that patients would shun such a system and flock to the consumer-oriented private insurance plans. 

Even if the public plan is somewhat cheaper, consumers who have the ability to make free choices will pay more for access, for free choice, and for services.  If a government-run plan is something as terrible as conservatives take as an article of faith it will be, then it should not represent a competitive threat to the private insurance industry.

The nice thing about the public plan option is that it is just that, an option.  Consumers will be free to choose.  If it turns out to be better, then that will force the private insurers to improve their service, improve their quality, to innovate in health care management -- or die.   According to the BC/BS CEO, the private market has always been more innovative than the government.  Great!  If so, then the competive pressure applied by a public plan will spur that innovation that will help all of us.  It's a grand experiment, and we'll pit the two against one another an see who wins -- or, more likely, how they settle into a relationship of dynamc tension, neither prevailing, but co-existing.

It's unfortunate that the right seems to be digging in their heels over this, because there is a point of negotiation which might get lost.   If they simply refuse, and force the democrats to ride roughshod over their objections, it is likely that the left wing will create a public plan that does have inherent advantages over the private sector.  Namely, it will either use Medicare reimbursement rates or will have the authority to unilaterally set rates.   If the GOP came to the table as good-faith bargaining partners, they could agree to the public plan's inclusion with the contingency that it have no power to drive down the rates, but have to compete on fair terms with other insurers.  But their brinksmanship, all-or-nothing approach threatens to miss the opportunity to craft the public plan in a way that would be advantageous to all stakeholders.

And that's the real down-side to the Republican party putting ideological purity ahead of pragmatic governing.

8 comments:

  1. Why not just open up the Congressional health insurance plan to all Americans, as has been previously suggested? Or do the Repubs dislike that idea because we plebeans would taint 'their' insurance?

    And how can some private insurance plans not be described as "nightmare[s] of byzantine rules, rationing care, and bureaucratic interference in the doctor-patient relationship"? I've been in plans like that; others have sued plans like that and won (Bates v HealthNet, IIRC).

    Currently, I'm screwed either way, paying state high-risk pool premiums or going uninsured.

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  2. I've been kind of a fan of opening the FEHBP -- which actually covers all federal employees, not just the congresscritters.

    There may be some issues with it, technically, like I think that those plans are administered by private agents, including the blues, so expanding the FEHBP would basically just take the inefficiencies of the private insurance industry and scale them up ten fold.

    I could be wrong on that point, but that's my off-the-cuff take.

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  3. OK, Shadowfax, try to follow this:

    If, in the health insurance market, one of the insurers gets to dictate the coverage its competitors must provide, and that same insurer has the ability (via tax subsidy) to undercut the premiums its competitors must charge to survive, then that insurer will have an insurmountable competitive advantage.

    If this seems "incoherent," you should go back to whatever school you graduated from and demand a refund.

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  4. Catron, good to hear from you -- I was starting to worry that you hadn't been by in a while.

    As for your objection, well, it's purely spurious. There will indeed be subsidies -- not for the insurer, but for the insureds, to cover premium costs if they are low-income. I've not heard a single whisper of a hint that the public plan will receive a direct tax subsidy to lower premiums across the board.

    I actually agree with you that if a public plan did receive that sort of subsidy, it would be a problem. Not because I worry excessively about the purity of the competition, but because it would be damned expensive, and really bad policy for the taxpayers at large to pick up a portion of the cost of care for the folks on the public plan who do not need financial support. In fact, nothing I have read is that the premium subsidies for low-income folks would be limited to the public plan -- no reason the Blues couldn't get in on some of that sweet taxpayer lucre!

    Now there may be indirect subsidies, like using Medicare's claims management computer systems, etc. You call it a subsidy, I call it economy of scale. Not all competition is completely fair, and this is an advantage/efficiency that I'd like to see put into effect.

    And I hope I made it clear that I'd not be entirely pleased to see a public plan paying medicare rates. I had a nice chat with a member of Waxman's committee Tuesday, and they told me that details like that are all still totally open to discussion. Nothing's set in stone at this point.

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  5. LAWDHaveMRSA4/24/2009 2:23 AM

    I still cant understand why the hell private "for Profit" insurers would even remain? Those masters of efficiency like AIG?? Whats the bigger burden, dumping billions into the vapor of companies like these who have no motive, but profit for the shareholders and they seem to have done a terrible job of that. Republicans love to play up the welfare moms collecting
    $750 dollars a month, when the corporate welfare accounts for billions upon billions every year. They cheat their tax liability, skirt their employer responsibility, deny their environmental responsibilty, and scurry to the government trough for cyclical feedings. Sorry to ramble, but damn...I just don't understand what there is to preserve with health insurers and why the need "a level playing field" if you ever had any kind of previous conditions, these rats would drop you like you are a melting turd. Some things are not meant to be exploited for corporate profits, the health of all Americans seems like a worthy SOCIAL goal.

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  6. I've not heard a single whisper of a hint that the public plan will receive a direct tax subsidy ... WTF are you talking about? Subsidies are the whole point.

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  7. Subsidies to the low-income patients to cover the premiums, yes. Subsidies to the plan overall to reduce across-the-board premiums, no.

    If you have a source of information which is contrary to this, please let me know -- I'll be very interested to read it.

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  8. Blue Cross/Blue Shield "innovations" are mainly related to screwing the pt and increasing BS/BS's (BCBSA, HCSC, whatever operating entity is in your state) profits. There is no freaking reason BC/BS should have been able to start its own bank and venture capital fund. Those kinds of "innovations" by insurance companies like AIG helped get us into the economic mess we're in today.

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