06 May 2009

Some interesting tidbits about the Public Option

Democratic Senator Chuck Schumer teased us on Monday with possible details of a public plan element of the impending health market reform proposal.  Specifically, he laid out some principles for how the plan should operate, and it's encouraging both from policy and political perspectives.

Ezra Klein writes:
Chuck Schumer just forced the Senate Finance Committee's Health Care Coverage Roundtable to address the public plan. And give Schumer some credit. He didn't hedge. "Just as bad as a public plan with an unfair advantage," he said, "is no public plan at all. My colleague from Kansas said the American people don't want the government involved. Well, let me tell you, the American people have some problems with the government. But they have a lot more problems with private insurers."
The general principles for the operation of the public plan were summarized in this NY Times article from yesterday and they directly address the concerns voiced by Senate republicans and the insurance industry:
¶ The public plan must be self-sustaining. It should pay claims with money raised from premiums and co-payments. It should not receive tax revenue or appropriations from the government.

¶ The public plan should pay doctors and hospitals more than what Medicare pays. Medicare rates, set by law and regulation, are often lower than what private insurers pay.

¶ The government should not compel doctors and hospitals to participate in a public plan just because they participate in Medicare.

¶ To prevent the government from serving as both “player and umpire,” the officials who manage a public plan should be different from those who regulate the insurance market.
Also, Schumer said that the public plan "must be subject to the same regulations and requirements as all other plans" in the insurance market, including minimum benefit levels and the maintenance of adequate reserve funds.  As Ezra notes:
The private insurance industry [is] in a tricky space. They had based the whole of their argument against the public plan on the idea that it would not compete on a "level playing field."
And this proposal neatly eviscerates that line of attack (assuming that the attacks will be honest, a ridiculous and naive assumption).   The only "unfair" advantages left are those which might be in other terms be described as efficiencies -- scale, no profit motive, lower administrative expenses, inexpensive executive compensation, no need for advertising, etc.  You can assume the "unfair competition" meme will persist, but prior to this proposal it was based on faulty assumptions of a worst-case liberal-dream-plan that did not materialize.  This more limited public plan is exactly the sort of offering that key republican Chuck Grassley hinted he might support.  What's the critical difference that makes this palatable to conservatives?  Physician and hospital reimbursement:
The public plan should pay doctors and hospitals more than what Medicare pays.
What this means is that the public plan's reimbursement rates must either be set competitively by going out and negotiating for provider networks like the private insurers do, or (more likely in my opinion) that rates would be set by an autonomous board, leaving providers free to choose whether or not to participate in the public plan.  The great fear, and a legitimate one, was that the public plan's rates would default to the Medicare rates which are already unsustainably low.  This would allow the public plan to underprice care and have an insurmountable price advantage over the private insurers.   However, competitive pricing negates that possiblity.

This levels the playing field.

Predictably, the insurance lobby continues to oppose the public plan, but their arguments are becoming steadily weaker:
Karen M. Ignagni, president of America’s Health Insurance Plans, a trade group, said, “We are very, very grateful that members of Congress have been thoughtfully looking at our concerns.” But she said she still saw no need for a public plan “if you have much more aggressive regulation of insurance.”
Funny to see the industry arguing in favor of increased regulation.  But the road to the public plan is by no means clear: Sens Snowe (R-ME) and Specter (R D-PA) are skeptical, and Sen Nelson (D-BC/BS) is outright opposed:
Nelson’s problem, he told CQ, is that the public plan would be too attractive and would hurt the private insurance plans. “At the end of the day, the public plan wins the game,” Nelson said. Including a public option in a health plan, he said, was a “deal breaker.”
This, opposition, I am sure, has nothing to do with the fact that the insurance industry is Nelson's single biggest campaign donor. I also still find it bizarre and amusing that the same folks who claim that government-funded health insurance would be a bureaucratic nightmare also argue that it would be "too attractive" for private industry to compete with it. 

That might have been the case if the public plan had retained huge systematic advantages or had been funded through general reveues.   Schumer and the Finance Committee seem to be bending over backwards to eliminate all possible "unfair" advantages of the public plan.  I think this is a good thing -- bring on fair competition, and let's see who wins.  I suspect that nobody will "win," but that the government-run and private insurance plans will co-exist with their differing strengths and weaknesses complementing one another.  

One thing that I can predict is that the opponents of reform will now be reduced to deliberate inaccuracies (what used to be called "lies") in arguing against reform.  They will not be able to oppose the proposal with the same talking points they have used to date, and will revert to arguing against the imaginary socialized medicine plan that they wish Obama and the Democrats were putting forward.


  1. If the plan is going to truly be run on a level playing field, I still wonder why it needs to be under direct federal control. Why not set up a non-profit corporation chartered to meet the goals of the public plan.

    Part of my nagging objection is a slippery slope aurgument, sure it will be a level playing field today, but what happens if in two years the plan realizes it cannot offer competative coverage without resorting to the dirt tricks of private insurance companies? If the choice is between loosing its purpose for being, or unleveling the playing field, will a democratic congress keep the field level?

  2. Unless my memory is failing faster than I think, Medicare was presented as being self-sufficient, and we know how well THAT worked out. In fact, take a moment and try to think of any gov't program that doesn't eat our money faster and faster with each passing year. If Medicare is going broke (and everyone who looks at the numbers admits that it is) and this proposal is going to cover more people with a higher reimbursement, how can anyone say with a straight face that it will be budget neutral? You have to totally deny reality to believe that.

  3. [T]he government-run and private insurance plans will co-exist with their differing strengths and weaknesses complementing one another.Er, Shadowfax, you might actually believe this, but the people pushing it through Congress don't. Rep. Jan Schakowsky (D-IL) spells out the agenda behind the public option in no uncertain manner.

  4. Catron,

    It's never surprising when you guys are all reading of the same script.

    As I told Peter yesterday, Schakowski, God love her, is as representative of the democratic mainstream as Inhofe and Coburn are of the republican. She's also about as influential as they are. She's a single payer zealot along with McDermott and the others. Useful to keep the democrats honest to the progressive base, but not driving the bus.

    Kennedy, Baucus and Waxman are pushing this through Congress, and they seem to be bending over backwards to put the public plan on as fair a playing field as is possible.

  5. Bastiat's Ghost5/07/2009 11:27 PM

    It'll never work. Gov't are incapable of of operating outside of the price mechanism. Only the price mechanism can transmit the necessary data for producers to make the most efficient allocation of resources. the Uncle Sam has done such a wonderful with Medicare. Have a read:



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