Cost Containment and the Public Option
Dec 6th, 2009 | 35 responses
It’s worth pointing out again — for the millionth time — the disconnect between Republicans’ and conservative Democrats’ constant yammering about deficits and budget-busters and spending us into bankruptcy, and those same lawmakers’ opposition to the public option — and their crusade to compromise it into nothing.
Jacob Hacker at The New Republic has some strong and very on-point thoughts on this subject:
The public option in the Senate bill, it should be emphasized, is a compromise of a compromise already. The first compromise was to have the public plan negotiate its rates directly with providers, rather than set them based on Medicare’s rates. This compromise meant that the Congressional Budget Office was unlikely to score the public plan as producing the huge savings that it projected for a plan that used Medicare-based rates. Whether CBO was right in discounting the negotiated-rate plan’s savings is another matter–as I have written on this site, it’s likely underestimating the cost-containment potential–but the CBO’s numbers rule on Capitol Hill.
The second compromise was to allow states that did not want to have the public plan operating within their borders to “opt out” with the passage of a state law. How many states will take advantage of this option is unclear, but it’s certain to reduce the impact of the public plan even further. Indeed, the CBO is now projecting—again, pessimistically in my view–that only a few million Americans will enroll in the public plan. Yet none of this has apparently appeased the handful of hold-outs. Emboldened by the White House’s lack of clarity and pressure on the issue, they are digging in their heels and spewing false claims about the public plan (for example, that it’s a budget buster when there are no special government subsidies for it and the CBO projects it will exert downward pressure on private premiums, thus lowering the price tag of reform). Hence the new push to find some kind of middle road.
The problem is that the “middle-ground” ideas that are currently flying around aren’t in the middle at all.
Daily Kos’s McJoan runs down the latest of these “compromises”:
[Sherrod] Brown described it as a take-off of the Federal Employee Health Benefits Plan. With the Office of Personnel Management as the administrator, the program would be separate from the Department of Health and Human Services, which regulates the insurance marketplace.
“It would be a national, not-for-profit,” Brown said. “(The Office of Personnel Management) would administer it. It would be any number of national not-for-profits that would compete nationally and they would take the place – more conservative members hope – of the public option. They would be in states and be running a kind of lookalike to a public option.”
The nonprofit insurance companies would “go to OPM and say I want to compete and then you show them you’ve got standing to compete,” Brown said.
Existing insurance companies could participate as long as their plan is not-for-profit, he said….
Brown, however, said he is not a convert to the latest proposal. Supporters of the public option have already compromised enough, he said.
It’s not a public option. It’s essentially an exchange within the exchange. Now maybe it’s a good substitution for the exchanges–just open up the FEHBP to people instead of creating, in the House’s case a national exchange, or in the Senate version multiple exchanges. If they got rid of the exchanges in return for this, it would get rid of the Ben Nelson/Bart Stupak political problem (though it would still extend the Hyde problem to millions of women) by getting rid of the need for their amendment.
But it’s still not a public option, like most of the “compromises” we’ve seen floated in the Senate.
The Confluence links to a live stream of Senate debate which is going on over the weekend.
35 Responses to “Cost Containment and the Public Option”
Some points that have not been mentioned enough.
The public option is designed to offer some competition to the private insurance companies to push down costs. No one opposed to the public option has explained why they don't want to use competition to achieve this. Especially since the alternative is onerous regulation. Since when is regulation preferred to competition?
The break through for the insurance companies to go on their out of control pricing and profit spurge was when Congress wrote and passed the law making Blue Cross Blue Shield into private, for profit companies (thank you again Phil Gramm and Dick Armie (sp?)). This removed the cork holding down prices.
Remember the private health insurance companies are a legal cartel, legally free to fix prices and divide up markets, to coordinate together to prevent competition in the form of new companies from entering the marketplace.
Remember the private health insurance companies' business model is based on a fix markup above cost. The more expensive medial care is the more the companies make without having to take on more risk or having to invest more capital.
Armey (only because of your question mark!)
No one opposed to the public option has explained why they don't want to use competition to achieve this.
Of course they have. For the public option to be successful it has to lower costs enough to provide competition but not so much that they become the only option and destroy the health insurance model. This means the government has to hit a “sweet spot”, something I have no faith at all they will be able to do, in fact the government is notoriously bad at meeting their financial projections.
Some would respond they would like to destroy the health insurance model but that is really another debate. If the government's intent is to destroy insurance companies they should say so up front.
I did enjoy your well-thought-out post and checked that I liked it.
Ever since this debate began, I've found it ironic that Republicans, who always trot out the argument that “Private Industry” is much more efficient than anything run by any Governmental organization, are saying that they are at a disadvantage when compared to governmental organizations, because the Government can always run at a deficit.
Being an administrator of managed care organizations under a state's Medicaid program, I assure readers about the absolute limits of budgets, and how they affect programmatic spending–through the elimination of benefits.
Additionally, these managed care organizations are capitated (per member per month payment to cover medical care) at rates SIGNIFICANTLY lower than these same organizations offer to their corporate and governmental organization customers. We do alleviate in various ways unexpected, high-cost procedures, etc., since the managed care organizations are not capitated for them, and therefore can offer care to everyone–notwithstanding any prior conditions.
The most important thing, though, is that we also monitor these managed care organizations' books very thoroughly, assuring that they are making a profit at these low capitation rates. AND, if the organizations can provide profitable, comprehensive care to our Medicaid population, why cannot they provide the same level of care, for close to the same capitation rates, to all organizational customers?
Medicare for all? Medicaid for all? My preference would be single-payer (or our own version of the UK's NHS–though there is no way possible for that to happen) for all; and those rich enough could still get concierge or gold-plated care.
If the public option provides a better product at a lower price isn't it the essence of competition that they will become the dominate insurance provider?
If you permit the private companies to make money even though they are less efficient aren't you short circuiting the free market system?
Besides it is not a sure bet the private companies wouldn't be able to compete with the public option. Aren't we being told that lean mean private enterprise will always run the massive slow inefficient government into the ground? I seem to remember the Heritage Foundation published a study recently where they found that private insurance companies are more efficient at administering health care than the government is at administering Medicare. You consider the Heritage Foundation to be an unbiased source of solid scientific research don't you?
Okay, there is maybe just a little snark here. Sorry.
Thank you for the like.
Actually I consider Heritage Foundation biased to the right.
If the public option provides a better product at a lower price isn't it the essence of competition that they will become the dominate insurance provider?
If the public option is set up as tax-supported or allowed to run at a deficit then it is no longer a free market and holds a competitive advantage over for-profit or non-profit plans.
if the organizations can provide profitable, comprehensive care to our Medicaid population, why cannot they provide the same level of care, for close to the same capitation rates, to all organizational customers?
I would guess the answer is the providers and hospitals on these plans are reimbursed at near-Medicaid rates as opposed to private insurance rates? I know that was the case here in Iowa where we had a Medicaid HMO product (can't remember what it was called). No physician could stay in business if every patient paid at those rates.
Of course, that is more or less true. Here in California, the managed care
organizations only deal with IPA's, who are capitated and not reimbursed.
But your point is sound.
Regards, brad.
The CBO says that the public option, in the form originally proposed by the Senate bill, has a negligible effect on cost. I trust the CBO's independent analysis (my arguments about their deficit numbers notwithstanding–they are not arguments that the CBO is wrong, but that their analysis can be misinterpreted).
So, considering the effect on cost is negligible, there are two questions to ask. Why are Republicans so opposed to it, and why do some Democrats demand it? The Republicans say it will add to the deficit, and the Democrats say it will “keep the insurance companies” honest by offering a low-cost alternative. But both are incorrect. The real reason, in both cases, is ideology. (I don't think that “idealogy” is necessarily a bad word, for the record)
“No one opposed to the public option has explained why they don't want to use competition to achieve this. Especially since the alternative is onerous regulation. Since when is regulation preferred to competition?”
Since when does competition have to come from the government? And the bill does have quite a bit of regulation in it as well. In fact, considering the number of regulatory measures in the bill, and the size of the portion of the economy it applies to, this could be the most significant industry regulation ever passed (assuming it is). The recent CBO report on insurance premiums shows that insurance premiums will increase because insurance companies in the individual insurance market will be forced to provide a higher minimum level of coverage. We can debate whether or not that's a good thing, but it's ironic that the very numbers that some use to stimulate urgency over this issue (the numbers comparing US and foreign health care spending) will actually look worse because of this bill, because of the regulation that is in it.
If the public option provides a better product at a lower price isn't it the essence of competition?
No, competition is providing a better product at a lower cost. My (and many people's) concern about the public option is the cost incurred and the price charged will go their separate ways just as they have with Medicare, and middle-class taxpayers for generations to come will pay the cost of the ends not meeting.
What about the yammering of progressives about the cost of insurance while they wont use their own money to start private insurance companies and run them according to their progressive beliefs with THEIR OWN money.
Time they put their own money where their mouths are.
[...] Cost Containment and the Public Option – The Moderate VoiceIt’s worth pointing out again — for the millionth time — the disconnect between Republicans’ and conservative Democrats’ constant yammering about deficits and budget-busters and spending us into bankruptcy, and those same lawmakers [...]
[...] Cost Containment and the Public Option – The Moderate VoiceIt’s worth pointing out again — for the millionth time — the disconnect between Republicans’ and conservative Democrats’ constant yammering about deficits and budget-busters and spending us into bankruptcy, and those same lawmakers [...]
If they wanted competition, they could repeal McCarran-Ferguson, break up the current insurance conglomerates under the Sherman anti-trust act, and get real competition. Then, if they wanted cost reduction, they would break up the AMA, allow people to buy their drug from other countries, fix the ERISA laws, and eliminate the tax difference between individually purchased and employer purchased plans.
The whole “public option” concept is based on the idea that health insurance profits are the cause of increasing medical costs. That's provably false.
Thus the reluctance of progressives to spend their own money on forming their own insurance enterprises according to their own ideology, the knowledge that they would likely fail miserably.
Time they put their own money where their mouths are.
But why would they do that when yours is available? They're no fools.
“Remember the private health insurance companies are a legal cartel, legally free to fix prices and divide up markets”
That is simply not fact and just the sort of internet rumor that gains far too much credence these days. Insurance companies have a limited federal anti-trust exemption under the McCarran-Ferguson Act. In a nutshell, the law exempts the insurance industry from federal antitrust regulation as long as the state regulates. Further it allows for the sharing of claim data between insurers. This is not the same as saying that insurance companies are legal cartels that fix prices. But it does leave anti-trust regulation up to the individual states. So state laws, instead of federal laws, regulate against such cartels. I'm not arguing this is good idea… just adding some clarity.
The National Journal had the best quote from a Reid staffer who says that [Harry Reid] included a public option in the bill in part because his staff felt he “could get the liberal left off his back for a while.”
So much for the high regard for public policy in the Senate Majority Leader's quest for re-election in 2010.
There is no disconnect[ion], Kathy. The public option is an obviously intended expansion of federal entitlements, and an increase in federal expenditures. Of course the Blue Dogs would be among those few Democrats to be most concerned about the public option, just as they would be in the lead about expenditures, deficits, and debt in general.
* * *
“The public option is designed to offer some competition to the private insurance companies to push down costs.”
The Democrats are counting on many to believe that bogus talking point, and are probably confident that many do, especially when it gets repeated. Rigged, bogus “competition” [sic] is not what is sought, obviously; it is substitution of public for private “insurance” (pre-paid health care), or “crowding-out” in the contemporary vernacular, an incrementalist takeover attempt.
“making Blue Cross Blue Shield into private, for profit companies”
Here is an example of something else that could have been done, to varying lengths or extents, in the name of real reform, but wasn't. Why not make these enterprises non-profit? That is part of what the Conyers Medicare for All legislation wants and is how going to “single-payer” [sic] would be likely done (hopefully minus the unconstitutional low-life theft in the Conyers bill, not compensating for lost profits over 20+ years due to the forced conversion to non-profit status). And in fact, if some were ambitious, as well as open and honest enough, why don't they also advocate a federal or “federal-state partnership” [forced fake grin] takeover of Blue Cross-Blue Shield, making them at once public and non-profit?
With the Blues system the Democrats already have something nation-wide they can make into a federal system, if they are willing to reach and dig in their claws.
Medicare buy-in advocates and other extremists missed that one, which has always been an Option.
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Merkin….
“No one opposed to the public option has explained why they don't want to use competition to achieve this.”
I'll be the last to even try to attempt to defend the insurance companies…. I'll leave that job to Joe Lieberman since they're his constituents. But I think you're missing a golden point here.
(And Kathy….this is when I sound a bit more like a Democrat).
There are certain areas where capitalism and competition does not belong. Government services (Police, Fire, etc) and healthcare. Do I want my healthcare to be inexpensive? Heck yes. Do I want the “lowest bidder” to perform my heart bypass? Heck NO!
To some, this problem's solution is single payer or the public option. To me, however, the option is total and complete regulation of the industries (and practices) that have driven up the cost 500% in the past 20 years – namely insurance, pharmaceuticals, law (tort), etc. The system is broken and the status quo, as President Obama stated, is not acceptable to our bottom line as individuals or as a nation. To further bankrupt the US is not a good solution to me.
One more point I'd like to make. As I've said before…. If we are going to go ahead with spending trillions on a public option, I'd much rather have the single payer plan. If you're going to bankrupt the nation, you might as well actually give the people something, instead of bankrupting the nation to simply save us all $100 a month. So…. In my best estimation, strict regulation remains the best option here.
“Why not make these enterprises non-profit? “
Good idea. As I stated above, I don't believe that capitalism belongs in this particular “industry”, no more than in other critical need industries (water, sewage, police, fire, etc). This idea, via Conyers, would get the Bluedog support.
“I don't believe that capitalism belongs in [...] critical need industries (water, sewage, police, fire, etc)”
It's risky to start having the list grow, but there are some things that seem either best or most effective when organized as a managed “monopoly,” or it's seen as something that should be governmental (such as police, which is part of government having a “monopoly” on the use of force against individuals). (A related thought is that some people see privatizing such things as granting of privileges to private parties.)
There's also the health-care (treatment or therapy) relevent fact here that there is an intermediary here, the “insurer,” that will make approval decisions as well as paying for them (“insurance” in reality is pre-paid health care, often comprehensive).
Moreover, the Blue Cross system is that of “insurers” that are not providers of medical services but just “payers,” and middlemen (intermediaries) acting as facilitators (sometimes disapproving of this or that, just as the federal government withholds federal highway funds if state governments don't jump through hoops of various kinds). This is part of the reason for the term “single-payer” (the bulk of it is due to evasion and the resort to euphemism for what proponents really want, which isn't just payment but control over health care, just as the unwritten-rule behavior of federal highway funds is aimed at exercising federal controls).
With the Blues, in other words, you have at least a non-profit alternative (choice, option, whatever) that can be made available to people again, and these could be integrated formally into a nation-wide, single, standard-benefit-package-and-procedure system under federal regulation. An even bolder move would be to federalize them, take them over, make their employees federal employees (beware AFSCME and unionization and Dem politicizing of it all, in that case!). But at least making it non-profit would be a real “choice” (alternative to for-profit private insurance) that is palatable to much of the electorate, and going to a federal single system (or a single system in each state, overseen by the feds, as an incrementalist step toward shifting it eventually more like Medicare) would be an obvious thing that could have been done, and has been neglected.
I'll add that another alternative, when the issue of “costly facilities” and duplication (several parties competing with expensive equipment for the most lucrative medical business, including imaging and treatments of diseases that are intentive and pay well, like heart-related procedures, along with the obvious example everywhere of hospitals) is to have government own and operate these expensive facilities (the “utility” concept, as I put it, just like the water or the power company, a highly regulated local monopoly).
These are obviously more serious and substantial (and controversial) measures than plain and simple regulatory reform of the insurers (which is all that really is needed, and which is true reform; I've listed these examples as well as other incrementalist-takeover examples or strategies numerous times). But we're probably heading toward a much larger federal role in health care, though there are good grounds for fighting its worst possibilities, at least, and if we do it, there are logical and effective choices to consider.
Just a thought or two…
We'll see what happens with health care “reform.” The PC “climate” gang is at it right now, with the EPA about to announce a “need” to regulate “greenhouse gases” — as a “health hazard” issue. No doubt this is to make the Smug Fools feel better about the USA's future policy, to coincide with the start of the climate follies in Copenhagen. What's next, gun control as a “public health” issue, too? (And “food policy” …)
But the public option option is set up to be self-supporting, with no public tax money used. And would not be able to run a deficit.
This would not be hard to police. It is simple accounting.
I am curious about the statement:
“If the public option is set up as tax-supported or allowed to run at a deficit then it is no longer a free market … “
The problem we are facing is that the current health care insurance market is not competitive. The private health insurance companies participate in a legal cartel that fixes prices and allocates market share to its members.The defenders of the free market system and competition seem to be blissfully unaware or not concerned with this assault on competition.
The health insurance business is Wall Street's dream kind of business. It requires little or no capital investment, entails little risk and generates huge profits which in turn generates huge market capital (stock value), the ultimate goal of Wall Street, wealth from nearly nothing. The only way it could be better is if they could accomplish it without hiring people. It is so expensive, for some reason, to provide them with health insurance.
Two big fears one should have about the public option. One is that the politicians will not keep their hands off of it. Much as the mammogram mess earlier. But this a problem with the regulation of the insurance companies as well.
Also the insurance companies will try to turn the public option into a dumping ground for the sick allowing them to insure the healthy. In this way they can easily compete with the public option. It is how they competed against the community based rate non-profits (Blue Cross etc.) before they became for profits.
I actually believe the Heritage Foundation is a push type research institute where they write the conclusion before starting so they will know what the research is suppose to prove. I was being a little snarky, sorry.
Thanks for reads. This blog has a large number of thoughtful commentators and few screamers with their caps lock keys stuck on.
Two big fears one should have about the public option. One is that the politicians will not keep their hands off of it.
I wouldn't call that a fear as much as a certainty. It would be politicians' job to run it.
But isn't the primary problem that Medicare has is that medical costs are increasing at two to three times the rate of inflation while their revenues from payroll taxes increase at roughly the inflation rate?
Along with the costs from the Medicare part D and Medicare Advantage which were enacted without any funding source, of course. And the largely still looming demographic (baby boomer retirement) problem.
Your concern over price verses cost is only valid if you believe the government is incapable of operating the public option. This would seem to be less of a concern than you think. The United States pays for more medical costs than the health insurance companies pay for right now
Bear with me, I am disabled and it takes me a long time to craft these meager responses.
Yes, Merkin, you nailed the problem exactly: cost growth exceeds revenue growth. Medicare hasn't been able to solve that problem. It can't cut services without enraging seniors, it can't raise revenue without angering taxpayers, and it can't improve efficiency (for example by paying for quality rather than quantity of care) without panicking virtually everyone. So it carries on with what amounts to a Ponzi scheme, borrowing from future clients to cover obligations to current ones.
And this is precisely the evidence that the government is incapable of operating a public option.
Fair points. So we must qualify and say the insurance companies are a legal cartel only on the national level, while prevented from trust behavior within the various states with varying degrees of success.
However it is sliced and diced the question is how competitive is the health insurance industry. Will added competition lower prices or are they at their optimum now? Has the competition within the industry forced their profits and overheads to the barebones while, more importantly for our current discussion, forcing them to put pressure on the medical care providers to in turn lower their prices so the insurance company who has done so can squeeze a small advantage over his competition.
How to decide if this the state of the health insurance industry today? With competition raging we should see medical costs held down, say to roughly the general inflation rate. The markups over the costs should have held steady or hopefully declined because of increased productivity allowing modest year to year gains in profits.
Should I stop now or is their anyone in our corner of the internet who believes this the state of competition in the health insurance industry today? If it looks like a cartel and acts like a cartel it is a cartel.
Actually I agree with you. The current health care care reform effort is a cobbled together mess which will reward the various companies that caused the problems. It is not just the insurance companies. It is the private hospitals that cherry pick the insured patients sending the uninsured to the public hospitals. It is the pharmaceutical companies paying generic drug producers to not produce copies of profitable branded drugs. Or who find it more profitable to short circuit the doctors by advertising aimed directly at the patients, so much more profitable in the short term they are willing to divert money from research to it, hurting their long term prospects.
It is doctors who own expensive diagnostic equipment they have to over proscribe use of to profit from. It is is long term health care insurers who pay only half of their premiums for long term health care. Or any one of a hundred other examples.
A study in the New England Journal of Medicine concluded that Medicare for all, with no other changes, would save the United States $350 billion a year.
The current bill filed for Medicare for all is thirty pages long, meaning it qualifies under the new requirement some seem to have that wide ranging legislative goals should be capable of being met by brief bills. (OK this is snark, so sue me)
We have to get our run away medical costs under control. It is hurting our world wide competitiveness. It has cut down on personal income and profits as companies have had to divert gains made from productivity increases to pay for health care insurance. It has done more than any tax or tax increase to do these things. My biggest disappointment with the entire debate has been the reluctance of the large corporations to make these points known and to lobby for the changes required.
We are told we must control costs but cannot do in the way that does it the most and the easiest because the entrenched interests who would be hurt are too strong. In fact we must further enrich them, including money from the federal till.
We are not even allowed to ask why. Much less ask such obvious questions such as what exactly is it that the insurance companies do to justify their money. We are told giving the task to government will stifle innovation. Yet when I ask the once again obvious follow up question; what innovations have come from the health insurance industry in health care or health care delivery, I get a whole lot of nothing. For 350 billion dollars a year, one half of the defense budget, nothing.
We are left with this thrice watered down public option to try to control costs enrolling maybe 10 million people. And even this is too much for some.
Merkin, you keep mentioning the cartel situation that prevents real competition in the health insurance industry. I agree that there are aspects of the heath insurance industry, as well as the health industry itself, that have these noncompetitive aspects (most everyone sees that.) Dave Schuler at The Glittering Eye has some great posts on that subject- I'd highly recommend them.
But those present opportunities for corrections, since as you mention, these are 'legal cartels.' Change some of the existing laws which enable the cartels, and you'll have a better chance of introducing competition rather than creating a new govt option when the old govt options have only driven costs up, not down. Govt run systems can only fix pricing, not change the laws of supply and demand. Where the govt can and should intervene is on the supply side, and in preventing oligopolies from artificially raising prices.
But certainly the present scheme is no answer. Costs are running away, more and more employers are having to stop providing health care coverage. It is almost as if you are saying people would prefer being raped by the insurance industry to being slapped by the government.That having the country run quickly into bankruptcy by private industry is better than the government doing it slowly. That paying my money for million dollar executive salaries beats having it go for mammograms or old people‘s drugs.(OK, it wouldn't surprise you to know I could keep on going in this vein for quite a while. If you haven't already guessed I have never met a point I couldn't beat totally to death)
Do you think the health insurance insurance companies are better able to control medical costs than the government? We don't have to guess about this, the evidence is available.
Do you believe the health insurance industry is more efficient at administering the coverage than the government? Once again we don't have to guess the evidence is available.
To me this seems to be a case of ”government is always bad, private enterprise is always good” even if it costs us more. Set me straight. (OK, I tried but just couldn't stop)
Do you think the health insurance insurance companies are better able to control medical costs than the government?
In the right structure, yes. What we have today is clearly broken, cartels are in control of not just insurance but other big parts of the the health care industry as well, and our imaginative regulatory regime is helping to keep them in power.
We need reform to introduce more competition, and competition to drive efficiency up and costs down, just like it has in our healthier industries. The reform needs to come from the government. But the competition doesn't.
[...] It’s worth pointing out again — for the millionth time — the disconnect between Republicans’ and conservative Democrats‘ constant yammering about deficits and budget-busters and spending us into bankruptcy, and those same lawmakers’ opposition to the …Read Original Story: Cost Containment and the Public Option – The Moderate Voice [...]
Just repeal McCarran-Ferguson and let the existing Sherman Anti-trust act apply. It's simple, cheap, and relatively pain-free, except for the insurance companies.