Posted by David Hyman:
Health Reform: The Public Plan Option
http://volokh.com/archives/archive_2009_04_12-2009_04_18.shtml#1239818752
Yesterday�s Wall Street Journal has an [1]interesting piece comparing
government-run and private health insurance plans. The piece is by
Kerry Weems, who was, until recently, the acting administrator of the
Center for Medicare and Medicaid Services (CMS) and Benjamin Sasse, a
professor at the LBJ School at the University of Texas, who served as
the assistant secretary for planning and evaluation in the Department
of Health & Human Services. The context of the article is the proposal
to create a �government-run health-insurance option, or �public plan,�
to compete with private health insurance.�
The Obama Administration�s case for a public plan was concisely stated
by Governor (and HHS Secretary-nominee) Kathleen Sebelius in her
[2]responses to question 5 from the Senate Finance Committee.
The President wants to make health care affordable for families and
businesses. We want to give Americans a choice of which health
insurance option works for them. While the President discussed
proposals to ensure that Americans had benefits as good as Members
of Congress, his campaign plan also proposed a public option
alongside private insurance options in a National Health Insurance
Exchange. He recognizes the importance of giving the American
people this choice, which will also challenge private insurers to
compete on cost and quality, not cream-skimming and risk selection.
At the same time, he recognizes the importance of a level playing
field between plans and ensuring that private insurance plans are
not disadvantaged.
You can get a feel for the politics of the proposal, and the competing
arguments [3]here.
Weems/Sasse sketch out the basic dispute as follows:
Some lawmakers support or oppose a government-run health-insurance
option for purely ideological reasons. Others are open to it
because they are pragmatic and -- laudably -- want to be persuaded
by data and facts. These moderates have been much influenced by the
supposed fact that a public plan such as Medicare is more efficient
than commercial insurance. Advocates of the public option routinely
ask, "Aren't Medicare's administrative costs a fraction of those of
private insurers?"
But the comparison between public and private plans is a false
comparison. Private insurance and public benefits are not the same
business. For all its warts, private insurance tries to manage
care. Medicare is mostly about paying the bills presented to it.
Weems/Sasse offer four reasons why the the higher administrative costs
associated with private plans is �money well spent.�
First, private insurers must build provider networks. These
networks can include high-value providers and exclude low-quality
providers. Except for certain circumstances, including criminal
acts, Medicare is forbidden from excluding poor quality providers.
It lets in everyone who signs up. So one question to ask is, will
the public plan have Medicare's indifference to quality -- or
invest in the cost of a network?
Second, private insurers must negotiate rates. Medicare just fixes
prices using a statutory and regulatory scheme. And anyone who
imagines a public plan would be less costly than private plans must
keep the following issue front and center: In the many procedure
categories where Medicare's statutory price does not cover full
provider costs, shortfalls are shifted to private payers who end up
subsidizing the public program. So, will a public plan negotiate
rates or simply use fiat as a means of gaining subsidies from
private insurance?
Third, private insurers must combat fraud -- or go out of business.
Indeed, these payers have every incentive to invest in antifraud
personnel and strategies down to the point where return and
investment are equal. But anyone who thinks that a public plan
could serve as a "yardstick" for the private sector needs to
consider Medicare's dismal record with regard to fraud, waste and
other abuse.
Fourth, private insurers must incur the administrative cost of
marketing. Medicare, of course, does not need to market. A public
plan competing with other alternatives would have to market itself
to the public, and this means tax dollars used to advertise against
private plans. Or the public plan could "compete" by using heavily
subsidized marketing channels not available to private insurers,
such as Social Security mailings, welfare offices, unemployment
check stuffers, and the constellation of government-funded
"advocacy organizations."
In the next few posts, I will address each of these claims, and the
broader issues raised by the proposal. To summarize, the issue is
whether a public plan will be a maverick, a monopsonist, or much ado
about nothing.
References
1. http://online.wsj.com/article/SB123966918025015509.html
2.
http://finance.senate.gov/hearings/testimony/2009test/040209QFRs%20for%20SubmissionKS.pdf
3. http://swampland.blogs.time.com/2009/03/26/max-baucus-and-the-public-plan/
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