Politics Aside, Would a Public Option Work?
The fight for a public health plan option may have lost sight of what it really means
It hasn’t panned out that way. Unhappy with the prospect of a publicly-funded entity muscling in on their racket, private insurers have launched a lavish ad campaign against the public option that recalls their infamous “Harry and Louise” commercials of 1993. Still, supporters of the public option idea see it as a viable approach to reform that “avoids polarizing debates over single payer.”
Many in the top ranks of organized labor who prefer single payer are reluctant to invest political capital fighting for what they consider a lost cause in Congress. They have embraced the public option as a fallback position, a way of getting a foot in the door until the political climate is favorable to more lasting solutions. Some support it as a partial reform that could bring relief to those who have no way to pay their doctor bills.
President Obama appears to agree. At a recent town hall meeting in New Mexico, he reiterated his position: “If we were starting from scratch, single payer would be the way to go, but since we aren’t, we have to build on what we already have.” Giving people the option of enrolling in a public plan, he said, would test the viability of publicly-funded health care. If enough people like it, it might pave the way for single payer in the future.
Single payer addresses the problem of the uninsured by eliminating the need for health insurance. The public option addresses it with a federally-sponsored insurance exchange, offering a menu of private plans along with a new public one modeled after Medicare.
The main appeal of the insurance exchange would make it available to everyone who doesn’t have the luxury of those fortunate enough to have jobs with good health plans. Participating private plans, in order to compete with the public one, would have to do something about their huge administrative overhead, a driving force behind today’s out-of-control health care costs. To be included the exchange, they would presumably have to meet certain federal guidelines designed to insure a “level playing field” where public and private plans could compete fairly.
My question: why would they want to be included? If the price of participating in the exchange is submitting to conditions which would seriously impact their profit margins, wouldn’t they do better outside of it? And if they do opt out, how do we insure fair competition?
The notion that competition encourages efficiency and brings prices down is an article of faith for apostles of the free market, but it counts for little in the health insurance business. Private insurers compete not by lowering their prices but by vying for the most risk-free sectors of the market. To people who don’t expect to get sick, or are at least willing to gamble that they won’t, insurers will always be able to sell bargain basement policies with low premiums, high deductibles, and bare-bones benefits. Those who need more coverage can expect to pay more.
Carving up the market on the basis of which customers are more likely to file claims is good for corporate balance sheets, but it’s a lousy way to reduce overall health care costs. At any given time, only a handful of us need expensive medical treatment, but at some point virtually all of us will. You save money by spreading the risks around as widely as possible, not by doing everything you can to avoid them.
Consumers have no shortage of health insurance choices. There are 7,000 plans being offered in the Chicago area alone. Has it made insurance more affordable? Many people shopping for health insurance may find a public plan meets their needs better than the private ones. But the existence of such a plan, by itself, does nothing to change the irrational and wasteful nature of the insurance market.
We can’t even assume a public option would be competitive—lower administrative costs notwithstanding. Even if private insurers abandoned their more egregious forms of discrimination in extending coverage, there would be little to keep them from using their rate structure and their schedule of benefits to discourage the business of anyone they’d find unprofitable to insure. The public option would quickly become the dumping ground for such people, raising costs significantly.
I spent 30 years working for the U.S. Postal Service. Among other things, the experience taught me how hard it is for a quasi-public entity with universal service obligations to compete with private companies which are free to choose their markets.
Public option supporters are aware of this problem, but their solutions strike me as naïve. Health Care for America Now, a leading public option advocate, lists 23 “essential elements” of health insurance regulation and risk pooling to insure a “level playing field” in the insurance market. The length and complexity of the list attest to the extraordinary range of strategies that private insurers use to game the market. One can’t help but wonder how these “essential elements” would be enforced. A truly level playing field would require enough referees to fill the grandstand. It would require a formidable (and costly) administrative apparatus. And the referees would have to be incorruptible, immune to the political pressures that have distorted regulatory regimes in Washington.
One issue that hasn’t gotten attention is how people using the federally-run insurance exchange would pay for coverage. With job-based health insurance, employers pick up much of the tab. It costs them, on average, just under $10,000 a year per worker. How many working families could afford to pay that?
Inevitably, the government will to have to subsidize premiums. Obama’s budget sets aside $634 billion, but most analysts say extending coverage to everyone will cost at least $1.5 trillion. Bear in mind that some of those people are going to opt for private plans, so the subsidies will go into the pockets of the government plan’s private competitors, draining away money that could be used to support the public option.
For many, the appeal of the public option is as much philosophical as it is practical. They would rather see a publicly financed health care system come about through voluntary action by savvy health care consumers, exercising their right of free choice and “voting with their feet,” than by government fiat or an act of Congress.
But invoking the rhetoric of “free choice” begs the question of what we’re being asked to choose. All of us want to choose our health care provider. Given a choice, most of us would prefer not to deal with insurance companies at all.
Peter Shapiro works with the Health Care Committee of Portland Jobs with Justice.
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Submitted by Richard Reid
Peter Shapiro's essay is worth abbreviating and sharing with
legislators. "The notion that competition encourages efficiency and brings
prices down is an article of faith for apostles of the free market, but it
counts for little in the health insurance business. Private insurers compete
not by lowering their prices but by vying for the most risk-free sectors
of the market." This is shameful ! It LEADS TO suffering and premature
death.
I am for a "public plan" as outlined in an earlier article to this same web page. However, I find your case to be lacking in several ways:
1. Achieving a "level playing field" also means bringing highly discounted public services more in line with private reimbursement. Public cost shifting imposes a silent tax on everyone else and comfounds financial analysis of the system. The costs of the OHP would likely be two fold, if it had to reimburse on par with the private sector.
2. To continue to believe that we will successfully deal with the inflationary aspects of health care by improved administrative efficiency is about as profound as those calling for massive savings from prevention. The elephant in the room, is medical inflation and the very last place this will be neatly resolved is in a political based venue. Take note that we refer to Medicare as the "third rail of politics"...or how about AARP's mantra, "Divided We Fail".
3. It is foolishness to seek "one system serving all" when our individual needs, philosophies, and trade-offs would be so much at variance. Force me to join your ideal of a plan, and I may just work against your intentions as a patient or provider to the ultimate failure of your effort. You might prefer the convenience of a $10 copay and receiving no bill, while I prefer catastrophic insurance and knowing precisely what my provider intends to charge. I have no need for my insurance product to pay for my preventative benefits knowing that the processing of a claim through any channel you wish just adds more cost to my service. Your views and mine as to what constitutes an acceptable provider network could be very different. Are we going to require all providers to participate in the new "public plan" or else, as we do with Medicare?
4. Why should we accept "inevitably govt will have to subsidize health care" when we know that view in itself invites more inflation? The health care premium is a subsidy of the sick by the well. So we are to find more taxes from someone else as a super-subsidy of premiums that have no track record of being controlled? Where are we taking this ship?
5. You worry about "money lost to the private sector". Would that same logic ever extend to "money lost to high quality, life saving providers, available outside of what would be the very proprietary interests of any given State? Think an institution like OHSU is going to sit on their hands while you seek care from the Cleveland Clinic or MD Anderson?
You were in the Postal Service...wouldn't most Americans believe that competition for mail services, private and quasi public, has created a far more responsive Postal Service, and generally better services across the board? Would you want one choice of car? house? I live in a condominium that has only one source of cable TV and I don't consider it a wonderful situation, even considering they would argue like you, how much better life is without competition.
The odd thing is, I am profoundly for a "public plan" for totally different reasons than you would be...which means depending on how it is positioned makes all the difference in the world. I have no disagreement that risk selection practices must be changed particularly if we embrace universal coverage. There are folks out there who imagine the possibility through artificial premium adjustments of actually making it financially attractive to seek out high cost membership on a basis of far greater opportunity to manage adverse variation. If I had my way, I would consider forming regional risk pools, pursue a self funded model as virtually all large employers do, and retain competing private insurance carriers on an "administrative services only" basis. In this way the risk selection motivations are neutralized while maintaining the benefits of competition among administrative functions.
It is a great country we live in to be able to have these debates.
Thanks for your response. A few points:
1. I was trying to make the point that the whole concept of a "level playing field" with private plans competing with a public one is questionable at best. Market competition is rarely fair in any case, and having a public plan competing against private ones is like having a marathon runner compete against sprinters. Private corporations exist to make a profit. The public plan, if it is to be useful at all, would exist mainly to take care of those not served by the private plans. If private plans were truly about providing access to medical care, a public plan would not be necessary. Since they aren't, the best we can hope for from a public plan is an expensive form of damage control. That's why I would prefer not to have private health insurance at all--or at least relegate it to the margins the way they do in other countries, instead of having it dictate the structure of our entire health care system.
2. You're right about the "elephant in the room." One problem with the single payer debate is that, by focusing on the insurance industry, folks sometimes overlook the fact a profit-driven health care system corrupts everybody, doctors included. Atul Gawande's piece in the June 1 New Yorker makes this point quite well. So did Howard Dean in his speech at PCC Friday--he argued that the fee for service system is an invitation to medical inflation, and compromises sound medical science as well. A lot of what he said could easily be used to argue for single payer. In fact, he strongly suggested he would prefer it, but does not consider politically feasible, so he's pushing a public option instead--to my chagrin.
There's an important difference between profiteering by entrepreneurially-minded doctors and profiteering by insurance companies. Our doctors don't always do right by us, but at least the medical profession has a socially useful role to play in terms of keeping us healthy. What, exactly, does the insurance industry actually contribute to our state of our health?
In any case, the adminstrative waste in the existing system is not confined to the overhead of private insurers. Research by Physicians for a National Health Program indicates that health care providers could save something in the area of $200 billion if they didn't have to do the cost tracking and claims administration that goes with dealing with a multitude of private insurers, who make every medical procedure the object of endless negotiation and red tape. My wife did medical billing for an oncology clinic, and I got some real horror stories from her about this. Apart from the senseless waste, one was constantly struck by the essential cruelty of the process to people who were fighting for their lives.
3. I think you use the term "subsidy" a little loosely. There's a qualitative difference between the well subsidizing the sick, knowing that some day they too may need to be "subsidized" this way, and the government using scarce tax dollars to bail out a $12 billion industry which is in danger or pricing itself out of the market. If the government is trying to create a competitive health plan, why should help pay for the competition? It doesn't make sense.
4. I was proud to work for the post office and am glad you appreciate its work, but I have to say that competition did not improve the quality of its service. On the contrary, as a letter carrier I was constantly under pressure from management to reduce costs by paying less attention to the needs of my customers. Having private competitors get an edge by "skimming off the cream" only made it harder for the post office to meet its obligation to provide universal service at uniform price.
5. I'm all for consumers having a broad range of choices. I just think it's time we stopped looking at health care as if it were a consumer good rather than something that all of us need and none of us should be deprived of because we don't have the money to pay for it. If I buy an old Chevy instead of a new BMW, it won't kill me. It's just a matter of figuring out what my priorities are and spending my money wisely. But if I have to pass up a needed bone marrow transplant because I couldn't afford to pay for it and my insurance won't cover it, I could wind up dead.
Finally--I agree that this is a great country. It would be even greater if so many of our policy decisions weren't based on the assumption that nothing is worth doing unless somebody is making a buck off of it. That's especially true where healing the sick is concerned.
Peter...a postscript reading you notes on the "evils of fee for service medicine". I have functioned in multiple reimbursement environments as a hospital provider and health plan executive. As a nation, we have vigorously pursued fee schedules, DRG reimbursement, capitation, risk pool sharing between plan, doctors, and hospitals, incentive compensation, etc. I have dealt with physicians on salary vs. fee for service. It is hard to imagine a payment methodology that has not been tried in this country. I am satisfied that this is not the essence of how to control health care costs.
Then you take "fee for service" as a concept and put up against the reality that this is almost universally how we pay for virtually all of our other goods and services....casts some further doubt on whether this is the leverage point that some wish to make it. It should also be recognized that the substitution of "capitation" for "fee for service" was cautiously adopted by the provider community and eventually embraced, because they figured out they could make more money under such a system than fee for service. Politically capitation was shut down, because of the large scale erosion between patient and provider as to whose interests were served when something was denied.
As for Howard Dean, he never inspired my confidence as a complete thinker on this subject. In general, I don't believe any of these guys have a clue on the evasiveness of the cost component and their certainty should be feared. You believe it, you get it.
Peter, we will each believe what we believe. My opinion is if you believe and want a "public" type system...that should be an option that you can elect. It does not take universal inclusion to reach the critical mass necessary to achieve an "average distribution" of population...and even if participation was distorted in its risk allocation, there are ways to make premium adjustments to neutralize the luck of the draw. I would let you join Medicare earlier, only if Medicare were obligated to pay claims on par with the private sector....because without that principle being met, I know that providers will shift the variation to my insurance company. I am a fan of starting from the position of giving people what they say they want, as differentiated from what other people say I should have. If your ideal of a health plan ends up having twice as many public employees to run it, it is a burden of your premiums, or if my plan's profits sink the boat, that is my burden. Both must float on its own economics which neither Medicare or Medicaid as public plans can do today.
As an example, I flat out would not want to be a member of an HMO, as I want to be in control of where I go, even though I understand most HMOs can offer "pretty good care in most circumstances". I will pay more for that latitude. Many suggest a good public plan should be some variation of a Kaiser-like organization. This is not a model I wish to participate in, and I wish the best to those who do. I would like people to define the characteristics of the plan they want, and stop short of telling me what I should want.
My simple logic is that it is counter productive to your interests to want me in your health plan involuntarily. I will be disruptive, uncooperative, and work against whatever the spirit of the plan is. Not sure why this is a hard concept with so many people. Must be some deeply embedded power/control thing.
As for the "for profit" motivation, many of our "non profits" are among the most proprietary organizations. I noticed that one third of the 1M voters in Oregon are beneficiaries of the Public PERS program. Public bureaucracies clearly adopt their own vested interests that are perhaps as pernicious as any corporation's interest in profit. There is no such thing as no "self interest" in my observation. The issue is not how to eliminate it, but rather how to hold it in check in all of its venues. Patients and doctors conspire on a daily basis to exploit insurance coverage out of pure self interest. It is silly to imagine otherwise. Since I don't use much service, these transactions are simply screwing my insurance costs. The literature will tell you that as much as 50% of the care rendered has no medical benefit. That, Peter, is where the money is. The well publicized costs of fruitless and heroic end of life care, is centered on patient and provider decisions. Medicare as both a public plan, and a political bureaucracy is clearly hamstrung in interrupting any of this. These are not constructs of insurance carriers. The great irony is that at one time carriers were expected to "just pay the claims, and be dumb" until in the 1970's they were widely criticized for not being more "value added" and "proactive" in third party intervention. After all they were in an ideal position to see all the transactions. Were they just ignoring valueless rip offs because they made more money with more dough running throught the system? That feedback in addition to the HMO movement pushed them into being more activist to the ire of providers (who lost revenue), patients (who expected to do as they saw fit on someone else's nickle), and legislators (who feared the voters)....all called vested interests. The industry has consolidated into an oligopolistic structure where the services and pricing of the few remaining competitors mirror image one another. There is very little incentive to innovate "outside the box" in an oligopoly. It would be virtually impossible to start a totally reinvented hospital or health plan today, and get it approved by a regulatory structure that is largely a captive of the existing interests.
I again, suggest it is profoundly irresponsible for the greater debate to impose an untested view on all of us simply because some greater circle of folks believe something to be true well meaning intentions. In your view it would be o.k. if the govt imposed an untested drug on all of us because it was without the profit motive, and yet the same untested drug coming from "big pharma" would be evil because of its profit dimension. I don't consider the judgments of govt to be wise, beautiful, and driven by the interests of the betterment of humanity. Nor do I see the private sector as evil, or void of self interest. Nothing like sitting on the board of a highly profitable non profit hospital and listening to speeches about altruism and god, while the business office maximizes profit. "Profit" extends far beyond evil insurance carriers.
I tend to think "choice", "avoiding a concentration of power", "alignment of interests among plan, member, and provider", "cost being a factor in influencing where someone seeks care", "unequivocal no more money from any source" would be a good framework for a new beginning.
As for the postal service, from the perspective of one dumb consumer it seems far more responsive than the "old days". I would speculate, had their been no Federal Express, we would have no one day, or two day mail...and perhaps with increased volume only 2 week mail. Not ready for one car, airline, house, ice cream to serve all because the supplier (private or govt) claims higher efficiency. Doubt the country would buy that case...unless all of the above were "free" and "mandatory".
Take care. Just hope we can both get what we want without insisting on submission from the other. If this is not the outcome, it is indeed the beginning of the end.
In general, sort of think the country is "screwed" and each of us can shift the blame wherever.
Whew! won't try to match you word for word, but I will study your remarks. Just a couple of parting shots of my own.
1. Single payer is not "untested." It's been tested in one form or another in most other industrialized countries, with results that put the US to shame. I'm sure you've heard this argument before.
2. Long before there was express mail and priority mail, there was special delivery. It was cheap and it was fast and a lot of people used it. But once the government stopped subsidizing the post office, the p.o. had to abandon special delivery it in order to "stay competitive"--it cost too much to provide.
3. The price of having to "choose" our insurance plans is having far less choice of health care providers and treatments. You aren't necessarily extending people's freedom by requiring them to make "choices" that have absolutely nothing to do with fulfilling their actual needs as consumers or human beings. Does it really matter that much to the condemned man whether he's electrocuted or burned at the stake?
Single payer "working" in another country is analogous to a drug working in rats and viewing it as a given to work in humans. One of the distinct differences in our test tube is that providers have tasted a ton more money for their services than has ever been experienced in your other countries of choice. Getting those economics back in the box is totally speculative and necessary to replicating the "good results" of other places. Can't achieve the Swiss results and pay our nurses twice as much. But I would be all for somebody codifying what might be the "very best choice" for a system, and transporting that lock, stock, and barrel to the U.S. Will enjoy presentations of new income schedules to the AMA and ANA. If you wanted a British system, hire management from that country to run this demonstration. Find a region in the U.S. that shares your admiration for your selected system and set about demonstrating you can copy and execute to the results you view as favorable. So far none of the State initiatives have shown much promise after uniformly super front end hype, but perhaps they are missing your perspective in some way?
So we have no more "special delivery" because the Post Office could not charge enough to do it profitably...where Federal Express, UPS, and the like come to the scene, robustly improve services float on their own pricing and folks are reasonably satisfied. Was the object to save the post office from suffering or to get to improved services? Can't understand your thought process on this one. Detach yourself from any residual loyalty to the post office and rather than focus blame outward, ask why the competitors got traction in the first place. Why did Blue Cross, and the like, suffer the onslaught of HMOs? Because they were sharp and responsive strategists?
I suppose for those feeling a burden by being required to make a choice, they could be relieved with a "default" choice being made for them. Deferral could easily be a choice in itself...like the next 10 defaulters will be in Kaiser, next 10 in BC. If they don't care, fine with me. Not sure most Americans will see it that way. Not sure I understand your view of health care being analogous to being executed by gas or firing squad.
Can't follow much of your thinking as you don't buy mine, and only advocate that you be permitted to elect something that you favor and let others do their thing to whatever consequence. If your choice is fantastically efficient, great work and may your premiums and out of pocket costs reflect those results. Again, I just don't understand the dogmatic insistence that others do as you basically wish...which is the single payer pitch, is it not? Do it my way or the highway? It is like the single payer crowd fears the burden of a "proof of concept" on a sustainable basis. If it really turns out to be as great as you forecast, it will have a great future...if not, it will perish...as it should. Need alternatives for "bad options" to disappear as quickly as possible.
Our little exchange is the problem...people are pretty rigidly in differing positions and we very likely will debate, sabotage ad nauseum. No ones strongly held opinions will change short of "proof" which will be an attitudinal pollutant to downstream results.
Choosing your health care is not analagous to gas chamber vs. electrocution. But choosing which insurance company will manage your relationship to your health care provider is--in the sense that on some level you get shafted no matter which choice you make. I tried to make this distinction in my original article. Guess I wasn't clear enough.
You may be too young to remember special delivery. It worked better and was far cheaper for consumers than express mail or any of its private competitors. The post office used to deliver mail twice a day too. The point I was making here had to do with the difficulty of "fair competition" between the public and private sectors. By law, the post office is required to deliver to every address in the country, at a uniform price. Its private competitors are free to confine themselves to services which turn a profit, and to charge more for less profitable ones. Private insurers do the same thing, of course--they call it "risk aversion." If we get a public plan which does not engage in risk aversion, it will be at a competitive disadvantage. And if does engage in it, what's the point of even having it? Aren't 1,300 private insurers enough?
The dominant role private insurance has in our health care system is unique to the US and the product of a series of historical accidents--the desire of employers to get around wartime wage-price controls during WWII and the collective bargaining strategy followed by organized labor in the '50s and 60s. Since then, the system has taken on a life of its own--and you're right, changing it would threaten a lot of vested interests besides those of the insurance industry. The fact remains that it isn't working and we can no longer afford it. Single payer is not comparable to British-style socializede medicine...but the VA is, and for the most part folks seem more than happy with it--or they were, until Bush tried to cut its funing at the very moment the Iraq war was drastically increasing demand for its services.
I'm not THAT dogmatic. I'm open to a public option, if some way can be found to structure it so it does not become a dumping ground for everybody private plans would rather not take, and if some way can be found to manage the runaway costs inherent in an insurance system that would remain highly fragmented and beset with needless bureaucracy and administrive overhead. My beef is with advocates for a public option (including President Obama, bless his heart) who use it as a kind of political convenience station without articulating how it would work in practice, or what would be required to make it work.
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