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The Public Plan Compromise That Isn't

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Last night, I interviewed Sen. Kent Conrad (D-N.D.) on his public plan compromise. Conrad proposes that the federal government charter health-care cooperatives that will provide a nonprofit alternative to the for-profit health insurance market. It is, in theory, all the benefits of a public plan, but none of that government control.

I think this is a very good idea on its own merits. I fear, as Robert Reich says, that the cooperatives "won't have any real bargaining leverage to get lower prices because they'll be too small and too numerous." But maybe they'll succeed. I see no reason not to give it a shot. Let a thousand models bloom.

But it's hard to see it working as a compromise proposal. The fight over a public insurance option is just that: A fight over a public insurance option. The idea's advocates aren't going to find co-ops an acceptable compromise, because, quite frankly, co-ops don't represent what they're looking for: A chance to test the thesis that government is a superior provider of medical coverage.

That said, Conrad is very clear about the genesis of this proposal: The Gang of 11 -- the chairmen and ranking members of the Senate's health-related committees, which is to say, the Senate powerbrokers on this issue -- asked him to build this compromise because they don't think the votes exist to pass the public plan. It's not obvious to me that this idea works as an alternative. But if Conrad is right about the votes, then the question isn't so much about finding alternatives as finding something that will allow liberal senators to vote for a proposal that doesn't include a public plan at all.

(Photo credit: Bill O'Leary, Washington Post)

By Ezra Klein  |  June 12, 2009; 10:08 AM ET
Categories:  Health Reform  
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Comments

I always felt that the public plan was more important than just being the public plan. It was the first and main battle line of the reformers. The anti-reformers now know they have the power to push back. I suspect that this will be the first in a long series of small cuts which bleed any health care reform to almost nothing.

Next is pay or play.

Posted by: JonWa | June 12, 2009 10:28 AM | Report abuse

Ezra wrote:
"But maybe they'll succeed. I see no reason not to give it a shot. Let a thousand models bloom."

And if you clap your hands Tinkerbell will fly....

I'm F'ing sick and tired of folks not getting at what a majority of Americans correctly identify as the heart of the problem. INSURANCE COMPANIES CANNOT BE VIABLE BUSINESSES UNLESS THEY ARE SCREWING WITH AMERICAN'S ACCESS TO HEALTHCARE.

No amount of proposed regulations or tinkering at the margins will eliminate this basic fact nor magically turn healthcare executives into candidates for sainthood.

Don't bother mucking around with the system unless you intend to really fix it. Otherwise you may anger the peasants enough that they storm the Bastille or allow the Bolsheviks in. FDR understood the dangers of economic inequality back and took steps for a New Deal to give the masses a better chance. It's time for the grownups in Washington to shake some sense into the deluded villagers -- they need to give back to the masses so they won't revolt in a violent fashion.

Posted by: HokieAnnie | June 12, 2009 10:31 AM | Report abuse

Atul Gawande's article in the New Yorker implies that co-ops would save money becaue they would have no incentive to overtest. If co-op HMOs and other employee-model health programs like Mayo can save money, let's do it.

Posted by: david6 | June 12, 2009 10:36 AM | Report abuse

"A chance to test the thesis that government is a superior provider of medical coverage. "

Yes, if only the United States had large govt run programs we could test this thesis with.

MEDICARE! MEDICAID! They exist, they work, and they're better at controlling cost (as shown by lower administration, lower growth over time, the premiums charged by Medicare Advantage) but worse at providing choice. The key insight for me, however, is that they're not significantly better; that is, government involvement alone hasn't solved the situation, the programs will still go broke if they're not changed. There need to be other, more important reforms put in place. Which is why I'm more than willing to bargain away the public plan in exchange for more meaninful reforms.

Now, of course, the government hasn't had a chance to show what it can do with a young, healthy population. Then again, that's not our problem; our problem is with the chronic, elderly populations that comprise 80% of our healthcare expenditures.

Posted by: CarlosXL | June 12, 2009 10:47 AM | Report abuse

I'll have faith in co-ops or whatever other scheme the come up with just as soon the congresspeople proposing them drop their own government-funded health care to enroll in them.

Posted by: Firebert | June 12, 2009 10:50 AM | Report abuse

Ezra please explain how these co-ops aren't mutual insurance companies and won't be fully privatized in 10 years.

Posted by: endaround | June 12, 2009 11:03 AM | Report abuse


I really like Reich (and was one of the, oh, 50 people who voted for him in the MA primaries several years ago) but he comes across as a little hysterical here. If done right a co-op system could be even better than a public option.

It's a gamble but one I think I'd be ok taking. Yes, there'd be crappy rates at first w/zero negotiating power but, at the opposite end of the spectrum, there's nothing to stop it from getting bigger and stronger (and all the little cells merging) and using free market power to bring about communitarian change; maybe something like the socially responsible investing model (Domini, etc).

there's a bit of an emerging free-market ethos movement coming together with socially responsible investing, green corporations, and even in healthcare some places are so fed up with pharmacy benefit management companies they're creating their own new ones w/100% transparency of bookkeeping. I think these coop consortiums could fit nicely into this heartwarming movement.

Posted by: ThomasEN | June 12, 2009 11:04 AM | Report abuse

A real public option is the compromise position for Single-Payer advocates.

Opting for a real public option over single-payer is a concession to private insurers. It keeps private insurers in the game -- it allows those consumers who like their private insurance to keep their insurance.

The co-op option seems like some kind of bad joke devised by private health insurers who want to keep the current inefficient system unchanged. It's not a serious alternative.

When Conrad too talks about "diminishing returns" above 500,000 members; what he's really talking about are "diminishing returns" for private insurers profit-margins in the face of serious competition.

The larger the insurance pools get the more leverage they have in the market.

As a compromise position, why not have non-profit co-ops compete alongside private insurers who are limited to 500,000 members or fewer?

Then in a few years when we discover -- yet again -- that the non-profit co-ops are more competitive than the small private insurance companies limited to 500,000 members, we can enact serious reform with a different set of legislators who take long-term public interest more seriously than people like Kent Conrad.

Posted by: JPRS | June 12, 2009 11:07 AM | Report abuse

Unless I have missed it, Mr. Klein has still not answered the question of whether he supports more government spending on the public plan, or whether he agrees with Senator Schumer that the public plan will not cost any additional money.

If Mr. Klein agrees with Senator Schumer, why would the public plan be able to provide lower premiums than private plans? Would they simply pick off the young and the healthy? Would they be more administratively efficient than private plans?

My preference would be to wait until we have more empirical data from states that adopt their mini-versions of the public plan, like Massachusetts recently did, before we commit to what could potentially end up being a the first step towards a single payer system that will completely transform our nation's largest industry and the federal government for the rest of time. On the other end, we all know that the Democrats may not have huge majorities in each chamber of Congress and the presidency again for a long while, so I can understand the political need to strike while the iron is hot. But as Mr. Klein argued yesterday, we should not put forth bad public policy for political expediency.

Posted by: Dellis2 | June 12, 2009 11:08 AM | Report abuse

To what extent are "compromises" on the public plan (such as Kent Conrad) just examples of Senators sympathetic to a public plan negotiating against themselves? i.e. "I really support a strong public plan, but that'll never pass, so let's not even go there. Let's have a half-assed plan instead!" Virtues of compromise aside, the actual legislative debate is barely underway. Isn't it premature to decide at this juncture that the votes for a public plan don't exist?

I think it's time for a good offense on behalf a strong public plan. Enough defense, second-guessing, and self-hedging.

Posted by: pbasso_khan | June 12, 2009 11:21 AM | Report abuse

Dellis2,

1. why would the public plan be able to provide lower premiums than private plans?

Answer: Because public, not-for-profit providers have lower over-head and more efficient administration (e.g. no shareholder dividends, no bonus compensation for execs, no large advertising costs, no need for K Street lobbyist).

A real public option would also have leverage to negotiate discounts from providers on medical services and drugs. There would be substantial cost savings at the administrative level -- and in terms of pay-outs to providers. Think a combination between Medicare (in its administration) and Wal-Mart (in its relationship with suppliers).

2. Would they simply pick off the young and the healthy?

ANSWER: No. All insurers would be required to provide service regardless of pre-conditions. This is one area that's driving reform.

3. Would they be more administratively efficient than private plans?

ANSWER: Yes.

The Massachusetts experience is one reason that people are pushing for a real public option. In MA private insurance is the default option in combination with mandates and subsidies from the state. The net result is that the plan is too expensive and doesn't provide universal coverage.

One of the arguments behind a strong public option is that it will impose discipline in the marketplace and keep private insurance companies more honest.

Posted by: JPRS | June 12, 2009 11:34 AM | Report abuse

JPRS starts to get at some of the real details of what a public plan might or might not accomplish (or a nonprofit co-op)in terms of cost savings. The savings from a public plan would likely come from lower salaries (of execs as well as claims processors), lower advertising costs, and other admin costs. There is neglgible difference in provider payment,since many insurance companies (like Blue Cross) have deeper provider discounts than Medicare. When people tout Medicare's low admin costs, they need to know that Medicare is severely underfunded. The salaries of CMS employees are too low, there hasn't been enough investment in modernizing claims processing, and to be competitive in the new "Gateway" market, a public plan built on Medicare would require a lot of new money.
But little of what Conrad says explains how these co-ops would work in actual practice. We need more details and more information to understand if they would provide a true alternative to private plans.

Posted by: LindaB1 | June 12, 2009 11:55 AM | Report abuse

If the votes aren't there in the Senate, then there will be no public plan and no national health plan.

The House progressives won't go along with Conradian bs, so...

I don't think there's any chance of anything serious being done on national health care, let alone on a meaningful public plan, for another 5-10 years, or until there are 60 votes to override in the Senate.

The fierce urgency of now only goes as far as 2010 in the Congress, and the health care problem doesn't really hit home until 2018 and beyond.

Our President had his chance on health care in February-March-April, just as he had a chance for serious stimulus, and getting control over the banks.

Instead, he chose bipartisan bs, and that's precisely what he's gotten.

He'll never be as popular again as he is right now, and alas he's blown it, whether his geniuses know it or not.


Posted by: gorillam | June 12, 2009 12:01 PM | Report abuse

$2,500 a year. That is how much cheaper a public plan would be. That is how much more you will need to pay to make reform "bipartisian".

http://jwalkerreport.blogspot.com/2009/06/2500-year-high-cost-to-you-for.html

Posted by: JonWa | June 12, 2009 12:08 PM | Report abuse

I appreciate JPRS and Linda's responses.

Many of the largest insurance providers are non-profits, like the Blue Shield network, thus negating the dividend argument. The public plan will still require administrators and lawyers. If these individuals are not compensated commensurate with their market worth, the public plan will suffer from poor administration, and presumably give back much of its quality.

The two biggest cost savers from a public plan are simply declining to provide care where the Government determines it is not feasible to do so, and paying doctors less. These arguably are good ideas, though my personal preference would be to have these driven by an organic, market-based system premised on consumer choice. Unfortunately, consumers have minimal choice under the current employer-based system.

Posted by: Dellis2 | June 12, 2009 1:12 PM | Report abuse

Dellis2,

The largest BC-BS member, WellPoint, is a publicly traded company. Some of the smaller members are non-profit; the biggest players though are profit-centered operations (who are spending Big Bucks to lobby against a genuine public option).

In reference to public administrators and lawyers -- look at Medicare approval numbers. Your argument would suggest that there should be wide-spread disapproval with Medicare -- in large part there isn't. The majority of people who have Medicare are happy with it.

In reference to risk groups being shut out, Germany, Canada, the UK, Sweden, Japan, and even Cuba -- are able to provide UNIVERSAL coverage at a lower per capita cost than the U.S. WITHOUT excluding groups. In many of these cases the health outcomes are just as good -- if not better -- than the U.S.

In terms of administrative efficiency, about 20 percent of clinical activity for one doctor that I've talked to consists of sifting through paper work generated by private insurance plans (e.g. prior authorization forms, preferred medication forms, covered service updates, rejected service notices) -- on top of this each of the private insurers has its own preferred medications, consultant providers, and blood draw stations. Medicare and Medicaid, he's told me, are painless in comparison (e.g. all of his consultants take Medicare, none of them take Medicaid).

I agree with you that a market-based system with consumer choice would be ideal -- e.g. not unlike the system Germany currently has. But the only way that system would work is one where there is a genuine public option keeping the private players honest. If people want something beyond basic coverage, they should have that option -- however at a minimum we should make sure that every American can afford basic coverage -- especially if the coverage is mandated.

Posted by: JPRS | June 12, 2009 2:06 PM | Report abuse

It is possible the co-op plan could provide cover for conservatives to say they did not vote for a government-run plan. Done right, any non-profit, open-enrollment option will eventually lead to the end for private insurers simply because they cannot survive a competitive environment. That's why they are fighting tooth and nail, to survive.

How can there be any reform without competing plans?

Posted by: PoliticalPragmatist | June 12, 2009 2:23 PM | Report abuse

I agree with everything being said in support of a strong public plan, for the reasons being mentioned.

However, one thing needs attention:

Medicare is a great program. It needs a little tinkering to fix a few small issues, but that is relatively easy, especially if the reform strengthening the power of MedPAC passes as well.

Medicaid is a terrible program. It is fragmented into 51 different plans, each of which has its own features, but every one of them (well, possibly not Oregon's) is terrible.

Payment rates are so low that many providers refuse to see Medicaid patients. Qualification for Medicaid is so hard and so confusing that many potential recipients fail to use it, and many others fall off the programs because of the hassle of re-qualifying. The programs waste a large percentage of their budgets on foolish efforts to enforce qualification standards. The program is also bogged down in a nationwide mess involving nursing home care.

One of the great things that health care reform could do is end Medicaid as we know it, folding low income people into the national health plans proposed by Obama, with subsidies for people up to 4 to 5 times the poverty level. That should be a priority.

Posted by: PatS2 | June 12, 2009 2:28 PM | Report abuse

Anyone catch the Diane Rehm show this morning? Susan Page (Washington editor for USA Today) was guest hosting, and for the Friday news roundup hour her guests were supposedly actual journalists from the WSJ, Christian Science Monitor, and McClatchy. Among them, these supposed journalists repeatedly characterized a single-payer system as being like Britain, like the UK. Appalling and pathetic.

Posted by: thehersch | June 12, 2009 2:44 PM | Report abuse

I question whether those of us who are discussing public vs. co-op vs. private health care payer options are not focusing on the wrong problem. I would urge you to read the article in the New Yorker, “The Cost Conundrum” (http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=al) by Atul Gawande, a physician who studied the differences between health care as practiced in McAllen, Texas, the highest cost area in the country and the Mayo Clinic and other low cost, high quality providers. His last paragraph should give us all pause, “As America struggles to extend health-care coverage while curbing health-care costs, we face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now. The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions. If we don’t, McAllen won’t be an outlier. It will be our future.”

Health care insurance costs can be divided into three main categories – administrative costs, profits, and provider costs. The first two, administrative costs and profits are going to be a maximum of around 30% of total insurance costs. The public vs. private issue concentrates on these two costs and leaves out the 70% plus of insurance costs that are provider costs. Even if a public payer system could lower the administrative costs and profits to 0% (which it cannot), the largest growing 70% of the health care cost elephant is still in the room. As Mr. Gawande clearly describes in his article, unless we get a handle on the way health care is practiced in this country, the payer system we use will be essentially irrelevant. I would ask those of you who are infused with this issue to consider the cost structure of health care beyond the limited focus of the payer system.


Posted by: jdcolv | June 13, 2009 9:36 AM | Report abuse

There are two main arguments in favor of single payer health care.

THE MORAL ETHICAL ARGUMENT

Health insurance companies make their profit by denying health care to sick people. That is immoral and unethical.

THE ECONOMIC ARGUMENT

Our current system of for-profit corporate health insurance has created an unbearable economic burden on the nation. There are over 1500 separate health insurance companies operating under different sets of rules creating a huge 30 % administrative overhead. For comparison, administrative overhead for Medicare is only 2%.

By converting to a single payer system, we immediately save 300 billion dollars in administrative overhead. Medicare is a 40 year example of a successful single payer system which has an administrative overhead of 2%, not 30%.

As a nation, we are now paying twice what other countries pay for health care, yet we do not have universal health coverage here in the US. 50 million Americans are without healthcare and 87 million Americans without health insurance at some point in the past 2 years. Almost half the bankruptcies currently filed in the United States are because of medical bills.

Despite the costs we pay, the United States ranks LAST on a list of 19 industrialized nations in preventable deaths, and 29th of 37 in infant mortality. The World Health Organization ranks the US at 72nd for healthcare accessibility and efficiency. We can no longer maintain the status quo for the ways we currently provide and pay for health care.

WHY WE DON'T HAVE SINGLE PAYER NOW

These two arguments in favor of a single payer heath insurance system (moral and economic) are so compelling, that one must conclude the only reason we don't have single payer now is because of lack of representative government. The obvious conclusion is that our government does not serve the people who elected them. Rather, our elected government officials serve the special interests of the health insurance industry and other corporations who make massive campaign contributions.

Posted by: 4progress | June 13, 2009 10:59 PM | Report abuse

A new study shows that SINGLE-PAYER HEALTHCARE REFORM WOULD BE A MAJOR STIMULUS FOR THE US ECONOMY and would provide:

** 2.6 Million New Jobs,
** $317 Billion in Business Revenue,
** $100 Billion in Wages, and
** $44 Billion New Tax Revenues

The press release is here: http://www.calnurses.org/media-center/press-releases/2009/january/nurses-to-congress-expanding-medicare-could-reverse-job-losses-and-repair-our-broken-healthcare-system-and-safety-net.html

Here’s the study: http://www.calnurses.org/research/pdfs/ihsp_sp_economic_study_2009.pdf

It’s clear that single-payer is the solution, not only in terms of providing quality care for all, but also economically!


Posted by: 4progress | June 13, 2009 11:01 PM | Report abuse

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