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What We Have Here Is a Failure to Communicate

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I agree, as you might imagine, with Jon Cohn's reality check on the public plan. But I also think that when you're trying to decide how important the "public plan" is to the overall success of health reform, you have to clearly define what you mean by the public plan.

A public plan along the lines that Sen. Jay Rockefeller or the House's Tri-Committee Plan has laid out -- that is to say, a public plan that could partner with Medicare for more bargaining power and access to provider networks -- is, arguably, very important indeed. Nonpartisan estimates by both the Lewin Group and the Commonwealth Foundation conclude that that plan could lower premium costs by as much as 20 to 30 percent. That makes it one of the few policies under consideration that could offer an immediate and recognizable benefit to currently insured Americans. If voters wake up in five years and realize that President Obama's reforms are saving them 20 percent on their premiums -- or even 15 percent -- health reform will have been wildly successful.

On the other hand, the so-called "level playing field" public plan envisioned by Sen Chuck Schumer, among others, is not a terribly important policy. It's a good policy, all things being equal. But the savings are likely to be minimal, if they manifest at all. There's a real chance it could become a dumping ground for sicker and older patients, leading to high premiums and the perception of government inefficiency. Given a choice between this plan and, say, a strong, national health insurance exchange, I'd pick the exchange.

All of which is to say that not all public plans are created equal. A strong public plan is worth more than a weak public plan. My sense is that, in some quarters, the importance of the public plan borders on the symbolic: It is about the principle of government competition and consumer choice. I see the appeal of that view. But I think it is, at the end of the day, a bit misguided. You could probably do more mandating that private insurers spend 85 cents of every premium dollars actually paying for health care -- as California tried to do -- than instituting a weak public plan. But a strong public plan could do quite a bit.

Related: The public plan for beginners.

The importance of health exchanges.


Photo credit: AP Photo/Jacquelyn Martin.

By Ezra Klein  |  June 29, 2009; 12:33 PM ET
Categories:  Health Reform  
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Comments

"Given a choice between this plan and, say, a strong, national health insurance exchange, I'd pick the exchange."

Why not both?

Posted by: SteveCA1 | June 29, 2009 1:13 PM | Report abuse

I am all in favor of strong patient care spending requirements and a strong exchange, and agree that there's a lot more going on than just the public plan. But I think you underestimate the cost impact of even Schumer's approach, where the public plan has less bargaining power.

The Commonwealth Fund had the Lewin Group do an analysis this week of potential savings from reform:

http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/Jun/Fork%20in%20the%20Road/1290_Davis_Fork_in_the_road_FINAL.pdf

The most interesting chart is on p.14 of the pdf -- a public plan at Medicare rates saves $3 trillion over ten years. If the public plan offers rates intermediate between private payers and Medicare, the savings are reduced, but they're still $2 trillion. Hot having a public plan at all, meanwhile, clocks in only at $1.2 trillion.

So, a strong public plan is worth $1.8 trillion, and a weaker one is still worth $800 billion over ten years -- there aren't too many other policies that offer that kind of benefit.

Of course, these savings are contingent on good delivery system reforms that can be implemented in the public plan, strong exchanges as you note, etc. So it's not a zero-sum, this-or-that kind of analysis; you can't just fight hard for the public plan, let everything else slide, and exepct significant benefits. But still, on the policy, there's a strong case to be made that this is a good thing to be fighting hard for, if it can come out in a reasonable form (e.g. not the totally weak Conrad co-op thing which won't really do anything).

Posted by: Mike_Russo | June 29, 2009 1:31 PM | Report abuse

The strong public program puts conservative and “moderate” supporters of health care reform and their allies in the mainstream media in a box.

Which do they prefer, a program that improves health care and saves hundreds of billions a year, or a program that preserves the profits of the private insurance companies and the salaries of their executives?

It is not uncommon to see a conflict between the public good and special interests in congress, but the question of the strong public program is particularly stark in its illustration of that conflict.

Posted by: PatS2 | June 29, 2009 2:20 PM | Report abuse

"Given a choice between this plan and, say, a strong, national health insurance exchange, I'd pick the exchange."

Ezra, Why would you think this is a choice? If they can kill the popular public plan which has strong grassroots support and the backing of the president, I would think they can kill any regulation.

Posted by: JonWa | June 29, 2009 2:25 PM | Report abuse

A strong public plan (or a weak one) works within a national health insurance exchange. I'm not sure where the choice between them comes from.

From Pres. Obama's letter to Ted Kennedy:

The plans you are discussing embody my core belief that Americans should have better choices for health insurance, building on the principle that if they like the coverage they have now, they can keep it, while seeing their costs lowered as our reforms take hold. But for those who don't have such options, I agree that we should create a health insurance exchange -- a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that's best for them, in the same way that Members of Congress and their families can. None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs. I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.

Posted by: eRobin1 | June 29, 2009 3:10 PM | Report abuse

It is strange you cite the lewin group study that a strong public plan woul be 30% cheaper, but say a weak public plan will not save much. That same study says a weak public plan would be 9-10% cheaper. Not as big a savings but I would love to have 10% taken off the cost of my premiums. That would also make reform about 100 billion cheaper for the federal government.

Posted by: JonWa | June 29, 2009 6:01 PM | Report abuse

Mandating 85% of private insurance on actual health care does not address the cost part. Insurance will spend that much, but will have least interest to see if Doctors are charging too much or ordering too many unwanted tests.

So if Schumer plan is weak, do Public Plans become powerful only when Uncle Sam keeps on writing the checks or what?

Public plan for what - to create competition to private guys and hence to control costs or to provide cover to many who are otherwise left out? Or is the purpose both? Is such dual purpose possible or do we have to choose only one of the objectives?

Posted by: umesh409 | June 30, 2009 12:35 AM | Report abuse

Ezra, you have fallen for a load of manure; for an Insurance Industry con.

The mandate to spend 85% of premium dollar is about what these corps spend NOW. They like that provision. It's a good cover up. Have you ever heard them arguing against it?

Insurance corporations make a lot of their income off of investments. With a 15% gain on the money paid in as premiums and their reserves, they can pay out 85% of premium dollar and still have 30% to live large.

The reason for the huge jumps in premiums this year, reported as 26% and more (44% requested in MI) is not because of any huge rise in medical care costs or any jump in the number of claims but because the market tanked.

Think about it. Have you heard any complaining about the increase in claims or health care costs? The industry has been at the table and in hearings for months and not a word about that. When they could be arguing about greatly rising provider fees and rising usage by the ever sicklier American population, they have been quiet about this. That is because the payouts haven't changed, just the shrinkage in their play around money.

I would love to know whether they were playing in the CDO and the rest of the market's alphabet soup that the Wall Street Witches brewed up.

Here are the returns on shareholder's equity for United Healthcare for 2008 backward to 2004:
14.9%
22.4%
22.2%
25.2%
29.0%

See. Big drop. Can't have that now.

Go to
http://sec.gov/Archives/edgar/data/731766/000119312509032163/d10ka.htm

and take a look. This companies Debt-to-Total-Capital Ratio for 2008 was 38.1% but in 2004 it was 27.1%.

Last year this one company lost over $5 billion dollars in investment activities while they had over $81 Billion in revenues.

Can you say "too big to fail?" What is a healthy debt to capital ratio?

What I don't understand is how much did they spend on their business; that is in paying out claims.

The Form 10-K states: Consolidated Cash Flows From (Used For) Operating Activities was $4,238 million, that is just over $4 billion for 2008.

Is that what they spent for health care?

The other corporations looked similar. I focused on UHC because they are with whom I interacted most and that is where my Plan D is.

How about this: For one medication I take they charge me a $60 copay for 90 pills by mail in. I can and do get the exact same medication, 90 pills at Costco for $25.08. Can you say rip-off?

Please, do not let the insurance industry get away with promising to pay out 85% of the premium dollar on health care.

Posted by: sam_dobermann | July 1, 2009 3:53 PM | Report abuse

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