A Smart Critique of the Public Plan (Sort Of)
Last night, I argued that it was long past time for the debate over the public plan to get specific. In response, longtime commenter Wisewon -- who doesn't seem to be commenting much on the new site -- e-mailed his take. Wisewon has been in the industry a long time, and though I don't always agree with his perspective, I've long since learned to heed it. I wouldn't necessarily term what he's written an argument against the public plan. But it's certainly an argument against the public plan as a panacea of any sort. And it deserves to be read in full. His e-mail follows:
For some reason, there doesn't seem to be anyone on the right (not that I am, but I don't support single-payer as you know) that can articulate a policy-oriented opposition to a public option, so here goes:
What's to fear about a market dominated by a public plan and/or single payer? Generally, because its a health care version of fool's gold. No one doubts that in the short-run, over a 5 year period or so, that a strong public plan/single payer could extract significant price concessions from providers and suppliers that would allow for lower premiums. A 15 to 20% difference compared to private plans is clearly feasible and subsequent projections over 100 million people switching to a public plan seem possible. But there are a number of issues.
1. The price concessions may not be sustainable. There are real questions about the sufficiency of Medicare rates, and once a majority shifts away from private insurance plans, providers will no longer be able to cost-shift to meet overall financial requirements-- hospitals in particular. This isn't a theoretical concern. The Balanced Budget Act in '97 overshot Medicare cuts to hospitals, some of which were revised at the end of the Clinton Administration when hospitals were truly bleeding red. If the same follows here, then that 15-20% difference in premiums may be really like 5-10% after the resulting course correction and people may then prefer a private plan-- but at that point most insurance companies would be out of business. As the current negotiations on capitalizing a public option demonstrate, starting up a private insurance plan isn't so easy, particularly if government has close to 300 million lives covered at that point.
2. More importantly, price concessions don't solve our health care cost problems. Cost growth, where Orszag is rightly focused, is not due to annual price inflation, but rather volume inflation. So while a public plan/single payer may extract 15-20% in price discounts, its a one-time savings-- one that will be eaten up by volume inflation in 2 to 3 years. So the federal government can use its leverage on prices, but its unclear if it can address the core problem of volume utilization. Its been great to hear the core issues actually being discussed in public sphere for the first time-- Wennberg/Dartmouth, pay-for-performance (quality not quantity), and even workforce issues and end-of-life care. However, while the problems have been discussed, folks in DC are loathe to offer up any real solutions here-- with one exception (MedPac) that I'll address in a moment. The government's inability to address any of the core issues involved in cost growth is fully illustrated by Medicare's close-to-complete inability to address these issues historically. On the flip side, while the private market can't extract the price discounts of Medicare, it has been fairly innovative in control utilization. HMOs had great success in the mid-90's, only to be thwarted by a public that demanded more services at greater cost. After another decade, the public may be more receptive to HMO-like controls if they could be confident that quality of insurance plans can be maintained (a clear oversight role for the proposed Exchange).
3. So, MedPac. Its a real solution to the concern that a government system cannot control costs if its governance is tied to the political process. Its an honest policy fix, and am frankly impressed that Obama has been willing to make himself politically vulnerable by offering it up. But in terms of what the Snowes of the world fear -- this is part of it as well. A MedPac with authority to make changes to our health care system, when its independent and not tied to the political process, gives Americans little opportunity to shape our system as it desires. For something that is as personal and important as health care, and as broad in terms of sheer size (roughly 20% of the economy), its hard to swallow a system that gives Americans such as small voice. A heavily regulated system that forces insurance companies to compete on our terms-- quality and cost, not cherry-picking ability--gives people the ability to make their own health-care tradeoffs and allows for multiple paths of health system reform (market-driven fixes working together with policy improvement) when there are no real clear solutions to our problems. No question that its messier and more difficult, but it gives people more of a voice. Just like democracy itself. A benevolent dictatorship but has some clear advantages, but we choose to give people a voice in choosing our path-- even when that choice was re-electing Bush-- because in the long-run the voices of all Americans are smarter than a benevolent dictatorship. An independent, unelected MedPac is just like a benevolent dictactorship. Health care isn't some esoteric issue like fiscal policy. Its core to everyone's life, and Americans want and deserve a say in their health care tradeoffs.
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