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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.

By Ezra Klein  |  July 1, 2009; 10:08 AM ET
Categories:  Health Reform  
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Next: The Two Sides of the Financial Rescue

Comments

The writer makes some interesting arguments, but France, Canada, U.K., and many others have demonstrated proof positive that a government-run financing mechanism and/or a government-run health care system can and will work in a manner far superior to what we now enjoy. There's no need for the sort of speculation in this e-mail. The questions aren't if or how? The question is when?

Posted by: cjo30080 | July 1, 2009 10:33 AM | Report abuse

Here is a brief critque of the public option from the left, PNHP:

Like most of our colleagues and the majority of the general public, we believe that single-payer reform is the standard against which other health reforms should be measured. Sound single payer proposals have been introduced in both the House of Representatives (H.R. 676, The U.S National Health Care Act) and the Senate (S. 703, The American Health Security Act of 2009).

Single payer reform, as embodied in these bills, would eliminate the bewildering patchwork of private insurance plans with their exorbitant overhead and profits, as well as the costly paperwork burdens they impose on providers. These savings on bureaucracy - nearly $400 billion annually – are sufficient to cover all of the uninsured and to provide first dollar coverage for all Americans. No other approach can provide comparable coverage at a cost our nation can afford.

Mr. President, you once embraced a single payer reform that would threaten private insurers, and foresaw its passage if Democrats regained control of the House, the Senate and the White House. These conditions have been met. Yet now Democrats propose diverting additional billions to private insurers by requiring middle class Americans to purchase defective policies from these firms – policies with so many gaps and loopholes that they currently leave millions of our insured patients vulnerable to financial ruin.

Moreover, a “public plan option” would do little to mitigate the damage of a reform that perpetuates private insurers’ dominant role. Even a robust public option would forego 90% of the bureaucratic savings achievable under single payer. And a kinder, gentler public option would quickly fail in a health care marketplace where competition involves a race to the bottom, not the top, where insurers compete by NOT paying for care. But HHS Secretary Sebelius has made clear that any public option will be far worse than that, specifically crafted to prevent it from evolving to a single payer. This kind of public option would amount to a government-run clone of private insurance, reproducing the worst features of private plans.

Posted by: lensch | July 1, 2009 10:42 AM | Report abuse

Well written email. I just want to address the third issue. As much as I share and admire Wisewon's Jeffersonian respect for individual citizens, I think he misses some real practical advantages.

Some have compared MedPac's possible role to that of the Federal Reserve. Minus the Federal Reserve's lack of transparency, I think that is an apt description. The important issue is "why?" The short answer is knowledge, independence, and practicality.

(1)First, practicality. I went out and talked to over 50 citizens about health care. The most common responses "I don't have time" and "I don't want to talk about it until I learn more." This is not just qualitative either. There are large majorities of the American public who just don't have the time or the background to learn the details. I in no way doubt the average person's ability to understand, but I imagine it is tough to do so while working, raising children, helping aging relatives, and many of the other day to day responsibilities of every day life.

(2) Second, independence. Al Gore is fond of quoting Upton Sinclair who said "It is difficult to get a man to understand something when his salary depends upon his not understanding." This has been proven by central banks all over the world when they are controlled by the political process. The money supply is increased, growth ensues quickly for a short period of time, followed by some level of stagflation and even hyperinflation. Maybe, health care is not an exact parallel, but it is not difficult to imagine a scenario in which Congress expands quality and coverage - but never gets around to reducing costs. An independent body may not be ideal as a democratic institution, but it will be effective. And should it ever be too unpopular, citizens through their representatives could seek to rid themselves of the benevolent dictatorship.

(3) Third, knowledge. Monetary policy is complicated. Very few people understand it, even in the financial community and especially in financial crisis. It takes financial experts, bankers, and economists decades to understand only portions of the financial system. Understanding health care is not very different. MedPac employs doctors, medical professionals, statisticians, economists, and many others. Although much of this is understandable, many just cannot or will not seek to understand the interworkings of the health care system. Also, much like the Federal Reserve there will and should be Congressional oversight to voice constituents concerns and make sure the reformed MedCap strictly follows is statutory role.

The concerns voiced in Wisewon's email are legitimate, but the Federal Reserve model plus some transparency could make for a very effective independent body.

Posted by: econowonk | July 1, 2009 10:47 AM | Report abuse

BTW, the complete letter from PNHP can be found at https://salsa.democracyinaction.org/o/307/t/9577/shop/custom.jsp?donate_page_KEY=5022

Posted by: lensch | July 1, 2009 10:48 AM | Report abuse

I second cjo's view. Wisewon shows some problems, but totally fails to show how a system without public option should far better. And the middle term issues he rises can be taken care of by legal safeguard. An autonomous status for the state run service would be a good idea, and a strict limit to the standard insurance. This would leave the market for convnecience and luxury add ons, like single bed in hospitals, glasses, more choices for dental care etc to the insurance companies, giving them a second leg to stand on.

And then, cjo is right. If this works satisfyingly in other nations, why should the US be unable to accomplish that? What happened to the good ole "can do" spirit?

Posted by: Gray62 | July 1, 2009 10:54 AM | Report abuse

"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."

Is the industry really that easy to kill - especially considering the lack of competition that exists w/in it now? I can't imagine that's the case - or that the people who run it aren't clever enough to adapt and survive.

Re: regulation as the cure-all

I'm not sure how regulation provides Americans a choice or a voice in the process. All I can think of when I hear "regulation" is Wall St and MSHA. Regulations are difficult and expensive to enforce. A strong public health insurance plan option (PHIP) does the job of regulation w/in a market construct.

Re: costs in general and who has the standing to control them by deciding care options

See Maggie Mahar's latest post at healthbeatblog.com: (http://www.healthbeatblog.com/2009/06/does-it-matter-who-pays-for-care-who-has-the-standing-to-set-limits.html#more)

"Patients still won’t accept limits imposed by for-profit managed care companies. They don’t trust them. They know that the law says that a corporation must put its shareholders’ interests first. Patients—and doctors—will always suspect that when insurers try to limit the number of services patients receive, they are just trying to save money. They are not physician organizations. They are not medical ethicists. They are not even elected officials. Put simply, private insurers have neither the scientific expertise nor the moral standing to set the nation’s healthcare priorities."

Finally, even with the uncertainties of establishing a strong PHIP, I would prefer trying something we haven't tried (with eyes wide open and safeguards in place) to trying something we have over and over and over again with disastrous (even fatal) results.

Posted by: eRobin1 | July 1, 2009 11:05 AM | Report abuse

I often agree with wisewon and do so partially here. I, too, have spent many years in the industry.

I agree that simply setting public option prices at Medicare rates may not be sustainable over time....they may have to float up if enrollment increases as Medicare tends to underpay docs relative to private insurance. This is why a modified public option probably makes more sense. After all, there is a reason why 27% of doctors decline to accept Medicare.

As to volume control, wisewon nails it. This is the issue and has been for years (or at least the 30 years I have been active in this industry). Pure price inflation is above the general rate of inflation but it is the additional kicker of utilization that drives cost trend through the roof.

As for MedPac, I think this is an excellent policy fix, whether we have a public option or not. De-politicizing the cost controls that should be put into the Medicare system is overdue. Private health care plans are not subject to politicized processes (at least this same level of politicization), Medicare should not be either.

But the comment that individual Americans should be given the ability to shape the debate, have a voice, develop different paths to reform seems odd to me, unless I am missing something in the intent. We have no ability to do that, particularly with the oligarchy of health insurance providers that exist today. Other than picking your level of cost sharing (deductible, copay, etc) and premium, there is not much choice and very little innovation. The last great innovation--HSAs--is a fancy way to introduce high deductibles. Seems to me that with a stronger MedPac we might get some real innovation that the private market might actually adopt--as they have before (eg, DRG payments to hospitals)

To sum up, MedPac I like, public option I like but it needs to be modified and realistically can not just simply pay Medicare rates.

Posted by: scott1959 | July 1, 2009 11:09 AM | Report abuse

Wisewon has an important critique and I am proud of Ezra for posting it. Neither side (or sides) of this complex issue has a monopoly on ideas or on concerns. This issue is the most complicated and multifacited debate we have in the country right now and the way our nation goes forward has to be very well thought out.

I guess the main point I want to mention is that there are only a menu of "bad options" to choose from. What I mean by that is that health care is an rapidly increasing part of our individual and community expenditures, our total economy economy, and our political dialogue because it is an increasing part of each individual's life. Since we get more health care now than ever before, we are going to pay an increasing amount of our wealth as a people into health care. That is a fact. Let's determine how we go forward smartly and with all ideas and critiques on the table, as Ezra and Wisewon, who I disagree with in terms of his preference for increased federal governmental funding and control, have done.

Posted by: lancediverson | July 1, 2009 11:18 AM | Report abuse

we are missing a large point. There aren't enough doctors in many areas NOW (as evidenced by a post by Mr. Klein a day or so ago). How are we going to get more when we keep lowering their salaries and increasing their workload? We have many places (large cities included) where there's ONE doctor of a particular specialty.
Are we going to start forcing people into med school? Forcing them to specialize in what we want? Force them to live certain places?
Why do people think that the GOVERNMENT will be able to reduce bureaucracy of any organization????

Posted by: atlmom1234 | July 1, 2009 11:27 AM | Report abuse

atlmom,

well put. ANd when we're paying docs at medicare or just above medicare rates and the private insurers have been crowded out because they can't negotiate like Medicare can the providers won't have anywhere to go to make up lower reimbursement levels.

My daughters and your kids will want to be computer programmers, engineers but the day or kids wanting to be doctors will be over. Why would they do that for less and deal with the aggrivation of government?

Posted by: visionbrkr | July 1, 2009 11:37 AM | Report abuse

I don't think we need to take Wisewon's healthcare reform critique serioulsy when he ignors, (deliberately?), the most critical cost saving aspect, namely the administrative cost advantage of any of the public options being considered. Here are some very simple, easy-to-remember numbers.

Expected Public Plan Administrative Costs: 3% of expenditures
Typical Private Insurance Administration Costs: 15-30% of expenditures

This cost advantage savings is immediate, permanent, and is probably more critical to the plan than "price concessions". Why does he ignor this? He can say he's against single payer but I've yet to hear anyone refute the administrative cost advantages of either a single payer system or any of the public plans under consideration.

Posted by: austin0031 | July 1, 2009 11:38 AM | Report abuse

atlmom raises a good point. One of the reasons that we have a shortage of providers is because of the high cost of education (a non-issue in other industrialized nations). One of the reasons that we have a shortage of primary care providers is the flawed system of reimbursement applied by private payors. Obama's plan addresses both of these issues, but at some point, they'll need to come to the fore.

Posted by: cjo30080 | July 1, 2009 11:41 AM | Report abuse

atimon provides no data. Here is some

A recent article in the Miami Herald (not available online) makes it clear that the problem is capacity, not supply.

The article notes that Florida International University will be opening a new medical school a year from now, with an initial class of 40 students. The university has already received more than 1,600 applicants from around the country for those 40 slots.

The article, written by Oscar Corral, also notes the bigger picture:

Traditionally, medical schools across the country are flooded with applicants every year and accept less than half of them.

In 2007, 42,315 people applied to medical schools in the United States and only 17,759 were accepted, according to the Association of American Medical Colleges.

BTW releasing physicians from the onerous reporting policies of private insurers would effectively increase their number by 20%.

Posted by: lensch | July 1, 2009 11:49 AM | Report abuse

cjo30080:
How many poor doctors do you know(That have been in practice more than 10 years)? When was the last time you saw a doctor drivjng an old beat-up car? When he was doing his residency? Doctors are in short supply not because of Medicare reimbursement rates, but because schools and organizations like the AMA want it that way.

Posted by: Calvin_Jones_and_the_13th_Apostle | July 1, 2009 11:53 AM | Report abuse

The US is down to 37th in health care quality (WHO). 50 million are uninsured. Those who can afford it pay much more than other those in other countries with better quality.

The email quoted addresses none of these facts.

Posted by: NealB1 | July 1, 2009 12:01 PM | Report abuse

Great balls o'fire. The main reason for any doctor shortage is that the AMA, the state medical associations, and the med schools restrict admissions to prevent 'oversupply'. Put the Dept of Public Health and the schools of public health in charge of this problem and your shortage of primary caregivers will go away.

Secondly, the doctors have tried to prevent the entry of other caregivers into a field that doesn't always need a doctor. You don't need a doctor to triage common childhood ailments, apply bandaids, administer vaccinations, and refer to specialists as necessary. The annual physical isn't worth what it costs. But doctors insist we must have doctors doing these things, and then find those things don't pay well enough to sustain a doctor in the lifestyle to which they would like to become accustomed.

And let's be plain- doctors work great hours in the softest of surroundings, protected from almost every hazard or inconvenience of modern life, and frequently regaled with fancy box lunches by drug reps who lather them with praise on an hourly basis. If worst comes to worst, they might be forced to go on salary for a few years at $100k to pay those loans. Things could be worse- for most of us, they are.

If you want to blame anyone for a shortage of primary-care providers, start with the doctors who run things today.

Posted by: serialcatowner | July 1, 2009 12:11 PM | Report abuse

Commenter cjo30080 mentions UK, France, CAnada. I would suggest people also look at Switzerland, which has private insurance but a highly regulated market. http://healthcare-economist.com/2008/04/23/health-care-around-the-world-switzerland/. The regulation keeps their market functioning fairly effectively and there is no public option.

But in almost all of these systems, the way costs are controlled is that there is an overall "budget" for health care -- a cap or a total that can be spent in a given year. To spend more means higher taxes or other revenue generation, and that is politically difficult for any country to implement. Switzerland is an exception because it isn't funded by either employers and there is relatively little subsidy by the government -- and its costs are closer to the U.S. - 11.6% of GDP vs. our 15.3%.

The only way we will ever get a permanent handle on costs in the U.S. is to cap overall expenditures, which I don't see happening any time soon. In the meantime, we will be forced to tweak around the edges of utilization and price.

As for MedPac, I'm not sure what powers Wisewon would give them, but it was my impression that MedPac was not going to rule the world -- only be given the authority to review evidence of effectiveness and design new payment systems. We badly need an entity that is a little insulated from political pressure. Right now, Congressional reps feel free to tell Medicare what to cover and what not to cover, often without considering the evidence that a treatment works.

Finally - someone noted that we had not tried a public option yet. Actually, we have. For Medicaid in California, a dozen counties have a public option competing against a private one. Neither has been driven out of the market. Both are flourishing. Why is no one paying attention to this?

Posted by: LindaB1 | July 1, 2009 12:19 PM | Report abuse

The doctor shortage can be solved for relative pennies per year if we make Med School free for certain specialties or even for all med students. Right now my son wants to be a GP who specializes in underserved communities. The only thing he's worried about is finding the money to go to school after high shool - and honors Chem.

Posted by: eRobin1 | July 1, 2009 12:38 PM | Report abuse

I believe public option sets us up to avoid the two usual solutions to health access and financing that other industrialized countries offer us: single-payer government or a heavily regulated mandated basic plan with cross-insurer cost sharing. The public option, unless it IS the entering wedge for single payer, simply postpones the day of reckoning when basic health insurance becomes basically a largely non-profit game. Optional supplementary insurance, also regulated, in my mind, could still remain in private hands, without interfering with basic care.

The problem is that we are not getting down to brass tacks:
1) taking a good deal of the profit out of basic insurance by either gov't takeover or regulation
2) defining what is the basic package...something that people might actually have some input into or at least understand.

But yes, expert panels can and must do the job of dealing with issues beyond the ken of almost everybody.

Posted by: michaelterra | July 1, 2009 12:59 PM | Report abuse

There is no shortage of people who want to be doctors, and incomes would have to fall a great deal to cause that to change. Doctors make large to very large incomes (primary care doctors average around $180,000 a year and many specialists make over $400,000) and are much less likely to be victims of economic variations.

The total number of doctors trained in the US is controlled by the limited number of places in accredited med schools, with about 5 qualified applicants for every space.

There is a shortage of US medical graduates interested in going into primary care, partly due to lower incomes and partly due to perceived lower status.

The chances that we will face a shortage of doctors because of lowering of doctors' incomes are very slight. Changes in patterns of payment -- which a strengthened and independent MedPAC could help with, could do a lot to fix the problem of too few primary care doctors. Greater use of nurse practitioners and physicians' assistants would help that too.

Posted by: PatS2 | July 1, 2009 6:59 PM | Report abuse

In terms of voters shaping health care, they tend to have very little impact now and probably would not in the future. Medical issues, especially those related to overuse of expensive and ineffective management patterns -- the main source for control of medical costs without harming quality of care -- are hard for most people to understand. The assymetry of information in health care makes it very hard to apply any classic economic or political models.

Health care is controlled by special interests, both through congress and through advertising, promotion, and advocacy. One of the major goals of making MedPAC stronger and more independent is to break the hold of special interests and increase the impact of rational thinking and of scientific evidence.

As others have pointed out, every other country has already arrived at that conclusion and acted on it. As a result, their systems are at least as effective and often more effective than ours, are much cheaper, and much more fair.

Posted by: PatS2 | July 1, 2009 7:09 PM | Report abuse

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