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For all that I'm pretty pessimistic on the chances of the public option to trigger much in the way of reform, I think it's important to get it in the bill because getting it in the bill is the first step toward making it better.

As it is, the public option is shackled on three levels: It's limited to the exchange, it's limited to states that want to offer it, and it's limited to "negotiated rates" rather than Medicare rates. Let's take each of these in turn.

I think the exchanges are likely to be opened to many more people than the paltry 10 percent of the population they're currently projected to serve, I don't think the state issue matters very much because a successful public option will become a popular policy in conservative states, and I don't think the separation from Medicare rates is likely to change. We're likely to eventually see a public option available to quite a few people, but still lacking a substantial pricing advantage over private insurers.

But for all that, there's one more role the public option can play, and this might prove it's most important contribution: The public option could be used to test out all manner of insurance and delivery system reforms and, like Medicare but unlike private insurers, it will actually share its data with researchers, which means it could prove enormously valuable in developing new approaches and seeding them in the private insurance market.

One example here is that though the public option might not move toward Medicare pricing, it might move toward pricing based on comparative effectiveness research, which would be a nice way of pushing that into the market and might give the public option a temporary pricing advantage over private insurers. If we're in a more competitive insurance market, which we will be if the exchanges expand, that could prove very important.

By Ezra Klein  |  October 27, 2009; 5:30 PM ET
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Posted by: scott1959 | October 27, 2009 5:41 PM | Report abuse

I was thinking about this too. If people could see the rates the PO was paying that would be a game-changer. Sadly, there is no way stakeholders will allow this. These rates are among the most closely-guarded secrets in the industry.

Posted by: bmull | October 27, 2009 6:07 PM | Report abuse

not to throw cold water on you but if comparative effectiveness reserach studies show that one method is preferred to another and the public option chooses to pay for one option and not the other and the patient AND the doctor disagrees with this method how would that be handled? Currently when an insurer denies a claim its appealed. Will there be an appeals process? So when an insurer denies a drug therapy its EVIL but when the government does it, its OK?

Or are we saying that there can be no middle ground? There's either right or wrong? What if comparative effectiveness says to do the surgery route and you're not in favor of that and want to try a drug therapy first or vice versa??

This hasn't been talked about nearly enough.

Posted by: visionbrkr | October 27, 2009 6:14 PM | Report abuse

Ezra, what excites you so much about this healthcare reform? Is it:

1. Protecting the incredibly inefficient employer based system which insulates consumers from costs.

2. A massive new entitlement for those making up to 400% of the poverty line which will be financed through taxes on “Cadillac plans”, medical device makers and other hidden taxes which are ultimately paid by consumers.

3. A series of cuts to the Medicare program used to “pay” for this reform which Congress has shown ZERO willingness to cut in the past.

Unfortunately, you seem to be in Obama’s camp that a terrible healthcare bill is better than no bill at all. BTW, have the bills passed 3000 pages yet? I can see it now, a healthcare bill to rival the Internal Revenue Service code.

I’m sure it will be much simpler and cheaper too. What is our recourse in 10 years when this bill costs 4 times more than advertised and unfunded liabilities in entitlement programs excess $100 trillion? Oh well, at least Obama will have been re-elected before we have to get out the mops and clean up his mess.

Posted by: kingstu01 | October 27, 2009 6:30 PM | Report abuse

If the public option is the ONLY payer trying out system reforms (particularly cost controls), while its private competitors aren't, won't it pretty quickly become a financially struggling insurer of last resort?

Posted by: NS12345 | October 27, 2009 6:53 PM | Report abuse

"unfunded liabilities in entitlement programs excess $100 trillion?"

Is this innumeracy or hyperbole?

Posted by: StokeyWan | October 27, 2009 7:16 PM | Report abuse

"The public option could be used to test out all manner of insurance and delivery system reforms and, like Medicare but unlike private insurers, it will actually share its data with researchers, which means it could prove enormously valuable in developing new approaches and seeding them in the private insurance market."

This illustrates one of the many free market problems long established in economics (Note: This doesn't mean I'm anti free market in general. For the vast majority of things the problems are outweighed by the benefits, or are outweighed with just a government side role, like regulation, anti-trust law, etc.).

Ideas and information can't be easily sold in the free market. You can't say, "idea for sale, $20 million, take a look at it, examine it, and if you think it's worth $20 million to you, it's yours". No, as soon as people see the idea they can just use it for free, and free ride.

So, what do you get? underproduction of ideas, and underutilization of them, i.e. one company keeps the idea secret and just that company uses it; thousands of other comapnies, and in some situations hundreds of thousands of other researchers, who could have used the idea productively can't.

When the government decoded the human genome, they put it on the internet so that millions of researchers all over the world could use that extremely valuable information quickly, freely, and easily. A private company would have kept that information highly secret. it would be hard to sell, and it would be grossly underutilized, greatly slowing the advancement of science and medicine.

Posted by: RichardHSerlin | October 27, 2009 7:22 PM | Report abuse

I don't understand why you think that a relative bit player in the market will be able to negotiate better charges with providers.

Insurers do not set prices, hospitals and doctors do. And the relatively small set of potential customers represented by the public option will not constitute be enough to drive anything.

Posted by: Athena_news | October 27, 2009 8:42 PM | Report abuse

I believe that history has shown that Medicare reforms (and presumably PO reforms will as well) spread pretty rapidly to the private market for the reasons Richard mention. Examples include pre-certification, continued stay review, DRG pricing, RBRVS pricing, etc. These things are noticed by the private market and implemented. I think this prevents the PO from being the financially struggling insurer of last resort. I am actually encourage that the PO could be a real effective incubator.

Posted by: scott1959 | October 27, 2009 9:00 PM | Report abuse

Athena_news...hospitals and doctors do not set prices generally. They are negotiated with the insurer (network). In a large metro area (think Dallas) the network will take a divide and conquer approach to negotiating: if doc x won't do it for Medicare+15% (or whatever) then doc y will. The network does not need all the docs, all the hospitals in town to have a viable network. The introduction of a PO in a large metro are will not have a huge impact, I think, for the reason you mention: they are a bit player and the docs can ignore them unless the PO rates are higher than the other networks. They may be and the PO still be competitve due to the lower adm costs of the PO. But the PO may not be a huge player at the end of the day.

But go to an under represented area, more rural, one that is dominated by a single provider (I will suggest BCBS in West TX). Historically BCBS had little negotiating power, they were the only network in town, the docs were the only ones in town,...BCBS pretty much had to take the rates dictated by the docs. Now you introduce the have competition between two networks. They will start approaching the market the way networks do in large metro areas. This will serve to depress rates and make both BCBS and the PO more competitive

Posted by: scott1959 | October 27, 2009 9:13 PM | Report abuse

Great, so the public option will hash out ways for the insurance system to be more efficient and then they will share the information so the insurance companies can be more efficient, but still charge the higher rates. We need to take the profit motive out of the system, end of story.

Posted by: jbou891 | October 27, 2009 10:00 PM | Report abuse

good job on PBS. I have learned a lot on the progress of the health care bill by reading this blog. You have an understanding of the details.

Posted by: christopherfarrell | October 28, 2009 1:59 AM | Report abuse

What will prevent the insurance companies from using the public option as a dumping ground, to solve their adverse selection problems?

Posted by: brucew07 | October 28, 2009 3:13 AM | Report abuse

I agree with many of the comments above. I just don't understand why Ezra thinks that the private insurance market will suddenly see the light because free-floating "ideas" or "approaches" are present. That's magical thinking. The private insurance market makes its money by charging us 1.5 to 3 times what people in other industrialized Western countries pay, for less effective results. They won't give that up unless the government tells them to through strict regulation (the Swiss or Dutch approach) or sweeps them aside through single payer. How much market failure in the provision of health care do we have to ensure before "liberal" bloggers like Ezra might concede that relying on the market to reform itself through ideas and approaches ain't gonna work?

Posted by: redscott | October 28, 2009 8:42 AM | Report abuse

Unfortunately, even the best of these current bills will ultimately fail to curb runaway medical costs. Excessive greed is part of the fabric of our medical culture. All the real answers are unacceptable to the majority of Americans. Only single payer or a truly strict regulatory system can bring sanity to the system. A public option with 10 or 11 million subscribers nation wide will not have any real impact on the medical providers and insurance companies. We are being bankrupted now by medical costs. Simply slowing the rate of growth (or bending the curve) will still lead to financial disaster. The only good thing about these proposals is that we'll get almost universal care. True reform won't come until a majority of people are crushed by higher out of pocket expenses and premiums.

Posted by: marvyT | October 28, 2009 8:47 AM | Report abuse

I think this is pretty simple. Any public option that involves signficant cost savings would simply not be accepted by healthcare providers unless they are either required to accept it or are barred from accepting medicare unless they also accept the public option. Otherwise its just like any other insurance company trying to pay below market rate for services- they simply would not be accepted by doctors. They are the ones that get final veto power over the public option.

Posted by: spotatl | October 28, 2009 9:04 AM | Report abuse

Ezra searching desperately for something, anything good to say about the current version of the government option.

Your original rationale was that the govt option would be the WalMart of health insurance and thereby drive down health care costs. And, of course, oh heavens, of course, the Congress would never even think of meddling in the operations of the company.

Now, no more WalMart effect, and we are absolutely guaranteed that the blasted thing will be highly politicized from the very start. What a disaster.

Posted by: ostap666 | October 28, 2009 9:05 AM | Report abuse

i've heard the wal-mart comparison several times now (also used before from Ezra). The problem with going with the "least expensive option" is that when you're life is on the line do you really want the person who bid the least to take care of you???

Posted by: visionbrkr | October 28, 2009 9:26 AM | Report abuse

Many good points! I had to deal with many of these objections back in June when I first began brainstorming ways to reform delivery (how medical services are paid for) in order to counter medical inflation.

One of the most fundamental problems with Ezra's idea (which was also my first approach back in June, before I got something better) is fingered by visionbrkr.

visionbrkr: "rative effectiveness reserach studies shrach stuone method is preferred to another and the public option chooses to pay for one option and not the other and the patient AND the doctor disagrees with this method how would that be handled?..."


That's one (of several) fundamental reasons why a different system (below) is *much* better than specifying treatments or changing payment rates according to comparative effectiveness research (CER) (which itself is to be used in a different way).

See, the basic problem with pricing according to CER is that people have complex conditions and individual responses. Some people don't respond to the usual best choice drug. Some won't respond to the typically best treatment, etc., etc., etc.

But I figured out these problems back in June, and went to the next step, with the help of two physicians that came to the blog to give feedback.

Here is a *much* better idea (and also how to implement it incrementally, with no painful disruption):

Posted by: HalHorvath | October 28, 2009 10:26 AM | Report abuse

The optimist in me hopes that the combination of no preexisting & most people in will force the ins. companies to accept the (new) fact that the long term health of their customers is in the best interest of their companies. If the public plan has the incentive to keep it's population healthy and reliable research funding, then yes, it could open up best practices info. to everyone.

Posted by: Hazelite | October 28, 2009 10:32 AM | Report abuse

scott1959: Competition among insurance companies does *not* lower costs in an area. In fact, the more insurance companies there are in an area, the *less* likely it is that costs will be held down because each company has a smaller segment of the patient market and is therefore weaker in its negotiating power.

Individual insurance companies may lower premiums to compete with other insurance companies but the co-pays and deductibles will go up because the overall charges by doctors and hospitals will not be contained by negotiation.

Posted by: Athena_news | October 28, 2009 11:23 AM | Report abuse

Hazelite- the combination of a trivial individual mandate and not being able to screen people based on pre-existing conditions to me means that people will simply see little reason to fear going uninusured and will just pay out of pocket until they have a signficant problem and THEN sign up for insurance and the companies would be unable to do anything about it. So policies would be priced accordingly because you could not charge a healthy person any more than you can charge someone who is signing up knowing they will need major medical attention.

Posted by: spotatl | October 28, 2009 11:31 AM | Report abuse

Athena, :-), I noticed this little fact you mention a few days ago. And...there is a further twist yet.

Because a very big marketshare allows an insurer to bargain down payment rates well and get lower prices for policy holders (and drive competitors down, and grow into a near monopoly, etc.), the most idea "competition" would be for there to be only 2 large competitors, with one of them rather dominate (like over 70% share), and where those two are *not* allowed to agree on prices! (the recent "antitrust" thing is about *this* I think)....

So, for example, a state where only 2 insurers have over 90% share between them and one is like 70% would likely have the best outcome of all.

For instance, this might eventually be the case in a state someday with BlueCrosssBS with 70% and the Public Option with 20%, and that may well be the best possible "competition" situation.

heh heh...the real world is quite interesting when it comes to health insurance.

Posted by: HalHorvath | October 28, 2009 12:33 PM | Report abuse

"unfunded liabilities"

seems to me this includes defense appropriations for very expensive aircraft, rockets, nuclear weapons, ships etc

Posted by: jamesoneill | October 28, 2009 12:33 PM | Report abuse

"unfunded liabilities" include the department of defense, the expensive weapons systems as well as the salaries of the troops

Posted by: jamesoneill | October 28, 2009 12:37 PM | Report abuse

Why bother?

Scrap it, start over with single payer plus, as some derivative of the French system.

Posted by: adamiani | October 29, 2009 9:41 AM | Report abuse

Spotatl writes:

"Any public option that involves signficant cost savings would simply not be accepted by healthcare providers unless they are either required to accept it or are barred from accepting medicare unless they also accept the public option."

This is an important objection, and is the reason why Medicare + 5 has died. It is too effective.

The public option could grow over time, but only if it offers something to somebody. Too offer much it has to be big enough to have real bargaining power and it has to be free to use that bargaining power.

Medicare is the obvious path to both size and bargaining power, but links to Medicare are seemingly out for the time being.

The most likely outcome is a weak public option that will be unable to significantly affect costs and will be little used. Long-term expansion of the public option might occur as a legislated response to cost pressures. These cost pressures will not be seen for years to come.

Posted by: tomwittmann | October 29, 2009 2:10 PM | Report abuse

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