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Ron Wyden: 'There is an exchange that works.'

Sen. Ron Wyden got one of the morning's harder questions: "Has anyone given any thought to how these exchanges will work?" He seemed pretty confident, though.

There is an exchange that works. There is a way to run an exchange in America and all congresspeople have to do is look at their paycheck to see they're part of it. The Federal Employee Health Benefits Program is a very large pool. And that large pool allows you to spread costs and risks and drive down administrative costs. If the janitor at the Federal Engraving Company feels the insurer is ripping them off, they can go to the exchange and choose from a dozen other options. That's how you create competition.

But then how do you explain this graph?

By Ezra Klein  |  October 27, 2009; 9:33 AM ET
 
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Comments

The question Wyden is answering different than than the one being asked.

The thing I like most about the Wyden plan is the part about "cash-out" out of employer benefits. It is more fair than taxing high-cost plans which hurts unions, the sick, and the old. The unions seem to be thinking short-term on this unfortunately and are pushing for a Cadillac tax with a higher limit.

Posted by: bmull | October 27, 2009 10:05 AM | Report abuse

Ezra, I am telling you man; you got to keep on flashing that graph in face of these law makers and policy types. Until we get credible response to that graph, we are going nowhere; no matter how much derision is heaped on 'fiscally minded' people or how much hero worship is done of Schumer, Reid and Pelosi.

More such graphs, more sophistication of details there and we are in the business.

Posted by: umesh409 | October 27, 2009 11:13 AM | Report abuse

I feel like the graph is just not saying what you seem to think its saying. For one thing, only the end point years are labeled. It would be a lot more useful if we could see what each year's growth rate more clearly. Or rather, it would be most informative to have the cumulative growth rate for each variable, rather than just single years; these growth rates compound, so the fact that the employer rates grow less than the FEHBP in a few years, but faster than FEHBP in most years, becomes difficult to summarize visually. I think that if you want to use a line graph (rather than a vertical bar for each year or the period as a whole) you should be graphing the total premium (or better, total costs including employee out of pocket), or some score combining cost with actuarial value, rather than growth rates. At least for me, when I look at a line chart I interpret it as a quantity either growing or falling over time, but that's not the right way to interpret growth rates (because of compounding), so I feel like this graph is misleading (or at least not very informative).

Posted by: rwclayton7 | October 27, 2009 11:20 AM | Report abuse

Good Q. Ezra. But how about comparing the costs of PRIVATE plans during the same time periods? Were the the annual cost raises for the "exchanges" higher, lower, same as the cost raises for private plans?

Posted by: zippyzeph | October 27, 2009 11:39 AM | Report abuse

Ezra...I explained this graph (to an extent) earlier.

--are the increases gross or net? They will be net. But do employers, FEHBP and CALPERS all react to gross increases similarly? I doubt it. Employers typically react to gross increases with plan changes that will knock 2% off the gross. Does FEHBP do the same? Knowing the government, I would doubt it (but do not know for sure)

--employer increases are based on the cost of a family of four....the others are weighted, as they should be, across all coverage categories. This will cause a skew in the data

--CALPERS is presenting results on non-Medicare plans which means they have early retirees in there. That is skewing the data.

--all the data needs to be area adjusted. Obviously CALPERS data is coming from just CA. Is there similar static based on where FEHBP is (largely national, but eastern seaboard concentration?)

--all of the data needs to be age-adjusted. The graph assumes the populations of the three groups are the same. They well may not be.

In short, this is a simple graph and we need some real thought put into it. So quit trotting it out there as if it means something. Lies, damned lies and statistics you know.

We keep on saying that FEHBP is the ultimate exchange. They well may be doing a good job but if you look at CALPERS, historically they have been much more aggressive in trying to control costs.

Posted by: scott1959 | October 27, 2009 11:40 AM | Report abuse

I work for an employer with 600 white collar employees who is charged $12500 for a Kaiser HMO that the costs only $8000 through the FEHB plan.
Also, if you could display cumulative costs the curve would show about 10% lower costs for the Federal vs. private sector costs over the 10 year period.

Posted by: doctored | October 27, 2009 11:43 AM | Report abuse

Ezra, you can explain the graph using supply and demand. The supply is restricted somewhat by licensing, CON, etc. The demand continues to increase because healthcare is a superior good.

Any questions?

Posted by: kingstu01 | October 27, 2009 12:19 PM | Report abuse

Thanks Ezra, I tried to make the same point to Steve Pearlstein when he said the Federal Health Plan "is the kind of competition that will improve the whole system and, to a degree, help to bring down cost growth." Then why do FEBHP costs keep beating inflation?

Posted by: steveh46 | October 27, 2009 12:31 PM | Report abuse

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