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Will the public plan have higher premiums than private insurance?

I've been saying that a public option with negotiated rates probably won't post much of a price advantage against private insurers. But according to the Congressional Budget Office (pdf), that's an overoptimistic take. The public option's premiums, they say, will actually be more expensive than private insurance:

Roughly one-fifth of the people purchasing coverage through the exchanges would enroll in the public plan, meaning that total enrollment in that plan would be about 6 million.

That estimate of enrollment reflects CBO's assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan's premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)

To translate some of that back into English, the public plan will pay prices equivalent to those of private insurers and may save a bit of money on administrative efficiencies. But because the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more. The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else.

The nightmare scenario, then, is that private insurers cotton onto this and accelerate the process, implicitly or explicitly guiding bad risks to the public option. In theory, the exchanges are risk-adjusted, and the public option will be given more money if it ends up with bad risks, but it's hard to say how that will function in practice.

This also illuminates one of the more problematic inconsistencies in the health-care debate. Insurers have been blamed for, among other things, doing too much to discriminate against bad health-care risks and refusing to pay for care far too often. They've been blamed, in other words, for saying "no." But they've also been blamed for doing too little to control costs.

But that is how they control costs. We saw this in the late-'90s, when tightly managed care brought cost growth down to the 4 percent range but also triggered a public backlash (it did not, however, appear to hurt health outcomes). Insofar as the public option has been presented as a big part of the answer to our health-care woes, it's been in part because it won't do the things that make insurers unpopular (the saying "no"), and in part because it will control costs. But the only way to make both those things true at once is to give the public option pricing power along the lines of Medicare, which it doesn't have in either the House or Senate bills.

This, in sum, is why I'm pessimistic on the chances for the public option to substantially affect the insurance market. Pricing power was always the biggest piece, but when that was lost those many months ago, expectations for the public option never really changed. That was necessary for keeping people excited, but I worry it's going to leave folks disappointed with the policy, and thus skeptical of public insurance more generally, which would be unfounded.

That isn't to say that the public option can't still do some real good, as I argue here. But there's also a chance for it to become a real disaster. The most important factor here will be the strength of the risk adjustment in the exchanges, so keep an eye on that.

By Ezra Klein  |  October 30, 2009; 10:07 AM ET
Categories:  Health Reform  
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Comments

Won't the public option's integration of evidence-based medicine help keep a lid on costs?

Posted by: dcjtroy | October 30, 2009 10:24 AM | Report abuse

I agree that there is a looming disaster in the form of a costly, taxpayer-funded bailout of a bankrupt public option.

"[T]he public option will be given more money if it ends up with bad risks" and such bad risks will indeed be guided to a public option by any reasonable businessman, not as a nightmare scenario but as an initial optimal choice. Couple this choice with the fact that employers are implicitly encouraged to pay [to the Federal authority] a fine less costly than providing employee insurance.

The result is that non-payers will have unlimited funding for health care while payers will see a dramatic increase in cost, all without a tax directly imposed on individuals (for the moment).

Posted by: rmgregory | October 30, 2009 10:32 AM | Report abuse

In the end it will however be less expensive to treat all those higher risk people in a public plan that covers routine and preventative care, rather than everyone footing the bill for emergency room care when things go pear shaped.

My beef with this whole reform plan is that is emphasizes rather than diminishes the stratification of society. If the public plan becomes a dumping ground for the sick, poor, and unemployed, there will naturally be a stigma about it that Medicare for all would erase. But it's still better than giving people nothing at all. I guess that's the country we live in.

Posted by: jeirvine | October 30, 2009 10:34 AM | Report abuse

If I remember right, risk-adjusted reimbursement in Holland is stimulating insurers to seek *more* patients with expensive conditions.

Posted by: sprung4 | October 30, 2009 10:35 AM | Report abuse

So because the public option provides better insurance it will cost more? Wow that's some expertise you got there Ezra!

Posted by: endaround | October 30, 2009 10:39 AM | Report abuse

I've said it over and over. I think there is absolutely no chance that the democrats will be able to cover what they consider to be fair while also only charging what they consider to be fair. To me the only question about the public plan is what happens when it becomes insolvent. If democrats really believe that corporate greed is the only thing keeping insurance costs high then I have Zero problem giving them a 1 time pile of money to get started and then let it sink or swim on its own from there. Instead I worry that because its called a public plan that eventually it will end up being bailed out which means that its really a subsidized public plan even though it wouldn't be called that.

In the end we have a cost problem in this country, not an insurance problem. The democrats want to pretend its an insurance problem because the insurance companies are easier to fight against. This bill does nothing at all to deal with the core cost problem.

Posted by: spotatl | October 30, 2009 10:40 AM | Report abuse


I think there's also a simpler reason it might be more expensive at first: private insurers have lots of other products and greater economies of scale. It isn't a terrible business decision for them to initially underprice their plan to beat out the public plan and then inch it back up. Inching it back up, however, requires going through 50 different states' division of insurance currently.

Posted by: ThomasEN | October 30, 2009 11:03 AM | Report abuse

Ezra thinks that the question is only about missing expectations of people about PO. That is only one part. Liberal base which Schumer is assiduously pursuing; they would revolt in that case too.

But larger damage is the money what Fed will be compelled to shell out due to popular and political support for these costly PO.

PO potentially exposes USA for more deficits with disappointments to public. If it means insurers watching the show, what about real revenge by these companies a decade from now?

Doing any of these extreme things have costs unless done prudently, incrementally. Current Congress is not in that mood and we are in probably for a ride.

Posted by: umesh409 | October 30, 2009 11:04 AM | Report abuse

Pricing power was always the biggest piece,


Wait, wait wait. What happened to insurers being so inefficent? ridiculously high profit margins, inflated CEO's salaries. You mean that was all a mirage??? I thought inefficency cost us 20-30%??? That's what most everyone on here's been saying? So now you're saying that since we can arbitrarily FORCE provider reimbursement rates down (for a short term fix as spotatl continues to try to say) then the public option will be a waste?

Wait, then why are they doing it anyway? How much money will be spent in putting this "useless" public option into place?

Sounds like to me Ezra you're already making excuses as to why the public option will fail when it does. You'd be better off hooking your wagons to a trigger with a stronger public option. That would work better for all.

Posted by: visionbrkr | October 30, 2009 11:07 AM | Report abuse

ThomasEN,

I've thought that too about economies of scale but also would think that considering the economic and social climate today and the fact that they are normally under the gun all the time but now they're under the microscope more than any other time in their existence that they might think to take some short term losses now for their benefit in the long run once the public pressure for change has died down as all public policy debates eventually do. They have not. They're not making a ton on the margins but if they were showing losses now their stocks would go down in the short run but they wouldn't risk their entire business model in the current debate. Not to mention the fact that we're still hearing recent examples of idiocy of people being cancelled for ridiculous reasons (baby too small, baby too big, etc). Many of them are not very bright.

Posted by: visionbrkr | October 30, 2009 11:16 AM | Report abuse

This public option is non-viable. Who are the customers for this plan? Subsidies on the exchange are based on the low-cost option. Anything above that comes straight out of your pocket.

There are a few granola-eaters willing to pay thousands of dollars extra to make a social statement. The rest of the people in this plan will be the extremely difficult patients who have burned their bridges will private insurers. Providers will not be able to charge more because the payment rate is limited by law to the average for private payers.

So what you have is an undesirable patient population conveniently gathered up and labelled to make discrimination easy. What a recipe for disaster!

Posted by: bmull | October 30, 2009 11:26 AM | Report abuse

sprung4: Risk adjustment is a game that private insurers are going to play very very skillfully. If you believe in risk adjustment as a solution, then you believe that regulation alone can solve our problems, and you don't need a public plan at all.

Posted by: bmull | October 30, 2009 11:34 AM | Report abuse

Now the battle REALLY begins! Check out “Healthcare Fighting (Kung Fu Mix)” at http://www.youtube.com/watch?v=8nc1VwJOb9Y

Posted by: thincaboutit | October 30, 2009 11:42 AM | Report abuse

Pricing power was taken away when the public option was delinked from Medicare. Now, without the elderly and disabled, the public option might not represent enough patients in order to effectively "bargain" with providers. What if the Wyden proposal were added in? If people with employer based insurance were allowed to participate in the exchanges and potentially choose the public option, wouldn't that give the public option more heft without having to piggyback on Medicare, as well as being better policy overall?

Posted by: umbrelladoc | October 30, 2009 11:49 AM | Report abuse

You are obviously a poster pundit for the health insurance industry. If you believe in what you are postulating then why are you and the health insurance industry worried about the public plan?

You have provided no concrete fiqures for your reasoning but just Ezra 's premise of what if? Besides the public plan is not an entitlement. It is supposed to charge premiums to pay for itself but we all know it would have lower administrative costs thus its perceived feared advantage by you and the health insurance industry. Shame on you.

Come out with some hard statistical and financial fiqures!!! Your problem can be reduced to "trying to fiqure out the price of a can of DIET COKE or any other commodity or service in 5 to 10 years! It is not TRW rocket science. So you obviously cannot come out with any fiqures to back what you are saying.

Posted by: ameys1msncom | October 30, 2009 11:50 AM | Report abuse

"Pricing power was always the biggest piece, but when that was lost those many months ago, " Odd, I thought it was lost days ago when Pelosi had to concede to the Blue Dogs.

In particular, even after the whip count of 200 in the House, I still hoped that the compromise in the House would be Medicare + 5% with an opt out clause. Opt out (and trigger) have gotten a lot of attention, even though, as you have been noting for months, they are very unimportant compared to Medicare + 5%.

The path to pricing power was narrow and winding with bluedogs yielding, a battle in the conference committee and senate moderates not daring to filibuster the conference committee report, but one could still have some hope. I had hope. I'm not necessarily claiming that one could have rational hope).

Anyway medicare+5% is in coulda woulda shoulda cloudcuckoo land now.

Except that robustifying (and, for that matter, Wydening) the public option saves money so it could be done via reconciliation. Just wait till next year (you will have guessed that I am a Red Sox fan).

Posted by: rjw88 | October 30, 2009 11:56 AM | Report abuse

These are two item that have concerned me about the "public option" all along.

The first was that people equated that with free health care. No - you still have to pay for it!

The second was that there would be no treatment, no case that should be denied if someone thought it would help.

This is the wake-up call.

Posted by: RedBird27 | October 30, 2009 12:11 PM | Report abuse

and ezra,

the cost cutting on the private insurer side has already begun.

See below for a piece of a memo recently sent by an insurer in the NY/NJ market.

Kind of makes me nostalgic about the 90's!

"We are committed to providing your clients with access to quality and affordable health care. Out-of-network medical expenses are increasing at a rate above overall medical trends. These trends make up an increasing portion of overall health care expenditures, which make it difficult for your clients to find a balance between health care costs and delivering high-quality benefits. For this reason, effective January 1, 2010, we will be making a change to the way we reimburse out-of-network services for certain XXXX products with XXXX Network access and will also will make this change available as an option for certain New York groups enrolled in the XXXX and XXXXXX Networks.

HOORAY FOR COST REDUCTION. I'M BETTING CAPITATION IS NEXT!!!

Posted by: visionbrkr | October 30, 2009 12:12 PM | Report abuse

Ezra, could you please do a post soon on what cost control provisions actually remain in this bill?

As far as I can tell the major cost-reducing policies all had to do with greater negotiating power, both for Medicare and the PO. But those are systematically being cut off. The PO can't even get to Medicare levels for docs. Medicare can't negotiate with the drug co's (or device manufacturers if Bayh has his way). Maybe there will be some delivery system reforms, but how much good can these do if they're restricted to Medicare and an unaffordable last-resort public plan?

The bill also isn't truly universal (doesn't cover illegal immigrants, who will still be treated in ED's, and exempts a chunk of too-rich-for-Medicaid folks), so the "increased access to early treatment" argument is weak too. It also doesn't do much to ensure actual ACCESS for people covered by Medicaid (many private docs don't accept it). And as far as I can tell, there's been no attempt to deal with the unaffordable out of pocket costs that lead to underutilization. If the insurance co's can still offer high deductible "consumer-driven" plans, aren't you just retaining a huge population that's "insured" in name but not in fact?

Meanwhile the most popular (and morally important) part of the bill -- the consumer protections -- will increase premiums as well, no? The whole point of rescission is to collect premiums without paying out. If you DO have to pay out, then everyone else's premiums rise in proportion (assuming no cap on industry profits).

So what's left? What's driving the (increasingly modest) deficit reductions CBO's showing in these bills?

Posted by: NS12345 | October 30, 2009 12:28 PM | Report abuse

bmull says:
"The rest of the people in this plan will be the extremely difficult patients who have burned their bridges will private insurers."
I have serious chronic health problems as a result of an inherited genetic disease. Does that make me "extremely difficult?" Did I "burn my bridges," while still in the womb, by inheriting the defective gene? Go ahead, bmull, explain this to me. I'm waiting.

Posted by: lydgate | October 30, 2009 12:29 PM | Report abuse

Problem with this bill is not public option. I don't really care if they give out cheap plans for all.
Problem is that the cost is not lowerered.
You still allow drug companies to charge for $100 a pill when they sold the same drug to canada for 20$ a piece.
You will allow the doctors and nurses to charge too high of a salary. They are all overpay and should get a pay cut just like
auto union workers.
Oh yea..you say they are going to leave USA?...no they won't because everywhere else in the world pay a lot less for doctors and nurses (like in japan...price control)...so really there is no where else to go but stay.
And if the insurance company goes away...there is a lot less paper work and you can have way less nurses and admins.
We in america build hospital like they are building hotels. everyone has their own room with tv internet instead of sharing
room with just enough...that's why it's 5000$ a night to stay in...
plus they do all kind of unnecessary tests... like why do you need 5 blood test a day for a paitient when the first one should have done the job?
Obama's and the Democrates's current plan is just useless and will be another
social security that we have to bail out which we don't have money to bail out now.

Posted by: andyoo | October 30, 2009 12:39 PM | Report abuse

"Instead I worry that because its called a public plan that eventually it will end up being bailed out which means that its really a subsidized public plan even though it wouldn't be called that."

It's funny b/c I agree 100% with your analysis but I think it just shows we should just be up front and pass a real subsidized plan already. You're right that "the insurance industry" isn't necessarily the biggest factor in rising costs, but the relative weakness of payers vs. providers is highly relevant.

Instead of having two entitlement programs plus a more-or-less implicitly backed public option, it would make more sense to just have a single safety net program with a narrowly defined set of services (primary care, screening, and maybe catastrophic coverage), then let the private ins. business operate over it.

Posted by: NS12345 | October 30, 2009 12:42 PM | Report abuse

Ezra and most commenters here are continuing to miss the most important provision of what was HR3200 and is now HR3962. (In the old bill it was Sec 116 and for those who are interested you can search Angry Bear archives for some posts on it)

The current private insurance model is based on finding ways to drive down the Medical Loss Ratio or MLR. The MLR is simply the amount of money that insurance companies perceive as 'lost' or 'wasted' but in real life represents those dollars actually spent providing medical care to insurees. A decade or so ago the typical industry MLR was above 90% meaning that companies had to cover profits, salaries, marketing and admin costs out of less than a dime per premium dollar. Today the typical MLR is right below 80% with insurance companies constantly attempting to drive it lower (and bragging about that to stockholders).

Well under HR3962 that game does not work so well. Instead for each Exchange there will be a mandated MLR to be set through negotiations but in no case lower than 85%. Any company that fails to meet their Area MLR will be required to rebate the difference to policy holders. Which is quite an elegant solution to the risk pool gaming policy, while companies can gain some marginal advantage by steering the sickest patients to the PO, they can't make money on simply insuring people who don't use care at all. That would end up dropping their MLR below the threshold.

If implemented correctly this MLR mandate should end up driving premiums towards some sort of mean, simply jacking up premiums just makes the dollar amount of your mandated MLR that much higher and the possibility of having to rebate premiums correspondingly higher.

How well this all works should be the subject of more extended discussion but I don't see anyone even referencing it. In the new bill it is contained in Sec 102 starting on page 26, and while details of how to set the MLR are important, the basic concept is spelled out in one sentence:

‘‘(a) IN GENERAL.—Each health insurance issuer
that offers health insurance coverage in the small or large
group market shall provide that for any plan year in which
the coverage has a medical loss ratio below a level specified
by the Secretary (but not less than 85 percent), the issuer
shall provide in a manner specified by the Secretary for
rebates to enrollees of the amount by which the issuer’s
medical loss ratio is less than the level so specified."

Single most important sentence in the whole bill. IMO. It wipes out the core of the current insurance company business model which is based on predation in the risk pool, to one where profits are driven by one volume and two efficient delivery of health care.

Posted by: BruceWebb | October 30, 2009 12:44 PM | Report abuse

Ezra, why do you insist on being so obtuse?
You continue to be a standard-bearer of the G-No-P, following their playbook, rule 42, chapter 1:
"In any statement regarding (insert thing we are against here), always ignore pertinent and obvious facts that ruin our specious points."

Hmmm...where would the public option find savings versus private inurance? Could it be...the BILLIONS in profits that CEOs pocket every quarter? What? You say there would be no profit taking by a public option? So those billions would be SAVED?
Surprise! Now, with ALL the facts, it becomes obvious that this fight against HCR is exposed for the screw-the-middle-and-lower-class play that it is.
Go back to blaming libs for the swine flu.

Posted by: DAMNEDGENTLEMEN | October 30, 2009 12:45 PM | Report abuse

If it ends up being expensive, as a large chunk of it will be tied to subsidies, we'll likely see Medicare + 5% (or some other %) pop up not before long.

Also since it will already be an existing program and the change to Medicare + 5% is simply a revenue/expenditure and deficit related issue, hello Change Via Reconciliation.

John

Posted by: toshiaki | October 30, 2009 12:50 PM | Report abuse

I don't recall a time when insurers were under pressure both for denying care and for not doing anything to rein in costs at the same time.

In a way they're accused of saying no, now, but it's really saying no to covering people at all. It's not saying no to their existing customers. Not generally anyway, except in cases where they were breaking existing law, which doesn't have much to do with health reform.

Clearly someone is going to have to start saying no, whether it's the public plan, Medicare, Commercial Insurance, who ever. Or at least someone is going to have to start paying less for things that don't add value. Why can't the public option do that?

Posted by: consid24 | October 30, 2009 12:57 PM | Report abuse

The "public option" will multiply costs and destroy health care.

With the "public option," you have to add the cost of the hordes of ACORN-type bureaucrats needed to run the "public option."

You have to be a fool to believe that the "public option" will lower costs. The more the government gets involved, the higher the cost of bureaucracy, which may become higher than the cost of actual medical services… and, as any bureaucracy, it will keep on growing.

Of course the dumbed down expect “the rich” to pay for it all. But as it happens in any commie country, “the rich” soon disappear. They either become poor or they are able to leave to a freer, more prosperous country. Just see what happened in Cuba.

Posted by: AntonioSosa | October 30, 2009 1:00 PM | Report abuse

The author's argument is synonumous to a given scenario where a physician will charge a regular patient higher fees just because he or she occupied a private room. Conversely the same physician charges lower fees to a patient who occupies a ward. The truth is, physician service to any patient (rich or poor) never varies. As public healthcare is for everybody (as legal citizens of this country should benefit from)physician care cannot be discriminatory. Physicians who charge more for their services are focused on commercialization of their profession, obviously they do not count as public health care physicians!! Those physicians who will act as providers for the government initiative will fulfill their duties with a clear conscience. Who the devil cares about the cost??? In my field of Economics, as well as in the 'Chicago School,' everything tends to equilibrium in the long run. Commercial physicians may be best suited for private insurers. They might end up endorsing a product or two-and that's all they will be worth. Same thing goes with my fellow economists.

Posted by: ARTfromCalifornia | October 30, 2009 1:08 PM | Report abuse

Those who continue parroting Obama's ridiculous myth about the the "obscene" profits of the insurance companies don't seem to realize that that myth has been completely debunked.

“FACT CHECK: Health insurer profits not so fat

“By CALVIN WOODWARD (AP)

“WASHINGTON — Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They're all more profitable than the health insurance industry.

“In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making "immoral" and "obscene" returns while "the bodies pile up."

“Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

“Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.
http://www.google.com/hostednews/ap/article/ALeqM5iorq8FSpX_4LX_UG_xHQIjJY3SvgD9BI5VB00

We may have issues with insurance companies, hospitals and doctors, but that does not mean we want the criminal Obamacare scam!

Posted by: AntonioSosa | October 30, 2009 1:08 PM | Report abuse

brucewebb,

that's nice but Aetna's MLR for example in 2008 was just announced at 85%. You're about 5-10 years too late with that theory. Should there be an MLR set at 85% sure. Will it help keep costs down, NO.

Posted by: visionbrkr | October 30, 2009 1:13 PM | Report abuse


First, no one has any idea how many people will choose the public option. This is an exercise is mind-reading.

Morever today 10% of the population now buys its own insurance. These people are self-employed or early retirees. They will all be eligible for the public option. They are not particularly poor.

They will comprise roughly 40% of the people eligible to go into the Exchange and choose the public option the first year. (The rest will be the uninsured--who are usually pooor-- as well as the owners and employees of very small businesses. By the second year "small business" means 30 employees or less--that's a huge number of small businesses. Income levels vary-- from law firms and other businesses that provide professional services to resturants.

Secondly, the public plan will "manage care." Medicare is already begin to do things to save money-- and the public plan will follow suit.

For example, Medicare has announced sharp cuts in fees for CT scans (volume has doubled and patients are being exposed to too much radiation) and MRIs. It is also cutting fees for test docs perform in their own offices using equipment they own. (When they self-refer for tests, they recommend twice as many tests).

Volume will drop in these areas.

Medicare is also refusing to pay for an excessive number of preventable hospital readmissions. Going foward, Medicare will be comparing hospitals to benchmark hospitals in terms of outcomes and cost --

And we don't even yet have a new Medicare dire-- ctor.

Both Medicare and the public plan will be lowering fees and raising co-pays for less effective procedures, doing the reverse for more effective procedures.

Chances are we will wind up with Jay Rockerfeller's or Obama's panel overseeing Medicare spending -- and pretty well isulated from Congressional interference.

There are many things that don't have to be in the legislation but will happen, following MedPAC's recommendations. (See MedPAC's March and June reports for the past few years.)

Why hasn't hte administraiton appointed a new director for CMS? He/she will have to be confirmed by the Senate.

Based on who the administration appointed as deputy commissioner to the FDA (who didn't have to be approved) and to head CDC, I suspect that the White House plans to tap someone who is veyr strong (and so controversial) for the Medicare spot.

They just didn't want to have that battle while fighting for the legislation.

Posted by: mahar1 | October 30, 2009 2:04 PM | Report abuse

@BruceWebb:

Loss ratio guarantees just drive up costs, because you've taken away the upside risk and left only the downside. It does nothing to control costs. Cost control is the single most important issue here, and everything follows from there. Minimum loss ratios don't do anything.

And this:
"The current private insurance model is based on finding ways to drive down the Medical Loss Ratio or MLR."

is not true. It shows a very naive and simplistic view of the insurance market if that's what you believe.

"The MLR is simply the amount of money that insurance companies perceive as 'lost' or 'wasted' but in real life represents those dollars actually spent providing medical care to insurees."

Every insurance company refers to the ratio of benefits paid to premiums received as the loss ratio. Who cares? Why do people focus on that as if it somehow makes the insurers look bad? There is nothing perverse about the term unless one is just looking for silly ways to demonize health insurers.

Posted by: ab13 | October 30, 2009 2:07 PM | Report abuse

I've said it over and over. I think there is absolutely no chance that the democrats will be able to cover what they consider to be fair while also only charging what they consider to be fair. To me the only question about the public plan is what happens when it becomes insolvent. If democrats really believe that corporate greed is the only thing keeping insurance costs high then I have Zero problem giving them a 1 time pile of money to get started and then let it sink or swim on its own from there. Instead I worry that because its called a public plan that eventually it will end up being bailed out which means that its really a subsidized public plan even though it wouldn't be called that.

In the end we have a cost problem in this country, not an insurance problem. The democrats want to pretend its an insurance problem because the insurance companies are easier to fight against. This bill does nothing at all to deal with the core cost problem.

_________________________________________

The problem is not health insurance it is the fact that HEALTH INSURANCE IS FOR PROFIT.
There is no way that a life giving service should be tied to a for profit industry.
The idea of a for profit industry is too squeeze everything out of a business to satisfy a STOCKHOLDER and enrich people at the risk of health of people.
we see this when insurance companies readily deny 25% of claims OUTRIGHT - try to fight to get those claims paid. YOU CAN SPEND a year fighting a claim in the meantime creditor are calling etc.

If a CEO wants a house in VAIL, or a Insurance adjustor needs a new care, there are incentives to CUT BACK ON CARE - they deny, lie, drop people whatever they have to to GET THAT HOUSE in vail.

If insurance companies were non-profit we might stand a chance.

BUt then the spouses of Joe Lieberman and Evan Byah would not have jobs and we of course cannot have that.

Posted by: kare1 | October 30, 2009 2:25 PM | Report abuse

and ezra,

the cost cutting on the private insurer side has already begun.

See below for a piece of a memo recently sent by an insurer in the NY/NJ market.

Kind of makes me nostalgic about the 90's!

"We are committed to providing your clients with access to quality and affordable health care. Out-of-network medical expenses are increasing at a rate above overall medical trends. These trends make up an increasing portion of overall health care expenditures, which make it difficult for your clients to find a balance between health care costs and delivering high-quality benefits. For this reason, effective January 1, 2010, we will be making a change to the way we reimburse out-of-network services for certain XXXX products with XXXX Network access and will also will make this change available as an option for certain New York groups enrolled in the XXXX and XXXXXX Networks.

HOORAY FOR COST REDUCTION. I'M BETTING CAPITATION IS NEXT!!!
__________________________________

What you missed is that the INSURANCE HOLDER (ie the PATIENT) will have to pay the difference -- in many cases thousand upon thousands of dollar.
And of couse - the number of doctors PARTICIPAING IN THE PLAN (in network) is shrinking so fast exactly because of decreased claims actually paid and the amounts paid.

This is solely because insurers want to increase PROFITS surely and simply.

A non-profit insurance plans (such as seen in other countries - Address these issues much better than the FOR PROFIT rapists that we have in the US

Posted by: kare1 | October 30, 2009 2:30 PM | Report abuse

There is another issue I saw mentioned last night. All insurance companies have reserves to cover extra expenses. For the public plan, what if the first year expenses are greater than the premiums collected? Since the plan is not supposed to draw on federal money, the plan's only choice is to charge higher premiums for the first five or ten years to build up its reserves. The reserve surcharge would be highest at the beginning and decline as the reserve is built up.

Posted by: sscritic | October 30, 2009 2:31 PM | Report abuse

Could we back the damn train into the station for a second here?

Why is it assumed that the PO will see the highest risks?

Let's remember that all versions of this bill, House and Senate, already do away with pre-existing condition denials. One way or another we will be in a guaranteed-issue world when the exchanges open, and likely with at least rating by age, if not some form of modified community rating. That means anyone who is a high risk now has an equal opportunity to choose any health plan in the exchange.

So explain why a high-risk purchaser is any more likely to end up in the PO as opposed to, say, an exchange plan from Anthem, UnitedHealth, Aetna, CIGNA, Humana or whomever?

What am I missing that makes the PO more attractive to the high risks, if they're eligible to buy the same plans at similar rates?

Posted by: Rick00 | October 30, 2009 2:35 PM | Report abuse

kare1- I think that you may have missed that there are several not for profit organziations offering health insurance. The premiums they charge are not significantly lower than the for profit insurance companies.

So how much do you think that an insurance company takes in in profit off of each policy holder? I don't think that eliminating the profit is going to lower costs anywhere close to what you think they will.

Posted by: spotatl | October 30, 2009 2:45 PM | Report abuse

spotatl, who needs those silly facts when you've got ignorance of the market, an easy scapegoat, and emotion?

Posted by: ab13 | October 30, 2009 2:51 PM | Report abuse

Karen,

Do you know how much insurer profits were, in total, last year? I can only find a citation that five top insurers had combined profits of $1.5 bil, but I'm sure there is an aggregate figure somewhere. Let's pretend that all health insurers combined had profits of $10 billion. I hate to bvreak it to you, but $10 bil will simply not cover healthcare for every uninsured person. Therefore, in order to achieve universal insurance, additional money has to come from somewhere. The profits of health insurers simply are not large enough for their absence to cover everyone.

Posted by: MOswingvoter | October 30, 2009 2:52 PM | Report abuse

NS12345- I'd be far more likely to support just going full bore single payer than I would this bill. The problem is that the democrats want to do major reform without changing the system. So in their eagerness to pass ANYTHING they are setting up all sorts of bad incentives and its just goign to be a disaster I think. At this point the republicans are not going to pass any bill- go ahead and pass the bill that liberals think can work and they will be judged by the results. As it is they are going to be judged by the results of an ugly compromise bill.

Posted by: spotatl | October 30, 2009 2:59 PM | Report abuse

Eliminating profits won't lower the cost of healthcare in this country significantly. I'm in favor of eliminating all profits from health insurance, simply because it adds an unnecessary interest - shareholders - into the doctor-patient relationship.

That said, I don't see either bill as one that significantly lowers health-care costs. I'd think you'd have too put all doctors (and dentists) and hospitals into a government-run network to begin lowering costs. These for-profit doctors, hospitals, providers, suppliers, set the prices that are driven up.

We're kidding ourselves if we think either bill, or any similarly structured bill, will cut overall healthcare costs.

Posted by: Meepo | October 30, 2009 3:00 PM | Report abuse

Our political leaders are incompetent scums to allow this? There is no other word for it. Most of the U.S. Congressmen and Senators should be brought up on charges and put in jail. The public should demand all money back paid in the form of salary and benefits. THis is a rotten and corrupt system of government, protected and propped up by the corporate media like the Washington Post.

Posted by: kevin1231 | October 30, 2009 3:04 PM | Report abuse

Very well thought out piece. I agree with you. Senator Wyden was concerned about this as well. He was concerned that the public option would attract the more sick and this will be a sicker pool. If this is the case, this will NOT be a good thing.

Posted by: maritza1 | October 30, 2009 3:16 PM | Report abuse

Some fundamental points.

1. Of course, if the risk-adjustment isn't adequate, then you have another instance of legislative corruption (influence buying).

2. If the public plan really fails, there will be a great desire for single-payer (which is the ultimate risk-adjustment).

3. The most interesting question is how Medicare, Medicaid, and the Public Options will all try to reform delivery (payment), such as towards bundled payments, CER based payment, and best of all to payment in relation to outcome (which can be done incrementally).

It's great to see everyone starting to work mentally through the pieces towards the logical conclusions.

findingingourdream.blogspot.com


Posted by: HalHorvath | October 30, 2009 3:41 PM | Report abuse

it has amazed me that the insurance companies have been fighting the public option. If you were sick or had a history of sickness would you want a private insurance company or would you want a public insurance company. It seems that even if the insurance companies are required that cover everybody that basic selection will mean they end up with a healthier population with premiums kept high because of the public option plus they get to save all the money they are currently spending on getting to that outcome.

President Obama and the Democrats are stupid not to realize this. The country is too stupid to understand the nuances and all that they will take away is that the government can't do it. This will kill any chance for a single payer system. I hope Lieberman filibusters - the Obama plan deserves to die. In 2010 when there are more uninsured and premiums for those who have got insurance are up 10-15% then perhaps the country would be ready to have serious and thoughtful discussion.

Posted by: rds7481 | October 30, 2009 3:49 PM | Report abuse

Why does everyone talk as if CBO numbers mean anything? Go back and look at their history---they've been consistently way off on just about everything. I guess if you're a journalist or a politician, it's just an easy reference point and who cares if it's meaningless.

Posted by: Buzzerman | October 30, 2009 4:07 PM | Report abuse

What the CBO report suggests is that health care -- the full-blooded kind that we all wish everyone had -- is *expensive*. It may well be priced out of our collective reach.

In that case, "health care for all" will bleed us dry. Yikes.

Posted by: TheotherJeff | October 30, 2009 4:35 PM | Report abuse

INCOMPETENT DEMOCRATS

"Won't the public option's integration of evidence-based medicine help keep a lid on costs?"

Sure -- and pigs will fly. Also:

1. "Medicare will not bankrupt the USA."

2. "Medicaid will not go bankrupt."

3. Bwarney Fwrank: "Fannie/Freddie and my F/F boyfriend are doing a good job."

REFUSING TO ADMIT INCOMPETENCE -- IS LYING, LYING, LYING

Posted by: russpoter | October 30, 2009 4:52 PM | Report abuse

ONLY DUE TO DEATH PANELS

"If I remember right, risk-adjusted reimbursement in Holland is stimulating insurers to seek *more* patients with expensive conditions."

Perhaps -- and because if the patients are too old, they are refused treatment and left to die.

That's the fatal flaw with Idiot Pelosi's plan -- Bwarney Fwrank cannot be FORCED onto single-payer SOCIALISM. He deserves to meet God, at an earlier date.

Posted by: russpoter | October 30, 2009 4:55 PM | Report abuse

WRONG

" .. If you were sick or had a history of sickness would you want a private insurance company or would you want a public insurance company."

Well, with EURO-SOCIALISM/COMMUNISM, if you're too old, and the GUMMINT BUREAUCRATS think "evidence" says you are too old, you get cut off.

Is that good?

Only to FOOLS.

Posted by: russpoter | October 30, 2009 4:58 PM | Report abuse

YES, BUT COMMIES DON'T CARE ABOUT FACTS

"The profits of health insurers simply are not large enough for their absence to cover everyone."

The world's MORONS (e.g., millionaire FAT MIKE MOORE) think STEALING all the wealth will solve their problems.

WRONG. It would last about two years. Then -- with no one to OPERATE organizations (MESSIAH sure don't know how) -- the world would revert to cave-living.

But that doesn't matter to the world's MORONS.

Posted by: russpoter | October 30, 2009 5:01 PM | Report abuse

Yeah, this plan is going to work well. Why would premiums go up for "public" accounts like mine will have to be or even private ones when people will refuse to buy the coverage until they are sick. Just because millions of people will do EXACTLY what my wife and I plan to do (refuse to buy, pay a small fine, buy insurance AFTER we get sick) is no reason to think rates will go up will it? Gosh, why would logic and people's expressed intent to game the system like me cause rates to go up? It's better to base your opinion on what you HOPE will happen, not what will actually happen, right?

Posted by: BillCarson2 | October 30, 2009 5:10 PM | Report abuse

kare1:"There is no way that a life giving service should be tied to a for profit industry."

Sure there is. There has to be. They have overhead, like any other business. Like any other business, overhead has to be paid out of profits.

And what of doctors, who have worked hard for years to get their degree and get out with staggering debts? Are you proposing to pay them minimum wage?

And what of companies that develop new drugs and medical equipment and then spend a fortune to get them through regulatory hurdles? Should this stuff be sold at cost?

Posted by: invention13 | October 30, 2009 5:35 PM | Report abuse

russpoter, you need to quit sniffing glue.

Posted by: par4 | October 30, 2009 5:38 PM | Report abuse

The insurance companies will be comparing the bills with what they were promised by the White House months ago in return for not launching attack ads. If the public option allows them to make more money by dumping people in the higher risk pool they will support public option. If the public option won't let them do that and undercuts their profits, such as by charging lower premiums and paying different amounts to providers, then the insurers and providers will attack it. Mr Obama will be sure to follow their directions and avoid the attack ads since his administration depends on passing some bill, even without the public option.

Posted by: joeshuren1 | October 30, 2009 5:57 PM | Report abuse

"In the end it will however be less expensive to treat all those higher risk people in a public plan that covers routine and preventative care, rather than everyone footing the bill for emergency room care when things go pear shaped."

This is still an assertion. It remains to be seen if this is really true.

Posted by: invention13 | October 30, 2009 6:01 PM | Report abuse

RIGHT AFTER YOU

russpoter, you need to quit sniffing glue.

Posted by: russpoter | October 30, 2009 6:50 PM | Report abuse

Between Medicaid, Govt Emp health care plan, Medicare and CHIPS we have more than enough public options. Adding one more is dumb and apparently too costly. On Medicare alone we have 45 million people, why not add the public option ones to a similar system and let them pay whatever it costs the average person?


P.S. As much as 20-30% of health spending goes for duplicate tests (the test you did last month is at the other doctor's office so let's do one more,) signing up members, defensive medicine, and administrative costs. A chip with your health info on your wallet can save a small fortune.

Posted by: Alban1 | October 30, 2009 7:42 PM | Report abuse

I don't agree with this analysis. If public option is made available to all, and the House bill gradually expands the groups of people who can join, then it will become the preferred choice for millions because no one wants health insurance tied to their jobs. With millions in the system, rates will come down and negotiated rates can result in a flood of providers looking to get public option patients. That competition for public option patients will bring costs down across the board. Bigger volume means bigger volume discounts and the cost per enrollee should go down.

Posted by: khyber900 | October 30, 2009 8:52 PM | Report abuse

spotatl - Excellent comment!

There is much in this reform plan that I like, but this public option is a nose-dive! There is a branch of economics called 'behavioral economics' and I wish these scholars would speak up about the twisted incentives the proposal creates.

Posted by: CarolGBOS | October 30, 2009 10:26 PM | Report abuse

What you missed is that the INSURANCE HOLDER (ie the PATIENT) will have to pay the difference -- in many cases thousand upon thousands of dollar.
And of couse - the number of doctors PARTICIPAING IN THE PLAN (in network) is shrinking so fast exactly because of decreased claims actually paid and the amounts paid.

This is solely because insurers want to increase PROFITS surely and simply.

A non-profit insurance plans (such as seen in other countries - Address these issues much better than the FOR PROFIT rapists that we have in the US

Posted by: kare1 | October 30, 2009 2:30 PM | Report abuse

kare1 is so clueless its scary. others have proven the red herring about insurers profits but did you know that 50% of plans are non-profit. Also that 50% of those plans are self insured where costs of claims are the true driver of costs.

You need to stop listening to the talking points and open your eyes to the truth. Sure make them all non-profit but then what will you do next year when those profits are eaten up by costs.

Posted by: visionbrkr | October 31, 2009 8:41 AM | Report abuse

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