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Five compromises beyond the public option

As I reported earlier, the public option discussions have begun focusing on a compromise that's, well, not a public option. The liberals see the potential necessity of that but aren't pleased about it. So the discussions have opened up to include items that are not specifically the public option, but could help achieve some of its objectives and better the bill in ways liberals and moderates could both support. The discussions right now are fluid, but smart observers are urging attention to five possible points of compromise.

1) Medicare buy-in: The older you get, the tougher it is to find affordable insurance. Private insurers avoid you like the plague or jack your rates sky-high. Some of that will change with health-care reform. Insurers won't be able to reject older Americans outright, for instance. But they'll still be able to charge them quite a bit more than younger Americans pay.

One way to ease the situation for older Americans would be to let them buy into Medicare. Medicare negotiates far better rates than private insurers, making it a potentially cheaper option. Moreover, folks over 55 will be in Medicare fairly soon anyway, so this allows for not only better insurance, but more continuity in insurance, which means more continuity in doctors, preventive treatment, etc. This idea was present in Max Baucus's original white paper, and even in Howard Dean's 2004 health-care reform plan. It's due for a comeback.

2) Medicaid expansion: The House health-care reform plan lets Medicaid cover folks up to 150 percent of the poverty rate. The Senate bill hits only 133 percent. Bringing the Senate bill into line with the House bill would ease the financial burden -- and assure more comprehensive insurance -- for the very poorest Americans, who are most in need of help anyway.

3) Subsidy expansion: The Senate bill costs about $850 billion, and most observers agree the subsidies are too low. An easy compromise would be to resuscitate the president's idea to cap itemized deductions at 35 percent of income (actually, he wanted 28 percent of income, but never mind), which would raise a bit more than $100 billion, money that could go to expand the subsidies.

4) Tighter regulation of insurers: This could take a number of forms. Allowing less discrimination around age and geography could be one. Another would be a tight cap on the so-called medical loss ratio, which is the amount of money that goes toward paying claims, as opposed to the amount of money that goes to profits, compensation, advertising,and everything else. The bill, for instance, could force insurers to use 87 percent of every premium dollar to actually pay for medical care, which would force the plans to act more like liberals want the public option to act.

5) Open exchanges: Chartering national non-profits to compete with the for-profit insurance market isn't a bad idea, but it's not going to have much of an effect if less than 10 percent of the population is allowed to purchase from them. That, however, is the current situation, as the exchanges are locked to most Americans. Opening them to larger businesses would be the first step toward creating a more competitive insurance market, and allowing something along the lines of Ron Wyden's Free Choice amendment, which gives individuals who don't like their employer's insurance the ability to take their money and choose something better, would be the second.

Update: Jon Cohn has a few more ideas.

By Ezra Klein  |  December 7, 2009; 10:32 AM ET
Categories:  Health Reform  
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Next: Joe Lieberman's revenge

Comments

Any of those ideas would be an improvement. And I'll believe we get any of them when I see it. I find it hard to believe that Senators obstructing the public option have any interest in providing people with needed medical care. Their constituency seems to be their own pocketbooks and the medical-insurance industry.

Posted by: janinsanfran | December 7, 2009 10:40 AM | Report abuse

Politically, we need #1 or #5. There has to be something that comes out of this legislative Götterdämmerung that we can point to and say "THIS is a change, this is how the system is different for everybody."

Posted by: adamiani | December 7, 2009 10:41 AM | Report abuse

So can you explain something re: #5? If lots of people choose this option, and take $$ from their employers to buy insurance elsewhere, does that put the employers in a worse position vis-a-vis the insurance companies they negotiate with, since their pool is now smaller? In other words, would it tend to drive the employer rates upward, thus encouraging more and more people to take their money and buy on the exchanges? Is that what makes people nervous about this?

Posted by: Clara3 | December 7, 2009 10:43 AM | Report abuse

Minimum loss ratio requirements are a bad idea for a myriad of reasons. Rising health care spending has nothing to do with insurers having insufficiently high loss ratios. Do you really wish to play the profit/admin canard? Seriously?

And can we please stop this "Medicare negotiates lower rates" nonsense? Medicare doesn't negotiate. Medicare tells you what you'll get paid.

Posted by: ab13 | December 7, 2009 10:51 AM | Report abuse

The fascination with "non-profits" is amusing. Blue Cross is a non profit. Anyone in FEHBP will tell you it is one of the most expensive providers in the system (and one of the best, well worth the money). Are there any studies showing non-profits actualy are more cost effective or id this just a preference for the Blues?

Posted by: WoodbridgeVa1 | December 7, 2009 10:56 AM | Report abuse

Ezra - #1 will never happen for the same reason that we'll never get a public option that pays Medicare rates: hospitals and doctors won't allow it. Hospitals and docs will not accept a 30% reimbursement reduction on people aged 55-64 (or whatever age group would be allowed to buy in to Medicare). Medicare pays less than private sector thus providers ill not allow more of their patient base to be tied to Medicare rates.

Please tell me why you think this could happen?

Posted by: MBP2 | December 7, 2009 10:59 AM | Report abuse

Also, i echo ab13 - minimum loss ratios will solve nothing and in fact could make insurance more expensive. And honestly, don't you think that the reason MEdicare and Medicaid have such high loss ratios (ie low admin expenses) is because they don't do much to combat fraud. Would you prefer health insurers to ignore fraud too? If they did, then they could just raise their rates to offset higher fraud. What would that solve....

Posted by: MBP2 | December 7, 2009 11:02 AM | Report abuse

#5 please.

The lack of #5 was heavily due to the presence of a public option (and employer/union opposition), is a mjaor criticism OF the public option. Now with it essentially gone, it'd be nice to revisit this element, as it has some of the best potential for positively reforming the system.

Posted by: wisewon | December 7, 2009 11:12 AM | Report abuse

Instead of the medical loss ratio, I'd push for special taxes on the profits an insurer makes from a particular market if its plans in that market do not meet affordability goals. This would be similar to the public option trigger, except instead of triggering a public option, it would trigger taxes. The tax revenue could then go to subsidies for people in the market. Of course, Congress would have to define the affordability goals for a plan with decent minimum benefits. Since the tax would motivate insurers to negotiate with providers to keep down costs, it would "bend the curve" as long as the affordability goals were aggressive.

Posted by: JamesLP | December 7, 2009 11:38 AM | Report abuse

Re #4: It is näive to think a profit oriented companies can be forced to accept increased risk without having some negative effect on someone else. You can't just regulate insurance companies into running socially responsible plans. Without something like the risk-equalization mechanism used in the Netherlands, higher risk patients will end up paying more for poorer plans.

This is another example of the "magic bullet" thinking that characterizes much of the reform discussion. We need more than a few tweaks to a failing model; we need a coherent national health policy that applies to everyone.

Posted by: Athena_news | December 7, 2009 11:42 AM | Report abuse

Medicare expansion is the only one that remotely interests me. Improved regulation means to me a a system in which the government can veto any contract it considers not in the public interest. I don't care about MLRs. We're worlds apart here, and I think we're going to see discredited reform in which the Ted Kennedy Democrats vote No.

Posted by: bmull | December 7, 2009 11:46 AM | Report abuse

What would it cost to buy into Medicare? People treat this as if it was the simplest question in the world but it isn't at all.

Currently premiums cover around 25% of Medicare Parts B & D and B & D are about 50% of total Medicare. Meaning premiums cover about 12% of Medicare with another 35% or so from the General Fund and 50% plus from payroll taxes on non-enrollees.

Do we just charge this extra unfunded by enrollee 85% plus to the new enrollees or does this blended Medicare simply continue as an effectively single-payer system with a modest co-pay (which in summary is what Medicare is today). I worry because I was talking to a high level policy guy advising Dean on his plan and he said the question really hadn't came up.

Payroll tax dollars on people 55-64 are currently being spent on people 65+, those dollars simply can't be spent twice. So where is the money coming from?

BTW HR 676 suffers from the same problem. Conceptually it is fine but it proposes four different funding sources: existing spending on federal health care, a new (unspecified as to rate) tax on the top 5%, a "modest" (addl?) tax on payroll, and a "small" tax on stock and bond transactions. How the hell does CBO score THAT?

Posted by: BruceWebb | December 7, 2009 11:49 AM | Report abuse

"Do you really wish to play the profit/admin canard? Seriously?"

Well I do. Seriously. MLR rates have been changing drastically over the last few decades from over 90 to now below 80 and as we see with Aetna a drive to deliver even lower numbers going forward. NONE of that change BY DEFINITION comes from increased payments to providers, all that comes on the other side of the equation. If it is not changes in "profit/admin" what the hell is it?

Can you maybe give one or two of those "myriad of reasons"? Because it is not as obvious to me as it is to you.

Posted by: BruceWebb | December 7, 2009 11:54 AM | Report abuse

@BruceWebb, have insurer profits been increasing, or have they been pretty steady between 3-6%? What percentage of total medical spending is made up of insurer profits, and if we eliminated all profits how long would it be until spending was right back where it was with the profits included?

"NONE of that change BY DEFINITION comes from increased payments to providers, all that comes on the other side of the equation. "

That is not true at all. Increased utilization, which is a bigger driver of increasing medical costs than higher payments, leads to increases in admin expenses. There are multiple reasons for that: 1) some admin expenses are per claim and scale up accordingly, 2) increased need for utilization review to determine whether these additional services are appropriate, 3) additional expenses for underwriting and medical management as new treatments are introduced or existing treatments are used for additional diagnoses, 4) systems upgrades needed to properly administer ever-increasing volume and types of claims. And so on. Far too many people seem to think of most admin expenses as "waste", and completely ignore the beneficial aspect of much of those expenses. Medicare could stand to spend quite a bit more on admin expenses to get rid of fraud, for example.

"Can you maybe give one or two of those "myriad of reasons"? Because it is not as obvious to me as it is to you."

The first one is quite simple: what impact does imposing a minimum loss ratio have on medical costs trends? The answer is next to nothing. It is a hackneyed way of trying to control premiums without attacking the true driver, increasing costs. Second, these restrictions limit the ability of insurers to make necessary investments in technology. Third, in forcing insurers to take all downside risk and taking away any upside you're just going to drive premiums ever higher.

Please explain how you think minimum loss ratios have any impact on slowing the growth of medical costs.

Posted by: ab13 | December 7, 2009 12:21 PM | Report abuse

Ezra, why don't you understand that Medicaid sucks?

Medicaid is a bad public program in general that we as a society should not want to expand. Doctors get horrible reimbursment and often leave the program because it is not worth it.

Posted by: lancediverson | December 7, 2009 12:22 PM | Report abuse

Dumb question -- why are only 10 percent of us eligible for the exchanges when small businesses make up so much more of the employer market?

Posted by: NS12345 | December 7, 2009 12:46 PM | Report abuse

I've got a better idea, Ezra: let's get the government the heck out of the doctor's office. Sheesh, you'd think that would be simple common sense for most people!

Posted by: yourstruly1991 | December 7, 2009 1:24 PM | Report abuse

was listening to C-span and heard Senator Coburn bring up something I hadn't considered as AARP's reason for being FOR reform. 94% of people on government run Medicare opt for a supplement. Far and away the largest provider of supplements is United Healthcare (THROUGH AARP). If seniors lose the perks and cost advantages of Medicare Advantage (Part C), then they'll likely move back to Part A,B and the supplement, IE more business for AARP.

Nice little business model they got there.

Posted by: visionbrkr | December 7, 2009 2:07 PM | Report abuse

Ezra,

You really should get an idiot filter that would block people like yourstruly1991.

Posted by: kman4 | December 7, 2009 2:26 PM | Report abuse

MBP2: "Ezra - #1 will never happen for the same reason that we'll never get a public option that pays Medicare rates: hospitals and doctors won't allow it. Hospitals and docs will not accept a 30% reimbursement reduction on people aged 55-64 (or whatever age group would be allowed to buy in to Medicare). Medicare pays less than private sector thus providers ill not allow more of their patient base to be tied to Medicare rates.

Please tell me why you think this could happen?"

U.S. providers (physicians and hospitals) spend a ridiculous amount of money collecting from insurance companies. If providers could stop spending 30% or so on overhead to collect from insurance companies, they'd be a lot more amenable to cutting their rates.

In my office right now, we have 4 docs and 4 people whose job is the collection and verification of each patient's insurance information at every visit. We have a business office where the coders, billers, insurance company contract negotiators, and collections people for the entire group work. If I worked in France or Canada, I wouldn't have to employ anyone for those services. Part of the reason Medicare's lower reimbursement rates are considered acceptable in most parts of the country is the ease and speed of being reimbursed.

I've had two encounters with medical care myself in the last 5 or 6 years. I had a minor gyne procedure and then a gallbladder surgery. In both cases it was over 6 months of back and forth with the insurance companies before everyone got paid. I don't know what business you are in, but I'm willing to bet that your company isn't forced to bill, re-bill, negotiate, and wait as long as a year for payment after a product or service has been provided.

Posted by: J_Bean | December 7, 2009 2:29 PM | Report abuse

Of all of the options here, I think the Medicare buy-in is the best. It uses a system that's already in place and could serve one of the most vulnerable populations. Not only do older people face higher premiums, they're also targeted for layoffs and other kinds of elimination because they cost so much to insure. It becomes a vicious cycle. Claiming that providers would rebel is specious because a lot of insurers negotiate LOWER rates of reimbursement to providers than Medicare. That's right, lower. Insurance companies are sapping the life out of health care.

Regarding loss ratios for plans like Medicare & Medicaid: Older people get sick more often. One of the most significant markers for poor health is being poor. Poverty and illness go hand in hand. Are they poor because they're sick or sick because they're poor? Yes.

It's coming down to decisions about our health care accounting definitions. Do people get sick? Yes. Is that illness going to result in some kind of cost somewhere? Yes, either through medical services or related losses, like ability to work or care for oneself. Are we going to stopped dithering about who'll get the most money and look for real solutions? Apparently not yet.

Posted by: rjsgso | December 7, 2009 2:37 PM | Report abuse

JBean - I understand your perspective, but don't think it's quite that black and white. Providers prefer the ease of dealing with Medicare but they also prefer the much higher payments they receive from insurance companies. Even Ezra put up a post a couple months back that showed docs are relatively happy with private sector insurance. The fact is that docs and especially hospitals struggle with inadequate Medicare reimbursement.

Posted by: MBP2 | December 7, 2009 5:47 PM | Report abuse

Ezra,
Could you please post something explaining WHY only a small percentage of people could buy on the exchange, or would be eligible for the public option?

I'm wondering, for instance, whether the small business I help run about 45 FTE, could point people to the public insurance option if they didn't want our offering?

Posted by: daseaton | December 7, 2009 6:43 PM | Report abuse

My husband got laid off two years ago and formed his own little company. I work for him and we have group health insurance, which costs our business 25,000 per year to cover us and two of our kids. We're in our mid-50s and I would take the Medicare buy-in in a second, but what about the kids? One is just post-college and working a job that doesn't offer insurance, and one is in college and a type 1 diabetic who will NEVER get a policy on his own.

Couldn't the buy-in be broadened to include dependents, or people with chronic illnesses?

Posted by: mmpd | December 8, 2009 1:56 PM | Report abuse

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