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The best public option discussion you'll read today

We recognize that taking a strong public option off the table may be necessary to enact reform legislation. But this will mean, at a minimum, higher government subsidy costs by not permitting a payer with substantial market power to bring cost containment pressure on the system. The outcome is likely to be that costs will continue to spiral upward. In effect, the nation would be relying on the range of promising pilot approaches to cost containment that would take some time to be successful. If they are not, we may be left with increasingly regulatory approaches, such as rate setting or utilization controls that apply to all payers. This would mean much more government involvement than giving people a choice of a low-cost public option that would be required to compete with private insurers.

That's Bob Berenson, John Holahan, and Stephen Zuckerman in an Urban Institute report that's as clear-headed on the public option as anything I've read. In particular, they emphasize something that, in retrospect, I've done a very poor job articulating. The potential of the public option is not as a competitor to private insurers. It's as a competitor to providers.

That's why being able to partner with Medicare's payment rates and networks is so important, and why having a large base of customers is so critical. The leverage to get providers to give you good prices is that they need access to your customers. That's why Gillette gives Wal-Mart good rates on razor blades. It's not because it likes selling razor blades for cheap. But the public options under consideration can't partner with Medicare or offer themselves to most people or employers looking for affordable insurance. As the report says, "As written, none of the current legislative proposals include any of these elements of a strong public option."

The report goes on to consider various compromises, and comes down on the side of a trigger that would pull a strong public option into existence. "The goal would be to allow the private insurance system to prove that it can control costs with a new set of insurance rules and state exchanges. The triggering events could be the level of premiums exceeding a certain percentage of family incomes or the growth in health care spending exceeding certain benchmarks. Since the public option would only be triggered because of excessive costs, however measured, we assume that a relatively strong version of a public option would come into play."

If Congress were serious about cost control, this would be a no-brainer. Speaking of Congress, I have to run to the Hill for a few hours, but I really encourage people to read this report. It's as good a discussion of the theory of the public option and the possible compromises as I've seen.

By Ezra Klein  |  December 3, 2009; 1:44 PM ET
Categories:  Health Reform  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Chat transcript
Next: The talents of Thomas Friedman

Comments

"The leverage to get providers to give you good prices is that they need access to your customers. That's why Gillette gives Wal-Mart good rates on razor blades."

So, Wal-Mart exerts monopsony power earned through efficient behavior, bad; the government exerts monopsony power earned through fiat, good.

Posted by: ostap666 | December 3, 2009 3:13 PM | Report abuse

The problem is the strong public option is dead. It didn't even make it in the more liberal House. Ben Nelson and Joe Lieberman aren't going to be tricked into voting for a strong public option trigger either. Unless the GOP overplays its obstructionism and pisses off Reid enough to make him to reconciliation, probably the best we can expect is something like a negotiated rate, opt in public option trigger.

Posted by: redwards95 | December 3, 2009 3:21 PM | Report abuse

ostap666 - Where was the argument here that Walmart's pricing was bad, or that government fiat would ever force enrollment in the public option?

A "negotiated rate, opt in public option trigger" isn't worth having. Might as well get the 4 leaning Dems and the Maine senators together, tell them that you'll kill the PO entirely if they vote for cloture on amendments for stronger exchanges so that they can brag about that, and then run the public option through reconciliation in 2011 as a measure to reduce costs for Medicare and the federal subsidy program. If the public option really is the sticking point here, then it's worth losing so that the basic architecture of the HCR packages is stronger and more amenable to later improvement.

Posted by: etdean1 | December 3, 2009 3:42 PM | Report abuse

Thanks...that answers the question I posted in the comments below your chat transcript.

So, can we get a trigger that will allow for Medicare rates...even if only in certain states that are not affordable? Allowing an opt-in along with that would be great.

But I'm not convinced the trigger folks (Snowe et al.) will go for this. Schumer should push it as the price they need to pay to get the trigger. Heck, let a nonprofit administer the plan--just tie it to some percentage over Medicare rates, not a negotiated plan.

Posted by: glen5 | December 3, 2009 3:46 PM | Report abuse

Strong public option is dead. And even discussing it as a goal lessens that chance that any public option will be included in the final legislation. Attempting to tie a trigger public option to Medicare rates is an absolutely certain way to kill the idea entirely.

Posted by: MBP2 | December 3, 2009 3:49 PM | Report abuse

the ironic thing is that we all want cost controls. The left thinks the only way to get this is through a strong PO but the right fears that will lead to takeover. The (sensible part) of the right thinks the best way to do this is through market forces (selling across state lines to increase competition) with government regulation but with no government stake in the game.

The end result is neither side will get what they want and cost will continue to go up.

Politics at its finest. No wonder all incumbents are in trouble.

Posted by: visionbrkr | December 3, 2009 3:51 PM | Report abuse

This is so sad. It didn't have to be this complex. We should have simpler health care reform. Here's my idea:

1. Open Medicare to everyone. Customers over 65 keep the benefits they have. New customers under 65 pay premiums at cost. The influx of younger, less risky customers paying into Medicare would offset the high-cost elderly users and make Medicare more solvent.

2. Give a refundable tax credit up to 100% of the cost of the minimal Medicare plan to people under the poverty level.

Recipients of this tax credit would be free to spend it on any qualifying medical insurance and/or a medical spending account.

People who earn up to 200% of poverty get a 75% credit. Those up to 300% of the poverty level get a 50% credit. Those up to 400% of the poverty level get a 25% credit. Those over 400% of the poverty level get no credit, but ...

3. Make everyone's health insurance premiums tax-deductible, up to the cost of the Medicare premium (i.e. anyone would still be free to get a Cadillac insurance plan, but only part of the premium would be tax-deductible).

And done! No mandates, no penalties, no regulation. Lower taxes, rescue Medicare, let the market work.

Oh, and one more:

4. Stop the $60 billion per year in Medicare fraud.

Posted by: billkarwin | December 3, 2009 4:11 PM | Report abuse

Rule #1: Gov't price-fixing is not cost-containment
Rule #2: If you think a public option is cost-containment, see rule #1

Posted by: ab13 | December 3, 2009 4:33 PM | Report abuse

What is the problem with government price fixing? Are you unhappy with your electric service? Has the water not been what you'd hoped for? Better to let the utilities "compete" to see how much they can maximize their profits? I mean Jeesh.

Posted by: bmull | December 4, 2009 5:36 AM | Report abuse

Well, I guess if you think the provision of health care is in any way similar to the provision of electricity and water you might have a point. But it's not so you don't.

Posted by: ab13 | December 4, 2009 10:36 AM | Report abuse

The report says that well-managed private plans can compete with the public option by channeling patients to the best providers. What HMOs do now is channel people to the cheapest providers. I'm not sure competition will change this. How is an individual supposed to know she's been channeled to a cheap rather than a good provider? It takes a long time to realize that the reason you're not getting better is your doctor rather than your medical condition.

Posted by: Robin501 | December 4, 2009 1:36 PM | Report abuse

How about a PO, but with the provision that any provider discounts are available to any private insurer in the market?
This ensures no cost shifting by providers; therefore they will only grant appropriate discounts to the PO.
With all the waste and fraud in the Medicare program, I'm betting the PIs could lower costs through better claim examination and utilization management.
Also, it forces competition between the PO and Private insurers to be on service.

Posted by: Underwriterguy | December 4, 2009 4:00 PM | Report abuse

"The potential of the public option is not as a competitor to private insurers. It's as a competitor to providers."

I agree 100%, but this suggests that the government should open up public hospitals, urgent care centers, and doctor's offices, not offer a health plan with low deductibles that encourages an increase in demand for services, and thus price for services. An increase in demand without an increase in price or supply leads to a shortage.

You can't significantly lower the price of insurance without lowering the cost or quantity of care.

Posted by: staticvars | December 7, 2009 2:40 PM | Report abuse

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