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CBO: Public option could save $68 billion by 2020

When people think of deficit reduction, they tend to think about spending cuts and tax increases. They don't think as much about saving money by putting more effective policies into place. But as the Congressional Budget Office's analysis of a new public option proposal from Pete Stark suggests, maybe they should.

Stark wants to add a public option to the exchanges that would start by paying doctors the rates Medicare pays plus 5 percent, and then grow with the cost of physicians' services. According to the CBO, this plan's premiums "would be 5 percent to 7 percent lower, on average, than the premiums of private plans offered in the exchanges." But that's not all!

"The proposal would reduce federal budget deficits through 2019 by about $53 billion," CBO says. And because the public plan is saving more money as time goes on, if you extend that out to 2020, the savings to the government are $68 billion. That implies a savings of $200 billion or so in the second decade. That's a lot of money, and it's in addition to the savings for consumers.

In theory, this town is going to have a serious conversation about deficits pretty soon. And a lot of it will focus on how we can reduce services or raise taxes. That's going to be ugly. So the few opportunities we have to save large amounts of money while also making life better for people shouldn't be missed.

By Ezra Klein  |  July 23, 2010; 9:57 AM ET
Categories:  Health Reform  
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Comments

Given the cost over-runs of Medicare and Medicaid, and also--just recently--Medicare Part D, it's going to be a tough sell. Here's a new entitlement that, unlike pretty much every entitlement before it, will actually save money.

That adding a public option would actually cut deficits is, to say the least, non-intuitive. The mechanics of how that works will have to be laid out in layman comprehensible detail. Just saying, "The CBO said so!" isn't going to come close to making the case.

Posted by: Kevin_Willis | July 23, 2010 10:09 AM | Report abuse

Medicare Part D, while financed entirely by adding to the deficit, has actually came in below cost projections (and would come in even lower if HHS could bargain for lower prices).

Posted by: jldarden | July 23, 2010 10:14 AM | Report abuse

You are adorable!

Posted by: eRobin1 | July 23, 2010 10:20 AM | Report abuse

Oh and this is where they get that $53 billion from.

"That estimate includes a $37 billion reduction in exchange subsidies and a $27 billion increase in tax revenues that would result because a greater share of employees’ compensation would take the form of taxable wages and salaries (rather than nontaxable health benefits). "


Ezra,

I have no clue where you get $68 Billion from but above is where they get the $53 billion figure.

So basically they're going to short-shrift your subsidies in this public plan. NICE!!!

So you save a HYPOTHETICAL 5-7% in the cost of the coverage but voila, the subsidies are decrease by MORE than that amount.

more funny math.

Posted by: visionbrkr | July 23, 2010 10:49 AM | Report abuse

visionbrkr, you partisan hack, if you actually followed this debate, you would understand that those subsidy savings don't come from short shifting taxpayers, but from the fact that the government is no longer subsidizing expensive private market plans.

BTW, you conservative hacks were opposing the subsidies a few months back. Nice to see that you now consider them sacred.

Posted by: theamazingjex | July 23, 2010 11:10 AM | Report abuse

You know what also saves about $50 billion.... tort reform. Why aren't we talking about that?

Posted by: nathanpunwani | July 23, 2010 11:17 AM | Report abuse

theamazingjex,

actually i will catch myself because in the blog it estimates the savings that gets it to $68 billion.

(see not quite so partisan).

actually I followed it VERY closely. I was on here daily about it thanks.

I took the words "That estimate includes a $37 billion reduction in exchange subsidies" DIRECTLY from the CBO blog.

And actually government does not subsidize private plans. Now some medicare plans they do but that's not what we're talking about here are we.

I've always been for subsides although honestly I would have been more about cost control but in lieu of having the stones to do actual cost control subsidies will have to do.

I love how some people paint everyone with the same brush. You're either conservative or liberal. There's no inbetween

Posted by: visionbrkr | July 23, 2010 11:28 AM | Report abuse

"a public option to the exchanges that would start by paying doctors the rates Medicare pays plus 5 percent"

Price fixing is not cost control. More providers being paid near Medicare rates means more cost shifting onto private plans.

Posted by: ab_13 | July 23, 2010 11:38 AM | Report abuse

weren't there studies too that showed that the public option would cost people MORE because they in theory wouldn't deny anything that the evil insurance companies do?

Will this version of the public plan have step therapy for drugs? Utilization review? or is this just going to be a step right up and get your check for whatever you feel like having?

Posted by: visionbrkr | July 23, 2010 11:54 AM | Report abuse

Except Ezra, while $68 billion over 10 years and possibly $200 billion over years 11-20 isn't bupkiss, it's not that much, either. That amount probably means that if those savings were used for higher subsidies, the average American family would spend about 1.5 percent less of their income every year on health care. That's not a trivial amount of money by any stretch, but based on the current subsidy levels, we're still talking about requiring a family of four having a child with Crohn's disease and earning $65,000/yr. spend 18-20 percent of their income every single year on health care just so their child can live. That's not nearly enough relief for the Americans who need it most.

So let's not act like the public option solves a major problem. It makes life marginally better for all Americans.

Oh, and you still have to deal with the anti-selection problems both the Exchange and the public option are going to have. ...

Posted by: moronjim | July 23, 2010 12:27 PM | Report abuse

Cost overruns in Part D Kevin? Part D costs are about 40% less than CBO estimated they would be.

Posted by: steveh46 | July 23, 2010 12:29 PM | Report abuse


whoa. Medicare + 5% is more than UHC or Humana typically pays doctors. Expect AHIP to oppose this if it gets close to becoming real. Speaking of which, which committees would this have to go through to become real? Is this even something worth getting excited about or does it have no chance?

visionbrkr's not a partisan hack. I disagree with him 80% of the time but he knows what he's talking about. I'd also want it to have utilization review, but I want everything to have utilization review as I view it as indissolubly bound to quality of care.

Posted by: ThomasEN | July 23, 2010 12:35 PM | Report abuse

"You know what also saves about $50 billion.... tort reform. Why aren't we talking about that?"

Do you know what else would save lots of money in malpratice insurance? Stopping malpractice. Instead, the conversation revolves solely around nerfing the public of their one and only way to seek damages against those that have wronged them.

Doctors need to kick the 5% that are causing the majority of problems to the curb. Instead, they're protecting the bad apples and artificially limiting the supply of new doctors into the workforce.

Posted by: lol-lol | July 23, 2010 12:36 PM | Report abuse

visionbrkr, here's how I read the numbers: as people move from the exchanges, where they were on subsidized private plans, to the public option, the government will be providing fewer subsidies because the public option will, presumably, be more cost-efficient than the subsidized private plans. As the cost of the public option will be less, fewer people will need to be subsidized, or will require smaller subsidies, in order to participate in the public plan.

Posted by: MosBen | July 23, 2010 12:44 PM | Report abuse

1. Reduced subsidies and tax increases. Whoopie.

2. The public option doesn't have a snowball's chance in hell in this or the next Congress.

Posted by: ostap666 | July 23, 2010 12:59 PM | Report abuse

ThomasEN,

I'd love to see some proof of that fact in your first statement? In fact maybe that's a good question for Research desk.

Most larger insurers with any decent market cloud get about a 50% discount. Medicare tells people what they get. There's no negotiation.

I was at a class one day that went through specific claims and showed that Medicare paid a doctor in a given area $27.05 for removal of cerumen while the standard insurer was charged and paid $100.

Cerumen? You guessed it, earwax.

Obviously that's only one procedure but everything I've ever seen (and I do see them) shows that private insurers pay provders well more than medicare.

Posted by: visionbrkr | July 23, 2010 1:00 PM | Report abuse

Since our debts are denominated in US dollars and given our inept politics, we will probably just inflate our way to balanced budgets in 10-15 years. The other policies, spending cuts and tax hikes, will slow growth (and, besides, are not really politically viable), and real economic growth is unlikely to get us all the way out of the hole given current spending commitments and tax rates. But, if the US economy overheats at the tail end of this recess, in a decade or so, and the dollar weakens, and prices inflate, then the national debt will seem small and some president in the future can take credit for doing the impossible and balancing the budget.

The US is in a globally privileged position -we are a global hegemon, many institutions hold US dollars as a strategic reserve, and the demand for our debt seems insatiable in times of crisis. We have experienced and tipped some global economic mayhem, and yet our currency strengthens or fluctuates only little. Some of this makes the normal running of our economy harder. Falter as we might, we do not see a spike in foreign demand of US exports. But, some of this makes it easier. Despite concerns with the National Debt, the US can sell bonds for cheap.

Posted by: MGriebe | July 23, 2010 1:14 PM | Report abuse

MosBen,

You could absolutely read it that way but its really not more cost efficient. In fact at the start and for probably years it will be less cost efficient because they need to actually START a pseudo insurance company. That's not cheap. That 5-7% is from reduced fees paid to providers. But the point is unless the public plan is going to ACT like an insurance company and attempt to restrain costs then they can't be less expensive unless they further reduce provider reimbursements and if they do that then they really should do a study to find how many providers leave when they reduce payments another "X" percentage.

Its not as if there's some magic formula out there that a public plan has that no one else does.

Posted by: visionbrkr | July 23, 2010 1:14 PM | Report abuse

"Cost overruns in Part D Kevin? Part D costs are about 40% less than CBO estimated they would be."

Give it time. :)

Posted by: Kevin_Willis | July 23, 2010 1:18 PM | Report abuse


that data is (obviously) very carefully guarded for negotiation purposes. To a fault, I think, because it limits our ability to talk about reform.

Health Affairs did a good story awhile ago poking more holes in the myth that Medicare dramatically underpays. Many hospitals that report an underpayment by Medicare also were shown to have a payer mix that favored private plans and, therefore, poorer cost controls. Hospitals with Medicare/Medicaid more heavily represented in the payer mix had better cost controls and smaller Medicare underpayments (if any).

Posted by: ThomasEN | July 23, 2010 1:20 PM | Report abuse

@ab_13,

"More providers being paid near Medicare rates means more cost shifting onto private plans."

Please explain to the rest of us non-actuaries. Thanks.

Posted by: moronjim | July 23, 2010 1:25 PM | Report abuse

Thomas,

Its not quite as guarded as you'd think. Any employer over 100 employees for the most part has access to reems of data if they choose to have it. Especially self insured plans. Its out there, i've seen it.

And where it is guarded its guarded from each other not from the public at large. When you've got a company that pays $150 million a year and if word got out that Aetna negotiated a 55% discount on average vs Cigna at a 50% discount that large employer would absolutely move to Aetna if they weren't there already or they'd be leaving $7.5 million in the doctors pocket. (notice i didn't say the insurers pocket because it doesn't go there).

Posted by: visionbrkr | July 23, 2010 1:49 PM | Report abuse

that being said I'm 100% for transparency. In fact insurance companies would deal with transparency on their end. its the doctors that don't want you seeing what they get paid.

Aetna for example did a study in Cincinnati I believe showing what providers there were paid and there was outrage from the doctor community.

Posted by: visionbrkr | July 23, 2010 1:56 PM | Report abuse

Why does everyone have to make something so simple so complicated?

Has any of you ever dealt with a non for profit?
Do you know what it means?
The fees charged go to services and overhead, no profit!

What do you think would cost less?
Something provided by a for profit or a non for profit?
Do I sound sarcastic?
I am, people are stupid and partisan!

None of you have an argument greater that this.
A Public Option, Health Care Plan Provided by the Federal Government will be a NON FOR PROFIT therefore it will be less expensive for the population and the government.

I HOPE IT PASSES AND IS A FAST STEP TO; MEDICARE FOR ALL!!! THAT, IS THE ANSWER!

Posted by: ShaunPW | July 23, 2010 2:18 PM | Report abuse

In fact, I Hope the dem's get more seats and Obama is re-elected and that he sees his past errors and corrects them.

Nothing needs to be created no pseudo insurance company, in fact if planned correctly the day after the 2012 election everyone in this country could start paying their premiums to Medicare and be covered.
MEDICARE FOR ALL, do you know why high risk plans do not work? EVERYONE IS A HIGH RISK!
Do you know why Medicare struggles?
Their old and sick, that = High Risk.
How do you fix that?
Put some healthy 17 - 35 year olds in the plan.

It's simple stupid!

Posted by: ShaunPW | July 23, 2010 2:30 PM | Report abuse


"Any employer over 100 employees for the most part has access to reems of data if they choose to have it"

true, but that data is self-reported and, in my opinion, suspect. I think if you were to go to a conference of patient account managers and pass out blinded surveys on payer reimbursement, you'd get very different figures.

Posted by: ThomasEN | July 23, 2010 2:35 PM | Report abuse

true, but that data is self-reported and, in my opinion, suspect.


Suspect on whose part? Insurers? Doctors? Employers? Individuals? The employer in self insured cases is the claims payer. They actually can view the claims paid.

As far as Patient account managers I speak to many of them on a daily basis and honestly many don't have a clue as to how the system works. There's not enough education (IMO) for them. Also we'd all be benefited if every insurer were forced to streamline to one system. The PAM's job is too tough right now. thousands of insurers each with several plans. No wonder they can't make heads or tails of it. Most times they throw their hands up and say "call your insurance carrier to see if we participate" or worse yet they don't even bother and let the chips fall where they may which tends to increase the number of medical bankruptcies and is why you see so many medical bankruptcies of people with insurance (also included in that IMO is the increase in the OOP maximums over the years because of lack of cost control).

Posted by: visionbrkr | July 23, 2010 3:57 PM | Report abuse

ShaunPW,

Get a grip. 50% of insurers ARE non-profits and over 50% of plans are self-insured meaning the employer is the claims payer. Who are they profiting on, themselves?

Posted by: visionbrkr | July 23, 2010 3:59 PM | Report abuse

@moronjim: "Please explain to the rest of us non-actuaries. Thanks."

For many providers Medicare/caid reimbursement is inadequate. Some of them try to make it up in volume. Others just shift the costs onto private insurers. The government doesn't negotiate, they tell providers what they'll get paid. So when fee schedules and reimbursement rates are being renegotiated with private insurers they pass along some of the additional cost they are not able to get from the government plans.

The more and more people you have insured under Medicare/caid or the public option, the greater amount providers will try to recoup from private insurers.

Posted by: ab_13 | July 23, 2010 6:02 PM | Report abuse

For a private insurer, overhead and profit are publicly available. Medicare has no profit and lower overhead. But because it has lower overhead and does not do utilization review, there is more waste and fraud. Don't believe me? President Obama has vowed to save hundreds of billions by cutting waste and fraud from Medicare. Good luck! Can't be done without increasing overhead!
There is no magic savings in a public option. Savings come from cutting or controlling fees, or restricting services. But, politicians don't dare discuss restricting services. I think they are hoping a committee will do it for them.
Interesting times. Alas.

Posted by: wbraden | July 23, 2010 8:06 PM | Report abuse

Um, is this the same CBO that told us we would see savings with the Healthcare bill and then after it passes, tells us that actually, it is going to cost more? How precious. The CBO being used to cast a positive light on a negative policy. Talk about propaganda....

Posted by: rld2 | July 23, 2010 9:02 PM | Report abuse

wbraden at 8:06 p.m. - Medicare does NOT have lower overhead. And, they don't need to do utilization review. They have explicit lists of what is and is not covered; find them in the federal register. They have quite a few limits on treatment in the first place and there is no deviation from the list. You have no right to appeal, like you would in private insurance. And that is what a public option would be like. You get what the govt. wants to give.

Posted by: rld2 | July 23, 2010 9:05 PM | Report abuse

ab13,

two other options.

1-the provider stops accepting medicare/medicaid (happening more and more often lately and sure to increase with 15 million more patients paying at under the providers cost basis.

2-doctors go out of business. Many OBGYN's went through a stage where they wouldn't deliver babies because their skyrocketing med/mal premiums combined with their reimbursement made it not profitable to do so. Primary care docs are in short supply and if underpayment continues they'll retire if old enough. I remember during the HCR debate a doctor in the Midwest said that half his patients were medicare. If they enacted a public plan that paid medicare rates it'd probably push him over the edge to it not making financial sense for him to practice medicine any longer.

Posted by: visionbrkr | July 23, 2010 9:24 PM | Report abuse

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