Corporate Research Group’s Weblog

Here are four signs that President Obama’s proposal for a government-run health plan for the uninsured and small business is in trouble. 

1. Baucus says the public plan is “a bit on the side of the table.”  Senate Finance Committee Chairman Max Baucus (D-MT) made the comment in a meeting on Friday with reporters.  Writes Congressional Quarterly: “Instead, he said, he would focus on preserving the insurance system for self-insured companies while expanding private insurance and public programs such as Medicaid….He later backed off that statement slightly, saying he might return to the government-run idea later on.”

2. DeParle talks compromise.  In a press conference earlier this month (see our prior post), White House healthcare czar Nancy-Ann DeParle reiterated that Obama’s support for the public plan is aimed at keeping costs low, keeping insurers honest, and offering consumers choice.  “But as he said, if there are other ways of doing that, he’d be open to talking about them,” she noted. 

3. Hacker comes out swinging to defend the public plan.  The public plan has been the signature concept of Jacob Hacker, co-director of the Center for Health, Economic and Family Security at U.C. Berkeley.  Hacker slammed The Lewin Group earlier this month for projecting that 118 million people might switch from private plans to the proposed public plan (In fairness, Lewin offered a range of projections starting as low as 10 million, based on different public plan scenarios).  Then he shot down a compromise proposal by Len Nichols and John Bertko, in which the public plan would have limited bargaining power.   I’m not saying Hacker is wrong (in fact, I like his plan and have endorsed the public plan concept in general).  I just give Lewin’s recent projections a little more credit than Hacker does—granted, nowhere near the 118 million level, but not nothing either.   All of which makes me wonder if Hacker is feeling a tad jittery about the fate of his pet proposal.   

4. Idle conversation.  In an informal conversation earlier this month with a Washington policy wonk who is also a vocal supporter of the public plan, I said, “It looks like the public plan is going to happen.”  She arched her eyebrows and said, “Really?”

Writing on the conservative blog AmericaSpeakOn.org, former Secretary of Health and Human Services Michael Leavitt slammed President Obama’s proposal for a government-run health plan.  Writes Leavitt:

“President Obama supports the idea of a ‘public option’ for health insurance.  The language of competition and choice cleverly conceals the objective.  But the President’s ‘public option’ is a gateway leading to 118 million Americans losing the option of private choice.  It is a strategy for government-run health care.  It is a Trojan horse….

“There is another answer.  The government needs to promote value—to empower consumers to pursue the highest-quality care at the lowest-possible prices.  Strong government action is needed to organize an efficient market where consumers can choose insurance plans and medical practitioners who offer the best value.  What is not needed is to replace the private market with a government-run system in which only the truly rich have a choice.”

Gerald Seib of The Wall Street Journal talks in this video about efforts among some Democrats and Republicans to reach a compromise on healthcare reform.

It’s interesting to see how the left has co-opted the language of conservatives by arguing that a public health plan would be good for competition.  Writes Alexander Hertel of the Economic Policy Institute:

“Far too much of our health care system is characterized by limited or non-existent competition, both in the market for insurers as well as the market for providers. This lack of competition is a major source of the United States’ uniquely high and rising health costs. A public plan option would force private insurers to compete on efficiency and quality, rather than on their ability to enroll the lowest-cost workers and firms. Furthermore, a public plan would introduce competition to currently monopolistic or oligopolistic insurer and provider markets—three or fewer insurers account for at least 65% of market share in 36 states. The situation is even worse in markets for small businesses, where a single insurer in each state generally controls half of the market for health insurance coverage. Further,  consolidation of health care provider (especially hospital) markets has also limited insurers’ ability to competitively bargain for lower rates. The presence of a heavily concentrated provider market can increase prices for the same treatment by 40%  or more. The public plan would guarantee competition even in these consolidated markets, leveraging its size and efficiencies to bargain for the most efficient rates with health care providers.”

The health insurance industry, meanwhile, seems to be arguing that the reason we can’t have a public plan is that it would be too successful.

Got irony?  Send along your favorites.

Here’s some interesting views on healthcare reform, which I think provide a helpful perspective on the current U.S. debate.

The first is from a November 2007 article by Maggie Mahar (hat tip to Matthew Holt at TheHealthcareBlog), which talks about how the Swiss have achieved a workable universal healthcare system involving private insurance. 

Writes Mahar:  “Swiss patients have relatively little say over either the cost or the quality of the care they receive. Prices are regulated by the government, which also tries to make sure that consumers are getting value for their health care dollars by selecting which drugs, devices and tests insurance will cover. In fact, it is the very visible hand of a smart, largely efficient government that accounts for Switzerland’s relative success.”

She goes onto cite research from Ewe Reinhardt, suggesting that “Because insurers are so strictly regulated, consumers have fewer options. They can’t pick a bargain-basement plan that is less than comprehensive; it doesn’t exist. Cheap plans with a $10,000 deductible per family member also are not available; the government sets a mandated minimum and ceiling for deductibles. And households cannot choose between plans that offer high co-pays or no co-pays.”

The second is from a recent research note by Leerink Swan equity analyst Jason Gurda, which talks about the effects of healthcare reform in The Netherlands in 2006.

Writes Gurda: “The introduction of universal coverage in the Netherlands has been a negative for the health insurance industry thus far. Standardized benefits and the inability to reject applicants left premium pricing as the primary means of insurer competition. A grab for market share led to below cost premium pricing and operating losses for insurers, although consolidation appears to be leading to improvement.

“Under the old system, the Dutch health insurance system consisted primarily of two groups: 1) a socialized health insurance system for people in lower income brackets; and 2) voluntary private health insurance for people with higher incomes.

“Beginning in 2006, all Dutch citizens have been required to buy standardized individual health insurance coverage from a private insurer.

“Individuals can shop for insurance using a government web site which compares health insurers with respect to price, services, consumer satisfaction, supplemental insurance, and available hospitals. Individuals may also pay extra for supplemental insurance for benefits that are not included in the mandatory basic insurance package, such as dental care, physiotherapy, eyeglasses, alternative medicine, and cosmetic surgery.”

In lieu of going single-payer or totally free market, a reformed U.S. system will for now have to cope with striking a precarious balance between the two.  And when you come right down it it, that’s really not news.

As promised, here’s some additional video coverage from the World Health Care Congress, April 14-16, Washington, DC.  As this report shows, the healthcare reform debate is heating up, and one area of contention remains a proposed public health plan that would compete with the private insurance industry.  With comments from Angela Braly of WellPoint and Jeffrey Kang, M.D., of Cigna.

Here’s a very good video report from Bertha Coombs of CNBC on the healthcare reform debate over a public plan that would compete with private health insurers, including comments from Angela Braly of WellPoint and Ed Hanway of Cigna.  Even better is the subsequent point-counterpoint between former Medicare head Kerry Weems and Center for American Progress senior fellow Judy Feder.  I don’t agree with Weems, but I feel for him.  Arguing against Feder is like arguing against your kindly grandma.

I’ve been wanting to write (again) about the seemingly forgotten issue of cost as the major barrier to healthcare reform, i.e., how do we pay for it.  Cost is the reason Carl McDonald of Oppenheimer—my regular guest on Healthcare Week in Review—thinks healthcare reform is still a long shot (see video).  Luckily for me, I don’t have to spend this Friday writing about the cost issue because Jonathan Cohn of The New Republic already covered it pretty well in this post from January.  Cohn writes:

“President Obama, in his budget outline, put forward two ideas for raising this money. One was a reduction in the income tax deductions upper-income Americans take for charitable contributions. The other was reforms to the health care system itself, including elimination of the excessive payments government makes to some private insurers participating in Medicare. 

“But that only amounted to $634 billion, or around half (maybe less) of what it will take to get to full coverage….[Senate Finance Committee Chairman Max] Baucus has raised some alternatives.  And, as I (among others) have written before, the best source of funds may be the existing exclusion of employer health benefits from personal income taxes….But changing the exclusion invites strong political opposition….

“We could, of course, simply increase taxes on personal income–or impose a value-added tax, as many European nations have. We could enact a cap-and-trade scheme, then channel some of the revenue into health care, or we could cut spending elsewhere. But these measures would be no easier to accomplish politically.

“And that’s the rub. At this point, financing health care reform isn’t much of a policy challenge.  There are plenty of options, many of them both progressive and economically sound.  But it’s a huge political challenge.”

Agreed.

Here’s a video of healthcare czar Nancy-Ann DeParle at a Kaiser Family Foundation forum in which she points to the possibility of a compromise on a public health plan for the uninsured and small business—a plan that would compete side-by-side with private insurance through a national health insurance exchange. 

But she wouldn’t say outright during a Q&A with reporters that President Obama would sign reform legislation that didn’t include a public plan. 

Stephen Langel, Roll Call: “If the President was presented with legislation that had no public plan option, if that was what he needed to take to sign a bill into law, would he be willing to do it?”

DeParle: “Again, I’d answer this the way the President did, which is that he has a couple of goals when he put the public plan in….He wanted to make sure that he could keep costs low, and the public plan is one way of doing that, and he wanted to make sure there was competition and choice for consumers…But as he said, if there are other ways of doing that, he’d be open to talking about them.”

The health insurance industry opposes the public plan, fearing it would steal away business and shift costs to the private sector.  A public plan could use the government’s bargaining power to drive down payments to providers (i.e., pay Medicare rates) and offer more attractive premiums. 

“There are policy ways of getting around some of the objections,” DeParle said.  “You don’t have to use Medicare prices, you can use something else….Now if it’s a philosophical disagreement, ‘I just don’t want the government offering a plan,’ that’s a different thing.”

Far be it from me to imply that a ”philosophical disagreement” over big government versus the free market has stood in the way of meaningful healthcare reform in the past.  But let’s try to be optimistic. 

By using market rates to pay providers (as opposed to Medicare rates), the public plan would lose a key competitive advantage.  That would protect the health insurance industry, but it would also mean higher costs for plans participating in the exchange.

Another option (which DeParle didn’t mention) is to let the government set payment rates, and then let private plans use those same rates.  There would still be a risk of cost-shifting to the private sector, but presumably there would also be an offset: universal coverage means less uncompensated care given by providers.

If I had to choose, I’d probably go with the latter compromise.  The public plan would still have the advantage of lower administrative costs, and the private plans could use payment savings to innovate around benefit design and care management.

It’s all getting very interesting, and very complicated.

Here’s an interesting post titled “The End of Private Health Insurance. Not.” by Jacob Hacker, who rips The Lewin Group’s estimates that a public health plan option would result in private plans losing a significant chunk of membership.  There’s an extended technical discussion by Hacker here.  I spoke to a representative from Lewin earlier this week, and he defended the estimates.  More on all this in a later post.

I’m in Washington, D.C., for the World Health Care Congress so no post today.  I will say that a lot of the talk here concerns the debate over Obama’s plan to include a government-run health insurance option for the uninsured and small business as part of an overall healthcare reform package.  More later.

Healthcare policy wonk Jacob Hacker took to the stump last week to defend his proposal—favored by President Obama, panned by health insurers—to offer a government-run health plan option to the uninsured and small business.

He took an interesting tack, as evidenced in the title of his policy brief: “Healthy Competition, How to Structure Public Health Insurance Plan Choice to Ensure Risk-Sharing, Cost Control, and Quality Improvement.”

Hacker sees the public plan competing on a level playing field with private plans, resulting in lower costs and improved efficiencies for both.

While a public plan’s strengths would include stability, wide pooling of risk and affordable premiums, Hacker notes, “private plans are generally more flexible” and can serve as a source for innovation in benefit design and care management.

“If the public plan becomes too rigid, for example, more Americans will opt for private plans.  If private plans engage in practices that obstruct access to needed care and undermine health security, then the public plan will offer a ready release valve,” he writes.

Hacker may be sincere in this view, and he may even be right.  But that can’t be too reassuring to the health insurance industry, which stands to lose a huge chunk of membership to the public option—some 30 million to 100 million members, according to one study. 

The key for Hacker is that the public plan, which would be offered along side private plans in a national insurance exchange, must have the ability to use its bargaining power to drive down costs.  He shot down as “flawed” and a “serious mistake” a compromise proposed last month by Len Nichols and John Bertko, in which the public plan would have limited bargaining power. 

To level the playing field, both the public and private plans available through the exchange would offer community rating, guaranteed issue and standardized benefit design.  In addition, payments to the public and private plans would be risk adjusted and pricing would vary to reflect regional cost differences. 

All of which would still result in premiums for the public option estimated at up to 30% lower than private plans.  That health plans will need to drive innovation to survive in this environment is altogether true.  But private insurers will also need to recognize that under this proposal their industry will be smaller, perhaps by a lot.

There are a lot of interesting bits in the paper released this week by healthcare policy wonk Jacob Hacker—he of the government-run health plan proposal favored by President Obama for the uninsured and small business.  Hacker had a lot to say in defense of his proposal in the face of competing plans and potential compromises.  I’ll get into all that in another post.  I just wanted to highlight here one interesting and often overlooked point: Rising premiums mean rising profits for health plans. 

Hacker writes: “Private insurers can often save more by selecting healthy people than by bargaining with providers, and in some highly concentrated insurance markets, private insurers are effectively acting as oligopolies, keeping premiums high rather than driving hard bargains….Private plans are passing on rising costs to subscribers while increasing their profitability.”

I wrote about how we got to this point in an opinion piece back in September 2007, pointing out that little being proposed by the health insurance industry at the time would dramatically alter premium and cost increases that had settled into a fairly predictable 6-8% range: “Not health savings accounts, not retail health clinics, not wellness or disease management programs.  Nor is it clear that managed care plans really want to see a substantial moderation in premium trends—despite their rhetoric—with hefty rate hikes closely tied to the kind of strong profit growth health plans have enjoyed in recent years.”

One of my favorite quotes from Upton Sinclair is appropriate here: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”