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As readers of this blog know, I’m a supporter of the concept of a public health plan to compete with private insurers as a means of controlling costs through a provider fee schedule somewhere between Medicare and much higher commercial rates.

But there are valid arguments against this approach.  In a paper titled, The Public Plan: Not Worth the Risks, Jeff Goldsmith of Health Futures Inc., argues that “an attractive alternative is to leverage the two public plans we already have,” i.e., Children’s Health Insurance Program (which has already been expanded) and Medicare (which he says could cover nearly 11 million uninsured baby boomers if eligibility was extended to age 55, with subsidies for low-income boomers.

Goldsmith also advocates reforming the insurance distribution chain through a “sophisticated, user-friendly, Web-based health insurance exchange…Let businesses and individuals sign up directly for coverage, and bypass the costly intermediaries who take a surprisingly large chunk of the health premium dollar.”

But mostly he warns against the damage a public plan would inflict on private health insurers by stealing away lucrative membership–a variation of the “a public plan would be too successful” argument. 

“If we want to consider seriously a single-payer option, which would involve deliberately sunsetting the private health insurance industry, let’s have that discussion up front and see where it leads. To back into a single-payer system by inadvertently blowing up the private insurance system would be irresponsible, with the potential for significant collateral damage to the health care delivery system along the way.”

The problem is nobody wants to have that discussion in a serious way.  The solution has to be a public-private partnership to have any political legs.  A public plan still sounds like a good way to make reform financially realistic, while still leaving room for a smaller–but still viable–private health insurance industry.

This is way inside baseball, but for the true policy wonks in the crowd the Congressional Budget Office has issued a brief on budgetary treatment of health reform proposals. 

According to CBO, premiums for a public plan and insurance purchased through a national exchange should be counted as federal revenues if there is an individual mandate and tight government control of the insurance market.  They should not if there is no mandate and no public plan or if there is a loosely restrict private market with a mandate. 

“The key consideration is whether a proposal would be making health insurance an essentially governmental program, tightly controlled by the federal government with little choice available to those who offer and buy health insurance—or whether the system would provide significant flexibility in terms of the types, prices, and number of private-sector sellers of insurance available to people,” writes CBO director Douglas Elmendorf in a blog post.

Clear now?

A new report from the Robert Wood Johnson Foundation, Health Reform: The Cost of Failure, projects that if federal reform efforts aren’t enacted the number of uninsured could reach 65.7 million in 10 years, with middle-class families hit hardest, up from more than 45 million today.  That’s the worst case scenario.  Under the best case scenario, the number of uninsured would top 53 million, the study says.

If that’s not sobering enough for you, a press release summarizes some other findings from the report, which was prepared for RWJF by researchers from the Urban Institute:

• “Individuals and families would see health care costs dramatically increase. Total individual and family spending on premiums and out-of-pocket costs could increase 68 percent by 2019 in the worst-case scenario. Even under the best case scenario, health care costs would likely increase at least 46 percent.”
• “Businesses could see their health care costs double within 10 years….Even under best-case economic conditions, employer spending on health insurance premiums would increase 72 percent. The result would likely be far fewer Americans being offered or accepting employer-sponsored health insurance (ESI). Estimates suggest a drop from 56.1 percent of Americans being covered by ESI in 2009, to as few as 49.2 percent by 2019….”
• “The amount of uncompensated care in the health system would increase….putting a tremendous strain on health systems, hospitals, providers of clinical care and local municipalities.

I’ve suggested before that a major failing of the health insurance industry was the failure “to offer a viable solution to the problem of the uninsured immediately following the demise of the Clinton healthcare proposal; instead, the industry waited more than a decade as the ranks of the uninsured swelled to more than 45 million.”

If you think calls for reform are loud now, imagine how they’ll be when one in five Americans are uninsured.

Newt Gingrich, a guest on The Daily Show, talks about universal healthcare.  Click here to watch the video.

The Senate Finance Committee released its policy options for financing healthcare reform, identifying three areas of potential funding: 1. “savings achieved from within the healthcare system from reductions in current levels of spending;” 2. “Reevaluating current health tax subsidies;” 3. “Changing non‐health tax provisions.”

So two of the three options involve higher taxes.  Unless you’re confident in the willingness of legislators to jam through cost cutting measures (or the sincerity of the healthcare industry to voluntarily reduce costs), I think you know where this is going: higher taxes, limited reform or both.

McKinsey & Co.’s latest issue of What Matters is all about healthcare, especially the debate over healthcare reform, with opinion pieces from Regina Herzlinger, Jacob Hacker, George Halvorson, Alain Enthoven, and Ewe Reinhardt, among others.  Most readers of this blog will already be familiar with their views.  If not, you’ll find these articles a good primer.  Just remember that some of the fixes expressed here are either not likely to happen anytime soon or not politically viable.  With that caveat in mind, enjoy.

Clive Crook, in his column in the Financial Times argues that “near-universal healthcare will require higher taxes”  (Hat tip: Infectious Greed).  As for the healthcare industry’s pledge to cut $2 trillion in healthcare costs over 10 years, an initiative President Obama called “a watershed event,” he writes: “Within hours all parties began clarifying the declaration to the point of meaninglessness. The producer groups, facing agitated members demanding an explanation, denied they promised anything. White House officials repeated the president’s assertion, then withdrew it saying he had misspoken, then affirmed it again.”

John Lechleiter, chairman and CEO of drug maker Eli Lilly, said in a speech (full text) to the U.S. Chamber of Commerce, “A public plan to reduce the number of Americans without insurance is a slippery slope towards the day when all or most Americans would get their health insurance through a government-run plan.  There is simply no example, worldwide, of a robust private health insurance market co-existing with a government plan that’s open to all.” 

He added, “I don’t think that American patients would—or should—accommodate themselves to the long waits for care, limited options, and other forms of rationing that inevitably accompany government healthcare monopolies.  To realize the benefits of personalized medicine, American doctors and patients need to retain the ability to make choices based on the real value of treatment options.”

I don’t know about you, but I’m starting to get pretty excited about the prospects for healthcare reform. 

All the debating and posturing and hopes and skepticism are coming to a head.  Speaker Nancy Pelosi promised the President that the House would pass reform legislation by the end of July.  The Senate Finance Committee released its policy options for healthcare reform and has begun closed-door meetings to hammer out compromises on key differences, such as a whether to institute a public plan to compete with private insurers.

The insurance industry (which is still battling hard against the public plan) has agreed to other important compromises to extend affordable coverage to the uninsured, including community rating and guaranteed issue. 

And hospitals, physicians and insurers jointly pledged to work toward the Administration’s goal of reducing healthcare costs by $2 trillion over 10 years. 

The excitement that this pledge triggered caught me by surprise.  Obama called it “a watershed event,” and one of my favorite economists Paul Krugman called it in his column “some of the best policy news I’ve heard in a long time” and wondered if this was the end for “Harry and Louise.” 

It’s really not all that.  (Krugman expressed enough skepticism in the same column to know that).  As I pointed out two years ago, “Harry and Louise” were already in critical condition when America’s Health Insurance Plans declared, “Washington and the states should take immediate action to ensue that every American has healthcare coverage.”  AHIP’s more recent commitment to individual health plan market reforms and expanded government oversight proved that this was a new game.

So why the outpouring of optimism–and why am I’m feeling excited?  I think it’s the cumulative effect of all this movement toward reform, and the fact that it’s crunch time for policy makers and lobbyists on both sides of the aisle.

I’m still guessing no public plan or a highly watered-down version, which would be too bad.  And I still think the healthcare industry’s joint pledge to cut costs will fray when push comes to shove.  Plus there’s the little issue of how to pay for it all.

But either way, you’d have to admit that this time around the advantage goes to the reformers.

One last thing.  You’ve got to hand it to Obama.  He’s done a masterful job at framing the issue and pulling together rival factions.  No wonder I voted for him.

Very good take in today’s New York Times on the real stumbling block to comprehensive healthcare reform: finding the money to pay for it.  As Times reporter David Leonard points out, taxing health benefits to raise the necessary funds is an idea that is starting to get a lot of play.

The Times cites statistics putting the cost of universal healthcare coverage at $120 billion annually.  President Obama has proposals that would account for $60 billion, but Congress is expected to reject half of that, the Times says.  That leaves a $90 billion hole.

Leonard is skeptical about the political feasibility of adding to the nation’s already monumental deficit or making up the difference by cutting healthcare spending (at least in the short term).  All of which points to taxing benefits as a ready solution.

Writes Leonard, “You can imagine a bill that mixes together lots of different revenue sources, in typical sausage-making style. But it’s hard to get to $90 billion without changing the deduction for employer-provided health insurance.”

If the list of healthcare reform policy options released last night by the Senate Finance Committee is any guide, the individual and small group health insurance markets will undergo considerable reform in the years ahead. (Press release, compete policy options).

“As expected, the changes made to benefits and availability of health insurance focused on the individual/small group market, leaving the large group market mostly untouched,” noted Leerink Swann analyst Jason Gurda.

That’s really no surprise, given that health insurers have already agreed to significant concessions in the individual market, including guaranteed issue and community rating–both included in the options released by Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA).  They also proposed that individual and small group plans offer standardized benefits and participate in a health insurance exchange. 

But there was still a lot of interesting stuff to kick around. For example, Baucus and Grassley would require all individual and small group plans to offer four options based on varying medical cost ratios (high option: 93% MCR, medium 87%, low 82%, lowest 76%).  So basically, the government would be mandating medical spending levels–a kind-of straitjacket approach I’m not sure would necessarily delivery the best value.

Baucus and Grassley would also mandate that individuals purchase health insurance by 2013 or pay an excise tax based on a percentage of premiums for the lowest-cost option available through the exchange.  As for guaranteed issue and community rating, here are the details in Baucus’ and Grassley’s own words:

“Individual and Micro-group (2-10 employees) Market Reforms–Under the policy options, insurance companies would have to issue coverage to all individuals and would no longer be allowed to bar individuals with pre-existing conditions from qualifying for a policy. Limited variation in premium rates would be permitted for tobacco use, age, and family composition.  Geographic variation in rating would be allowed between rating areas, but would not differ within a rating area.

“Small Group Market Reforms–Under the policy options, the rating rules for the individual and micro-group markets would apply to the remainder of small groups as defined by states. This would include groups of 11 to 50 people, but could also include self-employed and/or groups up to 100 people depending on current state law.”

Left up in the air, the fate of a public plan to compete with private insurers in the exchange and whether or not to require employers to “play or pay.”  In short, there’s still a lot of wiggle room and a lot of horse trading to go.

Last night, the Senate Finance Committee released a list of policy options for consideration as part of a healthcare reform package: a public health plan designed to compete with private insurers made the cut. 

But the list, released by Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA), also included the option “not creating a public health insurance option, but expanding coverage through a reformed and better regulated private market.”

Regarding the public plan, Baucus and Grassley offered three alternatives: “One alternative is a Medicare-like option that would be administered by the Department of HHS. The Federal government would sets payment rates for that plan.  Medicare providers would participate in the plan. This public health insurance option would not have solvency requirements. Another alternative is a public health insurance option that would be administered through multiple, regional, third-party administrators (TPA). These TPAs would be required to report to the Secretary of HHS.  The TPAs would establish networks of participating medical providers and would negotiate payments for providers participating in the option. This public option would be required to adhere to solvency requirements. A third alternative would be a state‐run public health insurance option.”

That pretty much covers the waterfront.  Unfortunately, it still doesn’t tell us if there will be a public plan or not and what it would look like.  I’m still guessing no public plan or a highly watered-down version.  But I’d be happy to be wrong.

John Sheils of The Lewin Group, a unit of UnitedHealth, said in Congressional testimony today that the government could raise $758 billion over 10 years by taxing employer-sponsored health benefits.

The estimate is based on three assumptions:

1. The tax exclusion enjoyed by those who receive employer-sponsored health insurance is capped at $4906 individual, $13,036 family.  ($584 billion in additional tax revenues over 10 years)

2. The tax exclusion is phased out for individuals earning $250,000 to $500,000 annually and eliminated for those earning more. ($114 billion in additional tax revenues over 10 years

3. Flexible spending accounts for uncovered health benefits are eliminated. ($60 billion in additional tax revenues over 10 years)

The changes would effectively raise insurance costs for individuals, Sheils noted, encouraging people to choose low-cost health plans like HMOs and HSA-compatible plans.  The shift to these low-cost plans would result in an additional $279 billion in spending reductions, he said.

I must admit I haven’t yet taken sides on this controversial concept, which if you’ll recall was embraced by John McCain in the 2008 Presidential campaign.  I will note, however, that there is some support for the idea on both sides of the political aisle.

“I guess if a man lives long enough,
he gets to see everything.  And I
mean everything. What else do you
have in your bag of tricks, Mr. Gekko?”
–Carl Fox, Wall Street

Now that you’ve had time to look over yesterday’s pledge by a coalition of healthcare industry trade groups promising to slow the rate of increase in healthcare costs by $2 trillion over 10 years, I have a question for you: Is this realistic?

Don’t answer right away.  Instead, take a close look at the bullet points below–quoted directly from the letter sent to President Obama by six trade groups, including  America’s Health Insurance Plans, American Medical Assn., American Hospital Assn., and the Pharmaceutical Research and Manufacturers Assn.–which in broad strokes outline the proposed path to big savings:

• “Implementing proposals in all sectors of the health care system, focusing on administrative simplification, standardization, and transparency that supports effective markets;
• “Reducing over-use and under-use of health care by aligning quality and efficiency incentives among providers across the continuum of care so that physicians, hospitals, and other health care providers are encouraged and enabled to work together towards the highest standards of quality and efficiency;
• ” Encouraging coordinated care, both in the public and private sectors, and adherence to evidence-based best practices and therapies that reduce hospitalization, manage chronic disease more efficiently and effectively, and implement proven clinical prevention strategies; and,
• “Reducing the cost of doing business by addressing cost drivers in each sector and through common sense improvements in care delivery models, health information technology, workforce deployment and development, and regulatory reforms.”

Now I know you can all quote me extrapolated statistics on how much we could save if every doctor followed evidence-based medicine, if every hospital and physician’s office had a fully integrated electronic medical record, if we all led healthy lifestyles, if we maximized clinical quality and administrative efficiency, and so on.

I’ve seen those numbers too.  That’s not what I’m asking.  And I’m not asking you to quote some big number and then say, “Well, if we only achieve half or even a quarter of those savings….” 

What I’m asking is the following:  Given the structure of our healthcare system, given the way healthcare is financed, given the built-in incentives, given the dichotomy of healthcare as “consumer product” vs. “human right” (and all the attached emotion therein)…given all this, do you think the industry’s voluntary pledge will achieve the promised savings?

As you can sense from how I’ve framed the question, I’m skeptical.  It’s funny how nowhere in the letter to Obama are the words “sacrifice,” “tough decisions,” or “shared responsibility”–as if technology, innovation, and the ability to affect behavior change (i.e., alter human nature) can solve everything….as if we can achieve the necessary savings without someone feeling the pinch.

But the coup de grace was the penultimate paragraph of the letter.  “However, there are many important factors driving health care costs that are beyond the control of the delivery system alone.  Billions in savings can be achieved through a large-scale national effort of health promotion and disease prevention to reduce the prevalence of chronic disease and poor health status, which leads to unnecessary sickness and higher health costs. Reform should include a specific focus on obesity prevention commensurate with the scale of the problem.”

In other words, the industry is saying that if all its efforts to address the U.S. healthcare crisis fail it’s not the industry’s fault, it’s yours. Well, I suppose somebody has to take the fall.