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Sunday, March 8, 2009

Health Care Reform: Threading the Needle of a Private/Public Solution

Two questions have emerged from this week's health care reform discussions around the role of the private sector which are:
  1. Will employers still have a role in offering health insurance to their employees?
  2. Will a government sponsored health plan emerge that will take market share from private health plans?
With regards to the 1st question, I had previously blogged that employer-sponsored health insurance was approaching bicycles for fish territory. Employers were able to offer a benefit for less than the cost due to the tax breaks and lower the distribution costs. However, it was adding costs to their products, taking their attention away from their business, and was not universally valued by all employees at the same level as much as other benefits that could be offered. In short, if the responsibility for offering health insurance was removed from employers, the only advantage that would be lost was lower distribution costs.

However, Senator Max Baucus, who is a real force in health care reform, was recently quoted as supporting the employer health insurance system. On the private side, the CEO of General Mills was also quoted as supporting employer sponsored health care insurance because he felt that their health care plan attracted talented employees and they were good at managing health care costs.

Why the recent shift toward keeping the employer-sponsored health insurance system and what to do these two know that your humble narrator does not? With regards to Senator Baucus, I suspect that it's merely politics and a desire to assauge fears that people will lose their good insurance from their employer. It's part of Obama's statements about not fixing something that isn't broken by not disrupting the 62% below 65 who have insurance from their employer. With regards to General Mills, that's more surprising and interesting. However, it's economics. General Mills is located in Minnesota which is a bastion of health care experimentation so they have gotten good at this health care business. Since they're so good at it, it's a competitive advantage against companies that flounder with health insurance administration. Why take health insurance administration away from them when they've "won" that battle against other companies? These are the spoils of the free market and competition, right?

As I initially argued, this competitive advantage should be taken away from General Mills because health insurance administration should not be the core competency of a foods company. Companies should have not to spend resources on health insurance administration unless they are in that business. Companies don't build their own computers or phones so they shouldn't build their own health insurance.

The 2nd question about a government plan outcompeting the private health plans came up recently, too. While the issue of employer-sponsored health insurance is an interesting business issue to weight out, this is just pure propaganda in the category of Obama taking away our guns. There are already a few government sponsored plans out there, such as Medicare, Traditional Medicare, and state portability plans that companies are mandated to offer. The only goverment sponsored plans that do well in the market place are the ones that are free like Medicaid or Medicare Part A for hospital care (beneficiaries pay $96.40 per month for Part B for physician services). The government has a terrible track record of offering attractive health plans. The state-sponsored portability plans in Oregon are very expensive and only have 20,000 participants in the whole state. Traditional Medicare and Medicaid not only have low reimbursement and so slow at paying that 25%-30% of physicians in Oregon won't have anything to do with those plans.

The government is good at setting prices, like with Medicare DRG's and consistently sending someone a monthly check like with Social Security. They are not good at the health plan business of answering calls, contracting with physicians, or timeliness. If private health plans can't outcompete a government plan that isn't free, that's the private sector's problem.

In summary, the government knows better than to launch its own health plan. I think that this issue is raised for propaganda purposes to prevent the Obama administration from getting too involved in health care by making it appear like a takeover. Insurance companies should adjust to a world proposed by Ezekiel Emanuel, brother of Rahm Emanuel. Under his plan, the governmet would set the prices and insurance companies would compete on quality of provider network, medical management to lower costs, and service.

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