My Lost Networking Opportunity: How I could end the Obama Administration's Public Plan

If I was a really, really good net worker, I might be doing health care policy work with the Obama administration. Most of you are probably thinking, would you really want to be tackling health care reform where stakeholders attack you with actual stakes? The answer is probably not, especially since I would have to leave the Pacific Northwest and climbing season is starting.

I would have networked my way to the White House if I had kept in touch with one of my Wharton professors, Nancy-Anne Deparle who is now the White House health care czar. She taught our health policy class, which was an evening class filledwith the few of my classmates who were interested in working at hospitals or health plans plus the odd nursing student and very odd physician. Nancy-Anne had great stories from working at the predecessor to CMS, called HCFA (Health Care Financing Administration). She did not come across as a beltway powerhouse, even with her southern accent. She was very friendly, very measured, and unassuming. She was offered a CEO positions at the Tenet hospital chain's Group Purchasing Organization (GPO) and asked my advice about the position since I had completed a summer internship at another GPO. In hindsight that was highly flattering that she asked me for career advice. Therefore, if I had followed up with her, kept in touch, I could have been reading the questions of the Simple Son at the White House Passover Sedar.

I hadn't seen Nancy-Anne in the newspaper a great deal until she was quoted last week about the Obama administration's Public plan. The administration had been pushing for a government-run Public Plan much like Medicare or Medicaid as part of it's health care reform efforts. This Public Plan (dubbed Medicare Part E as in Medicare for Everyone in some circles) would provide an option for individuals and small businesses, be cheaper than private plans, and keep private health plans "honest" through competition. Private health plans are very concerned about this potentially new powerful government competitor.

The Lewin Group, a health care and policy consulting firm located in Washington DC did a paper on the impact of this Public Plan that has provided the best analysis to date of what would happen. Here are the main points and my comments below:

• One Sweet Plan: The Lewin group assumed that the Public Plan would be the same as the health insurance that federal employees currently receive. This includes $15 copays for doctor office visits, a mere $250 deductible, and the most someone ever have to pay for health care services that they used (or an out of pocket maximum) is $4000. All this and dental benefits, too! To put it in perspective, with traditional Medicare, you pay 20% of everything, no dental, and no out of pocket maximum or cap on what you have to pay. This is fantastic insurance and really too good for the governement to be able to afford. With any assumptions about a Public Plan, we have to be realistic about the level of benefits. It's more likely to be closer to traditional Medicare where you pay 20% than what the federal employees receive.
• Not so sweet for doctors: The Lewin group looked at the costs and figured for the Public Plan to be affordable, it would pay doctors and hospitals 20%-30% less than they currently get paid. This is where everyone started to realize the tough choices in health care reform as this would be a big pay cut for the providers. Nancy-Anne weighed in at this point by noting that there were ways to make this plan affordable without rolling back provider payments to the 1970's. However, I don't see a way and this will be a big stumbling back. Cutting back provider payments will be a tough sell and doesn't do anything to change that fact that we don't pay for good outcomes but rather how much stuff a doctor performs. It's also very possible that doctors will refuse to accept this insurance just like they refuse to accept Medicaid or traditional Medicare.
  
• Administrative Costs: How much it costs to keep track of how providers get paid, what they should get paid, answer phones, send letters to subscribers, ID cards, keeping track of enrollment information, and all of that administrative stuff that insurance companies do is a popular topic. The Lewin Group believes that 32% of the health care dollar goes towards administration for groups of 50 people or less or individuals. For the overall membership, administrative costs are more like 15% but this Public Plan is intended for small groups and individuals. The Lewin Group believes by removing the profit margin and broker commissions (who sell insurance) that the government can reduce administrative expenses to 12%. This is my main point of disagreement as the math doesn't support it. Broker commissions are likely to be only 5% of the administrative costs and profit margins won't exceed 3% in this era. That's another 12% of savings that will have to be found and that assumes the government will be as efficient as the insurance companies with the administration. That will be a big stretch given that that the government has typically outsourced all health insurance functions. Any drug purchasing is outsourced to private companies. When traditional Medicare was created, the Blue Cross plans did the claims administration.

There has been a lot of concern with a government Public Plan. My main concern is that the numbers don't support the savings and it will do nothing to improve health care. It won't make health care delivery more coordinated or reward more efficient care. It won't help make hard choices about rationing health care. It won't change the fact that there are too little primary care physicians (and will pay existing physicians a lot less). It would be another version of traditional Medicare which has had no successful disease management pilots, pays providers too little so many won't accept it as payment, and bills so inefficiently that studies have shown that it only pays 45 cents of every dollar billed.

The Public Plan is a great way to threaten the insurance industry. I am putting my faith in Nancy-Anne that it's part of the political posturing and that the Obama administration would look at the numbers and think of the implications before trying to launch an idea. Maybe, I should try to see if being a former student of Nancy Anne's would get me an audience with her to present my idea? If a big part of MBA programs is supposed to be networking, this should work right?