Health Care Reform: Side Show from the serious issues

I have been very disappointed that so much of the health care debate is focused on the Public Plan Option. This is where the government would create it's own health plan that everyone would be eligible for (also dubbed Medicare Part E for everyone) which would compete with private plans. The Public Plan debate has become the side show of congressional hearing that this American Life described in a recent episode. It's like the picture of a midget sitting on JP Morgan's lap.

While some feel that the Public Plan is a crucial part of health care reform to keep the insurance companies honest, I feel it is a side show because:
1. It has been defended as not a negative as in "why shouldn't it be an option". It can only be defended that way because no one knows what it is and what its positive attributes are (other than an opportunity to give the middle finger to the current health care system).
2. No one knows how much the Public Plan will pay providers. If it pays too little than those who purchase the plan will have the same troubles finding a doctor as those with traditional Medicare.
3. No one knows how it will be structured. Will it have to follow state regulations and mandates like other insurance companies? What are the expected monthly premiums? What department will be in charge?
4. The government has no experience in health insurance other than actuarial or setting prices. Every insurance function from claims payment when Medicare was started in the 1960's to today's Medicare Advantage has been outsourced to private insurance companies. Therefore, why does the government want to start a new insurance company that will contribute nothing to care coordination, medical home models, or any of the ideas that have been identified as crucial to making our health care system more efficient?

Instead, the Obama Administration and Congress could spend its time debating solutions to real problems in our health care system such as:

1. What can we do with physician reimbursement so more physicians enter primary care which has been identified as the best value in health care? Only 30% of today's physicians are in primary care which is understandable because a primary care physician earns half as much as a specialists.
1a. How can we start paying physicians based on outcomes rather than volume of services? What system will allow us to pay primary care physicians more for preventing a patient from needing back surgery as opposed to paying the specialists more for performing the back surgery and other interventions?
2. Why do hospital services cost 50% more in Southern Oregon than they do in Portland, OR? Why do they cost twice as much in McAllen, TX than they do in El Paso, TX? How do we change that variation and focus on high cost areas while preserving the practice of lower cost areas? Currently, Medicare does not treat all citizens equally as seniors in Florida get more dollars of care than seniors in New Mexico.
3. Our current system of health care rationing is to provide all the innovative care possible to those who can pay. We are clearly dissatisfied with it. What rationing system should we adopt? Rationing care is an issue for every health care system, not just the Europeans.

If we resolve these issues, we will have a much more effective health care system than we ever would with a Public Plan. Opposition to the Public Plan is not just from insurance companies. Providers are concerned they will get 20%-30% pay cuts and drug companies are concerned their products won't be covered. Even insurance agents are against it since they won't get a commission for selling the plan (that's an example of the Public Plan's administrative savings. They don't plan on paying agent commissions which can be about 15% of a private plans' administrative costs).

Research that supports the Public Plan describes how the bulk of the savings will come from paying providers less. There is also the big assumption that the Public Plan will have lower administrative costs and thus force private insurance plans to lower their costs. Administratively the government will not spend any money on managing a network nor pay any state assessment fees for high risk pools so it has a built in cost advantage (in addition to not paying broker commissions). Private insurance companies can't replicate this.

However, since the government is a start-up insurance company with no experience, I would challenge the notion that they really will have lower administrative costs in areas where they compete with private plans. I have previously posted that Oregon insurance plans have an average administrative cost of 10%. Administrative costs of 31.7% that have been quoted from the Lewin report are just the individual line of business. Administrative costs for all lines of business (large employers and small employers) are typically 15%.

Finally, I've heard of a compromise proposal that there will be a 5 year grace period to clean up private insurance. Given that the entire health care industry is mobilizing against this idea, this may be the most politically expedient way for the Obama administration to step back.

Then we can start talking about real health care issues and leave the side show at the circus.

For more of my rants and raves about the Public Plan look here.