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Friday, October 23, 2009

Whiskey Tango Foxtrot do you want a Public Plan?

I have blogged repeatedly about how I think that the Public Plan is a big stinking pile of dung of an idea. It will produce a mediocre plan that pays too little for all providers to accept, will not be easy to understand, and will ultimately cost more than everyone thought.

I still think the Public Plan is the marketing equivalent of the anti-tax Tea Parties which was very successful in introducing the concept of teabagging to millions (in terms of capturing the hearts and minds of independents, not as successful). However, the Public Plan idea is still going strong, in fact, it even has a robust option that House Speaker Pelosi is proposing.

I am against the Public Plan for the same reasons that I was against the Iraq War. I see it as a bad idea that will waste tax payer money and is being sold with analysis that doesn't bear out. My points are as follows:

It will only save money by paying providers less which doesn't solve the real problem: This robust option will pay providers 5% more than Medicare rates which are 75%-80% of market rates. Lower payments to providers is its principle vehicle for cost savings. It will not have any disease management, case management, or any kind of care coordination or health care management program. However, anywhere from 25%-35% of providers don't accept Medicare because they think it pays to little so how excited are they going to about this option? If they do accept it, are paid less, then what's to stop them from making up the price cut with more volume?

Supporters of the Public Plan also feel that it will have lower administrative costs than private plans. Here's how I see the costs adding up based on what I know of the typical health plan costs and the proposed savings opportunities:
  • No margin which will save 3% of premium (that's the average margin of the largest health plans. United has the highest margin at 4%)
  • No Marketing which would save 2% with an average marketing budget
  • No huge CEO salaries would save 0.1% (assume $1 million salary on revenue of $1 billion for an average sized plan)
  • They won't pay brokers which will save 1% (not sure how you can justify not paying someone for the services that they provide)
  • There will be no provider network so that will save 1% in network management

This totals up to about 7.1% savings. Given average administrative costs are 15% of premium, this is as much to be realistically expected given that you still have to pay claims, enroll people, pay bills, and answer calls. Personally, I would call this Prozac-esque optimistic.

With no care management and no network relationship, medical costs could easily be 10% higher than an average private plan . Given Medicare costs are twice as high in some parts of the country as others due to practice patterns, that's a feasible scenario. Thus, the 7.1% savings could be wiped out by higher medical costs and again, the only savings would be paying providers less. How does this address the issue that costs in Florida are twice as high as New Mexico or that we have more imaging machines in some counties than all of Canada?

There is separate legislation to require that insurance companies accept everyone: My sister has a law degree and is fairly smart even though she went to a basketball factory for college (Duke). When I asked her why she wanted a Public Plan, she said it was because she thinks that she would be rejected if she ever had to buy individual insurance. I pointed out that all the proposed legislation forbid insurance companies to reject people and even the insurance companies said that they'll stop rejecting people. "Oh, well in that case I don't really care about a public option." We went back to arguing about Duke's basketball team.

No one holds hands and sings Kumbaya at health care cooperatives: A pseudo Public Plan option that was included in Senator Baucus's bill was the idea of health care cooperatives which were local non-profit health plans that communities would start. Group Health Cooperative was held up as the model until people started asking Group Health and its members how this wonderous cooperative experience works. Turns out that it works like any typical insurance company and less than 1% of members voted for Board members or participated in the cooperative model. While Group Health is an excellent plan with a good track record of promoting high quality care, its cooperative structure was not the secret sauce. It was more like a sprinkling of spices that no one noticed.

Other models that are held up as potential examples of a successful plan don't work either: Washington has held up their Basic health plan as an example of a successful state version of a Public Plan. However, it contracts out a predetermined benefit plan to private insurance plans just like with Medicare Advantage or the Federal Employee insurance programs. It's like any government program that is contracted out to the private sector. When private plans haven't liked the terms, they withdrew from the program. The history of Washington's Basic plan is a story of little to no choice in some counties, lack of participation by private plans at various times, premium increases, benefit reductions, and wait lists for enrollment. In the late 90's, private plans stopped participating. One can't really enjoy the benefits of competition when the players leave the game.

Who's going to run the Public Plan? Government entities have run very few parts of a health insurance plan. They are good at pricing, mediocre at providing customer service, bad at explanining things in simple terms, have never negotiated with providers, had few to no successful disease management programs, and don't have an updated medical claims systems. Medicare is either contracted to private plans or run through Social Security with a Social Security claims systems. The choice is either a new plan run by folks with no experience or hiring people from private plans.

What are we really trying to do? I understand that a Public Plan is needed since there won't always be affordable private plan for everyone and insurance will likely be mandated. Rather than try to figure out how to run a health insurance company, governments could look at changing the eligibility for Medicaid or the high risk programs. Health Care Futurist, Jeff Goldsmith, wrote a persuasive piece about expanding Medicare eligibility to older (55+) adults to address the issue of uninsured, unhealthy adults. Personally, I would rather be a revisionist than a futurist since you have a better chance of being right.

These are existing programs that would accomplish the same goal of providing health insurance as the Public Plan would. The other aspect that the Public Plan was intended to address was the public's anger with insurance companies and desire to give them the middle finger. I can understand the anger as insurance plans rescind policies if you don't disclose a hang nail, seem to decide claims payment with a dart board, and may only have doctors that no one has ever heard of in their network.

However, the Public Plan is a very expensive, inefficient way to give the insurance plans the middle finger. I propose that we let people pay a sliding scale of $0-$10 to be able to go into the office of health insurance executives and actually give the executives the middle finger in person. That helps address the anger, provide more funding to health care reform, and could also be used with some the participants of the federal bail out programs.

2 comments:

Justin Davis said...

I agree, but I'm not so sure about what you said at the beginning. Where are you getting your information? I'm not disagreeing, but I'm just wondering how you came to that conclusion.

Justin Davis
Author does not represent the position of LSI, which screens content as an internet filter to K-12 institutions.

Deadhedge said...

Hi Justin,
I've come across the information from a variety of sources and my own experience. Medicare payment info came from a range of blog posts that I see on The Health Care Blog and the physician acceptance of Medicare came from the Oregon 2006 physician workforce study which I trended a little bit.

The health insurance admin cost info came from my own experience reviewing quarterly financial reports from health plans with my own estimates applied.

I provided my estimates to help illustrate the size of the bread box. You probably couldn't use these as a source in a debate but I'm very confident that I'm within an order of magnitude.

Did that answer your question or is there something else that you were looking for?

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