Public Plan to Enroll 6 Million, Premiums to Top Private Plans, Says CBO

October 30, 2009

Who’s afraid of a public health plan? 

According to a Congressional Budget Office preliminary analysis (here), only 6 million people would enroll in the public option proposed as part of the House healthcare reform bill.  Why?  Because a public plan required to negotiate with providers — as stipulated in the House bill — will have higher premiums than private plans offered through insurance exchanges, CBO says.

A public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.) 

Basically, CBO is saying what others (including myself) have been speculating for some time: that the public plan might end up a dumping ground for the sick as insurers cherry pick the healthy, i.e., a risk-selection mechanism (see prior post).  Said another way, in opposing a public plan, the health insurance industry may actually be shooting itself in the pre-existing foot.

CBO notes that all told, about 36 million more people would have insurance coverage under the House bill at a cost of $894 billion over 10 years (not including a physician fee fix).  About 21 million people would purchase coverage through insurance exchanges and 15 million would be added to Medicaid.  (Actually, the exchanges would enroll a total of about 30 million; however, 9 million are expected to come from employers already offering coverage to their employees).  Another 18 million people, including 6 million illegal aliens, would remain uninsured.

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House Bill Mandates 85% Temporary Minimum MCR

October 30, 2009

Under the heading “Ensuring value and lower premiums,” the House healthcare reform bill would mandate that health plans have a minimum medical cost ratio of 85%, but the requirement would be eliminated after establishment of an insurance exchange.

Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary (but not less than 85 percent)…The Secretary shall establish a uniform definition of medical loss ratio and methodology for determining how to calculate it based on the average medical loss ratio in a health insurance issuer’s book of business for the small and large group market. Such methodology shall be designed to take into account the special circumstances of smaller plans, different types of plans, and newer plans.

Under the heading “Sunshine on price gouging” any premium increases by health insurers would have to be justified to federal and state regulators.

The Secretary of Health and Human Services, in conjunction with States, shall establish a process for the annual review of increases in premiums for health insurance coverage. Such process shall require health insurance issuers to submit a justification for any premium increases prior to implementation of the increase.

(Hat tip Justin Lake of UBS).


No Bailout for Public Health Option?

October 30, 2009

The House healthcare reform bill contains a clause that I find hard to believe.  It reads as follows:

NO BAILOUTS.—In no case shall the public health insurance option receive any Federal funds for purposes of insolvency in any manner similar to the manner in which entities receive Federal funding under the Troubled Assets Relief Program of the Secretary of the Treasury.

In other words, the government isn’t going to receive funds from the government to bail out the government.  Now let me tell you what I think will really happen if the government-run option gets into financial trouble.  The government will bail it out.


Pelosi House Bill Announcement

October 29, 2009

Here’s a video (hat tip: Firedoglake.com) of House Speaker Nancy Pelosi (D-CA) announcing the Affordable Health Care for America Act.  Click here to read a copy of the 1990-page bill.  We’re still waiting for the CBO analysis, but Pelosi says the bill will extend coverage to 36 million more Americans at a cost of under $900 billion over 10 years; about 4% of Americans would remain uninsured.  The bill would extend Medicaid eligibility to 150% of the federal poverty level, add a public option-lite (i.e., provider rates would be negotiated rather than set at Medicare levels or slightly higher), provide subsidies to people up to 400% of FPL, and close the Medicare drug donut hole.

All of which is more or less what we’d expected.  Still, I have to admit it was pretty exciting to watch the announcement, even despite the bill’s shortcomings.  As Pelosi noted, it really is an “historic moment.”

But what I want to talk about for a minute is that last detail — closing the Medicare Part D donut hole.  In an opinion piece back in 2006, I’d pointed out that the convoluted benefit design resulting in the donut hole was an absurdity that wouldn’t last.  (I also predicted the government would eventually start to use its bargaining power to negotiate drug prices, another big failing of Part D that we haven’t yet addressed; although I still think we will — secret back door agreements or not; Addition: Nov. 10, Sorry, failed to note the House bill gets at this as well).

What’s my point?  There is, as Paul Krugman has noted, an irreversibility to healthcare reform.  “The really important thing, for reformers, is to get the principle of universality established. Once that happens, there’s no going back,” he wrote.  

I have put it a different way in this blog.  The U.S. is making incremental progress toward a highly regulated public-private health insurance market or single-payer healthcare.  The only question is how soon before we get there.  The merged bill from Senate Majority Leader Harry Reid (D-NV) goes further than the Baucus bill, and the House bill goes further than both.  But they all get us a little closer to where I think we’re eventually heading, and there’s no going back.


Speaking of Money-Driven Medicine

October 28, 2009

You can now watch the entire 86-minute documentary Money-Driven Medicine online (click here).  It’s part of a national “watch-in” organized by the film’s distributor California Newsreel in partnership with Consumers Union, Campaign for America’s Future, Campus Progress, Doctors for America, Alternet and others.  The film is based on Maggie Mahar’s book of the same name and discusses the skewed incentives in the delivery of care in the U.S.   Notes Medical ethicist Larry Churchill:

The current medical care system is not designed to meet the health needs of the population. It is designed to protect the interests of insurance companies, pharmaceutical firms, and to a certain extent organized medicine. It is designed to turn a profit. It is designed to meet the needs of the people in power.


Why a Public Option is Inevitable…

October 28, 2009

Here’s a very good piece by Maggie Mahar of Health Beat titled The Public Option: It’s Not About Politics; It’s About the Economics of Reform.  Mahar has remained optimistic that a public plan will make it into the final reform legislation — even when many liberal observers, myself included, considered the public option essentially dead.  (Admittedly, the odds do seem better now that Senate Majority Leader Reid has come out in support).  But even though Mahar and I may have disagreed on the odds of a public plan surviving this round of legislation, we both agree that a public plan is inevitable at some point because of the economics of healthcare.  To quote Bogart as Rick, “Maybe not today, maybe not tomorrow, but someday soon and for the rest of your life.”  My view — as I’ve stated before (see prior post)– is that eventually the U.S. will move to a highly regulated public-private insurance market or single-payer healthcare.  Btw, Mahar is thoughtful, logical and thorough in her reporting on healthcare; be sure to put Health Beat on your favorites list.

Addition (Oct. 28, 2009; 3:31 p.m.): I just remembered, Paul Krugman makes a similar point in a post titled The Facts Have a Liberal Health-care Bias.

Serious students of health care have known for a long time that the magic of the marketplace doesn’t work in health care; the United States has the most privatized health-care system in the advanced world, and also the least efficient. The pale reflection of this reality in the current discussion is that reform with a strong public option is cheaper than reform without — which means that as we get closer to really doing something, rhetoric about socialism fades out, and that $100 billion or so in projected savings starts to look awfully attractive….It has also been clear from international evidence that universality is cheaper than leaving a few people expensively without care. That’s reflected now in the projected savings from a strong employer mandate.  The point is that reality is pushing for a more progressive reform than the Baucus bill. Truly, the facts have a liberal bias.


Would States Opt Out of a Public Health Plan?

October 27, 2009

Probably not in big numbers, argues Scott Fidel of UBS:

We are skeptical that a majority of the states would choose to “opt-out” of a public plan, given the firm position that Democrats currently hold at the state level. The Dems currently control the governorship in 28 out of 50 states and also control 27 state legislatures compared to only 14 that are in GOP control. The other 9 state legislatures are either split or officially nonpartisan.

The state “opt-out” approach would also serve to expand the battleground over health reform to the state level from the current war zone in D.C. Functionally, it would also further increase the relevance of upcoming state-level elections for the private health insurance industry. For example, the upcoming governors races in NJ and VA would both suddenly have much more important ramifications for the industry.


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