The wonk's version of fantasy football is in full swing as we're treated to a debate about the absolute centrality of a public plan in any health reforms.
On the left we have those who argue that the public plan is an absolute necessity if insurance is ever to become affordable to the millions who now lack coverage. The very existence of such a plan, they argue, will create a truly competitive market and keep profit-making insurance firms from setting rates that are unduly high.
From the insurance business comes the counter argument that the government cannot be a fair competitor and that the very existence of a public plan will create artificially low rates that will devastate the private insurance market.
Each side is able to make its argument with enthusiasm and without fear of rebuttal because real analysis would require a look at how the public plan would actually work. In the absence of such a plan, each side is creating its own which unsurprisingly supports its argument. The result is more entertaining than enlightening.
Here are three very different options that could be described as public plans:
In the first, the government would simply let newcomers into the existing program, known as Federal Employees Health Benefit Plans, it operates for its employees today. This is popularly known as opening to the public "the same coverage that Members of Congress get." In fact, it is a series of plans operated by commercial companies where the government generally pays about 70% of the premiums.
Under this scenario at least some insurance companies - those already participating in FEHPB - would operate as they do now. Administrative costs and thus premiums would be depressed by the fact that the group was extremely large and wouldn't have to worry about the adverse selection (skewing toward sick people) that is a concern in the individual market. On the other hand, it would make the pool a bit sicker (since the uninsured tend to be sicker than those with insurance) and thus raise premiums for all a bit.
In the second, which is the greatest threat to insurers, the government would simply allow individuals to buy into the Medicare program. Although Medicare has enviably low administrative costs, this wouldn't be cheap. As things now stand, the cost per Medicare beneficiaries for outpatient (Part B) services is about $5000 annually. Adding Parts A (hospital care) and D (prescription drug coverage) would increase costs further.
This option differs significantly from typical private insurance - as well as FEHBP--in that the government doesn't negotiate with providers about how much it will pay them. Instead, it simply sets prices, which are ultimately subject to review by Congress. Because hospitals find it nearly impossible to leave the program and doctors find it difficult - because Medicare provides such a big portion of their business - providers are generally stuck with whatever the government offers them.
Medicare could simply reduce reimbursement by 20% tomorrow and if that decision was not reversed by Congress, many of its financial problems would be solved. Obviously, that would make providers very unhappy. That partly explains why they're unhappy with the option of opening Medicare to the general population. While offering more certainty that bills will get paid, it presents a possibility that payments will be inadequate.
Insurers don't like this option because a government that paid providers less could obviously charge beneficiaries less (which would be logical where profit wasn't an issue) and thus undercut the rest of the market for insurers who didn't have the power to impose rates.
It is also possible that the government would set up an entirely new plan that looked very much like a private plan and negotiated with providers about reimbursement, which would be less threatening to providers and other insurers.
No one knows which option would be selected, so know one can predict with any assurance what the outcome would be. Instead we're treated to yet another heartfelt, but less than honest food fight about whether including a public plan is the key to success or the third rail.
It would be nice if the combatants could hold their fire until the dimensions of a public plan become visible, but that isn't about to happen.
