Cost Controls and the Public Option: Why Losing the PO Would be Terrible-but Not Fatal

by Bruce Webb

The part of the blogosphere that caters to the Progressive Left is hardening its position around the Public Option, it has become a non-negotiable point, the line in the sand, the “are you with us? or against us?” line. And I don’t have any problems with that position as a matter of strategy and tactics, the Public Option is much better policy than any proposal that would leave it out, and I don’t think it has the political risks that the appeasers believe it does. So ‘Fight, Fight, Fight for Old PO!’ can be our fight song.

But this does not mean that everyone who argues that life would be worth living even without a Public Option is some treasonous Quisling intent on selling us all out to the insurance companies, as the risk of introducting French into the discussion I suggest the situation is more nuanced than that.

Ultimately I don’t think we will ever get overall cost-controls in Health Care in place without the PO because only it allows you to attack both of the cost centers, that which comes from the providers and that which comes from the insurers. Now these two sectors of health care are both natural allies and mortal enemies. They are allies in that insurers would be glad to sell coverage to everyone, and providers would be happy to charge for giving care to everyone, meaning each has a lot to gain from mandated insurance coverage. But at that point their interests diverge, under current business models doctors and hospitals gain most when they can supply ever more and ever more expensive treatment, while the financial incentives of insurance companies work in exactly the opposite direction.

Which largely explains the current state of confusion with insurers and providers sometimes pulling in unison, as often in opposition and sometimes at cross purposes. What the Public Option provides is a place to pull from against the providers or from the insurers, and from time to time with one or the other.

Ultimately the Public Option will be bargaining with providers either directly or by accepting some sort of industry wide average itself decided by a bargaining process. too much is at stake to simply allow providers to declare a unilateral pricing monopoly. however large or small its market share may get and no matter how much latitude it is given to bargain as an independent agent the PO will add some pull against providers. On the other hand depending on that latitude it will equally have a smaller or greater pull against the other insurers on the basis of price of insurance.

So depending on how much freedom it is given the Public Option has the potential to help control cost growth in both sectors that of providing health care and that of insuring that families can pay for that care as needed. Without it the situation is a lot more dicey. But as my title suggests not fatal. And the reason why is something I blogged back on July 28th under the title HR3200 Sed 116: Golden Bullet? or Smoking Gun?

In the bluntest terms Sec 116 imposes profit controls on the insurance companies and would do so even in the absence of the Public Option. Its existence explains why Republican leadership are signalling, nay shouting, that they will not accept Health Care reform period even if reformers surrendered the Public Option, even if they abandoned the very weak beer that is Co-Ops. The Left by and large is convinced that giving up the PO simply hands the keys to the castle over to the insurance companies with the rest of us tied up in chains at their mercy, that they can just merrily raise rates at their whim. Well no and that control is hidden in plain view in the first two sentences of the Section.


(a) IN GENERAL.—A qualified health benefits plan shall meet a medical loss ratio as defined by the Commissioner. For any plan year in which the qualified health benefits plan does not meet such medical loss ratio, QHBP offering entity shall provide in a manner specified by the Commissioner for rebates to enrollees of payment sufficient to meet such loss ratio.

(b) BUILDING ON INTERIM RULES.—In implementing subsection (a), the Commissioner shall build on the definition and methodology developed by the Secretary of Health and Human Services under the amendments made by section 161 for determining how to calculate the medical loss ratio. Such methodology shall be set at the highest level medical loss ratio possible that is designed to ensure adequate participation by QHBP offering entities, competition in the health insurance market in and out of the Health Insurance Exchange, and value for consumers so that their premiums are used for services.

Insurance companies and their allies/lackies in Congress insist that the House Bill is simply designed to force private health care insurers out of business. Well this claim is not the truth, the whole truth and nothing but the truth, but there is no question that it has some truthiness floating around it. Sec 116 guts the old business model which was based on insuring care to people who may not ever need it and denying it to those who had a proven need for it. Instead under this rule no care provision means no profits instead you have to rebate them to the insurees.

The CBO analysis of HR3200 that showed that it would only cover 10 million people by 2019 implicitly assumed that insurance companies would play fair and just go along with these profit controls. I am not so convinced on this point, and figure that many companies will just abandon those market components that become this profit constrained. Which is why we will need a Public Option to pick up those abandoned market sectors. And sooner is better than later. But ultimately a bill WITHOUT a PO but WITH Sec 116 and the other protections of Sec 111-115 puts us on a path that starts by controlling profits.

So by all means “Fight, fight, fight for Old PO!”, that doesn’t mean that people who suggest losing a battle means losing the war are traitors to their Alma Mater.