November 12, 2009
Reform: Looking at the Glass Half-Full Part 2
by Maggie Mahar, Health Beat Blog
Reform: Looking at the Glass Half-Full, Part 2
The Truth about the Public Option
For reasons I don’t understand, progressive pundits have been swallowing Congressional Budget Office Director Douglas Elmendorf’s dispiriting speculation about the public plan, hook, line and sinker.
Elmendorf claims that in 2019 (six years after reform begins), less than 10 percent of the population will be shopping in the Insurance Exchange where they can choose between private insurance and the public plan. Elmendorf asserts few will choose the public plan and many of those who do will be in poor health. The government plan will be puny—giving it little market power when negotiating with providers. Thus, he declares, the public plan will be more expensive than private insurance. (This may be why Senator Joe Lieberman has claimed that the public option will somehow add to the deficit)
What is remarkable is that if you read Elmendorf’s commentary you will find that he has no hard evidence to back up his claims. His assessment is based on “probably’s.”
By contrast, what we actually know about who will be eligible for the Exchange, and what reform legislation says about the goals of the public plan, suggests that the public option will be much stronger, more attractive, and less expensive than the CBO director suggests.
Pundits who buy into the notion that the public plan will do little to reduce health care costs also have ignored the spending cuts that Medicare has proposed for 2010. These are not pilot projects; these are targeted changes in the fee schedule. Medicare would pay cardiologists less—while paying primary care doctors and nurse practitioners more Medicare Eases Next Year’s Cuts for Heart, Cancer Specialists, Bloomberg — In addition Medicare would slash fees for certain tests that many physicians say have led to an “epidemic of diagnosis.” Too often asymptomatic patients are diagnosed with “pre-disease,” and then are subjected to treatments that they don’t really need—products and procedures that expose them to the risks of side effects, with little or no benefit What’s Making Us Sick is an Epidemic of Diagnoses, NYT Here, Medicare is paving the way for a public plan that will offer better, safer care at a lower cost.
Elmendorf Reads Minds
Elmendorf laid out his assessment of the Public Option in an October 29 letter to Rep. Charles Rangel Elmenforf’s Letter to Rep Charles Rangel offering his opinion that “in 2019, only 30 million Americans” will “be enrolled in the Insurance Exchange” where they can choose between the public option and private insurance plans. And only about “one-fifth of the people purchasing coverage through the Exchanges” would enroll in the public plan resulting in a total enrollment in the Public Option of “roughly 6 million.” In the same letter, the CBO director also speculates that the public plan would “attract a less healthy pool of enrollees” than would private insurers.
How does Elmendorf know that only 20 percent of those shopping the Exchange for insurance will pick the public plan?
He doesn’t. No one knows what people looking for insurance will be thinking in 2013. None of us know what the public plan will look like, how it will be priced, or how it will compare to the competition. As I noted in part 1 of this post, Elmendorf is simply pretending that he can read the minds of millions of Americans and divine what they will choose.
Consider the reasons Elmendorf gives to back up his claim:
“That estimate of enrollment reflects CBO’s assessment that 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 [probably] 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.”)
Elmendorf’s assessment is studded with “probably’s.” He offers no argument, no evidence, just one man’s guess as to how the public plan will operate. To assume such outcomes and reasoning based upon Public Option being a government plan and therefore it will make little effort to control costs and contain utilization, simply ignores Medicare’s efforts to rein in spending today. (Over the past 10 years, Medicare has held health care inflation down to under 6 percent a year—doing much better than private insurers who allowed reimbursements to soar by roughly 8 percent, each and every year for the past decade. (See chart on page 2 of my report on “Getting More Value from Medicare.
Six percent annual increases in the cost of care is still far too high, but the difference between Medicare, the proposed Public Option, and the Private Plans does demonstrate the interest government plans have in controlling costs. Unlike private insurers, they can’t simply pass spiraling premiums along in the form of higher premiums. And, under this administration, both President Obama and White House Budget Chief Peter Orszag have made it very clear that Medicare must do more to contain spending.
Moreover, as HealthBeat reader Dr. Fred Moolten observed when commenting on Part 1 of this post, Elmendorf completely ignores what the legislation says about the public plan:
“I find the CBO assumption that the Public Option would make no attempt to increase efficiency somewhat puzzling,” Moolten observed, “given that increased efficiency of care was one of its expressed purposes. In section 324 of the House version [of the bill], this intent is stated as follows:
’The Secretary may utilize innovative payment mechanisms and policies to determine payments for items and services under the public health insurance option. The payment mechanisms and policies under this section may include patient-centered medical home and other care management payments, accountable care organizations, value based purchasing, bundling of services, differential payment rates, performance or utilization based payments, partial capitation, and direct contracting with providers.’”
In other words, the Secretary is expected to use financial carrots and sticks to insist upon more efficient collaborative care, rewarding providers who offer better outcomes at a lower price. Dr. Moolten concludes:
“Why the CBO wants to dismiss these intentions is something they haven’t chosen to explain.”
Here, I would point out that this is not the first time that Elmendorf has cast a cold eye on health care reform. As I noted In an earlier post: Who is Douglas Elemendorf and Why is he Throwing Cold Water on Reform . . . back in 1993 Elmendorf was part of a CBO team that nixed the Clinton Health Care Package on the grounds that it was too expensive and would involve too great an expansion of government. (Imagine how much cheaper universal coverage would have been back then.)
Elmendorf’s Guesses Are Accepted
Despite the holes in his logic, Elmendorf is, after all, the Congressional Budget Director, and, as a result, most who read his assessment of enrollment in the public plan assumed that there must be facts and figures behind his so-called “analysis.”
Thus, his words have had a powerful influence both in the mainstream media and in the blogosphere. Virtually no one has questioned his assumptions. At the end of October even the Washington Post’s estimable Ezra Klein quoted Elmendorf Will The Public Plan Have Higher Premiums? concluding that the public plan will be expensive.
It will pay prices equivalent to those of private insurers and may save a bit of money on administrative efficiencies. But because the public option is, well, public, it won’t want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won’t try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more. The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else. . . .
‘This, in sum, is why I’m pessimistic on the chances for the public option to substantially affect the insurance market.
“That isn’t to say that the public option can’t still do some real good, as I argue here: Expansion Team”. But there’s also a chance for it to become a real disaster.”
Who Will Be In the Exchange?
The Real Numbers Elmendorf’s assessment of the public option begins by assuming that six years after the reform begins only 30 million Americans, or one-tenth of the population, will be shopping in the Insurance Exchange. This assumption flies in the face of everything we know about who will be eligible for the Exchange.
Reform legislation makes it clear that, from the very first year, the Exchange will be open to three groups: the self-employed and others who now buy their own insurance in the private market for individuals; the uninsured; and the owners and employees of small businesses.
Today, 7 percent of all Americans, Addressing Health Care Market Reform Through an
Insurance Exchange”, (or 21 million people) paid for individual insurance out-of-pocket. (Elmendorf confirms this number in his letter to Rangel.)
In the individual market, they pay sky-high rates. If they enter the Insurance Exchange, they automatically become eligible for group rates. According to MIT economist Jonathan Gruber, under the Senate Finance Committee’s reform plan, those who move from the individual market to the Exchange’s group market will enjoy savings ranging from several hundred dollars (for the youngest in the individual market, who get the best deal from private insurers) “The Senate Committee Propose Lower Non-Group Premiums” to over $8500 for families. It’s hard to imagine why any of these 21 million people wouldn’t join the Exchange in 2013. To sum the numbers up:
– 7% of all Americans (21 million) paid for Healthcare Insurance out-of-pocket.
– Add the uninsured– some 25 million Americans, according to Elmendorf’s own numbers, minus 8 million who will wind up in Medicaid when it expands in 2013,
– Finally, the Exchange will open its doors to the owners and employees of small businesses (In the 2013, according to the House bill, this will include companies with up to 25 employees; in 2014, firms with less than 50 employees will be eligible, and in 2015, the tens of millions of Americans who work for companies with up to 100 employees will be able to join the Exchange Washington Business Journal, How Small Companies Fare Under House Healthcare Bill”)
Moreover, “in subsequent years,” the House bill suggests, the Exchange will continue to expand. If all goes well, ultimately all Americans—including those who now have employer-based insurance through a larger employer—will be able to join the Exchange, and, if they wish, choose the public option.
Of course, the fact someone is eligible to go into Exchange doesn’t mean that she will. Some will elect to pay the penalty rather than buy insurance. But when I look at the numbers, I cannot imagine how Elmendorf arrives at his prediction that only 30 million Americans will be in the Exchange six years after it opens.
Moreover, he is wrong when he suggests that this will be a sickly pool of relatively poor Americans. The 21 million who now buy individual insurance must be quite healthy; if they weren’t, carriers in most states would refuse to cover them. And, if they can afford the sky-high premiums that carriers charge for individual insurance, they must be quite wealthy.
Meanwhile, the poorest of the uninsured will be siphoned off by Medicaid. Here, it’s worth noting that not all of the uninsured live in low-income households. More than 14% of those Americans who choose to “go naked” earn $75,000 or more, Sources of Healthcare Insurance and the Characteristics of the Uninsured”. Many don’t buy insurance because they don’t consider it a good value. They just don’t trust private insurers to deliver on what they promise. Many might well choose a public plan. And finally, the many Americans who work for companies with up to 100 employees will represent a cross-section of the population.
I wouldn’t even try to predict how many will chose public plan. But it seems safe to assume that it will be a large, diverse group. Both hospitals and most doctors will want access to these customers. Make no mistake, when the public plan negotiates rates with providers, it will have muscle.
In Part 3 of this post, I will expand on how Medicare is already paving the way for a public plan that will lift the quality of care while reining in costs—and why cost-containment doesn’t have to be spelled out in the reform legislation. .