PPACA: United Health Care vs the Public Option
A story that is getting some traction, though mostly lost against the New York primary, is that for profit health insurance company United Health Care is looking to drop its Exchange Plans under PPACA. For example this from Fox: UnitedHealth pulls back on ObamaCare exchanges amid huge losses This is of course presented as some additional proof of the failure of ObamaCare. And given the current structure that has the Exchange 100% reliant on private insurance providers and so vulnerable to insurance provider drop-outs this may be. But from the perspective of supporters of the original version of PPACA, the one that came out of Senate HELP and the House Tri-Committee this was more a feature than a bug.
In 2009 it was abundantly clear that Single Payer/Medicare for All was not a viable option. It wasn’t going to happen. (Please argue the point in comments.) But there was a narrow window open for a backdoor path to Single Payer. And that was the Public Option in both its Strong and Weak forms. The idea was a properly designed Public Option would out-compete any private insurance provider on price. That is with or without some form of the mandated limits on the Medical Loss Ratios that in turn restricted Big Insurance profits, private insurers would find some markets unprofitable and so abandon them. In particular this was projected to happen in rural markets and second and third tier metro areas. Which markets would then be available for scoop up by the (so-called) non-crofts and the Public Option. My own vision was that over time a version of Single Payer would evolve from the outside in as Big Insurance retreated to serving high margin/richer urban markets.
Now of course we don’t have the Public Option. But even so I am not going to shed a tear that for profit insurers like United Health just are not having the success in extracting huge rents from PPACA. Because those rents/profits were not adding value anyway. And while there is theoretically some downside in reduced competition the structure of PPACA doesn’t really allow surviving health care insurers to extract monopoly rents. And to the extent that certain markets begin to be underserved there will be that much pressure to allow entrance to some version of the original Public Option, perhaps by leveraging the presence of existing Public Health, Veterans Administration and even Indian Health Service hospitals and clinics. And Community Health Centers. And Free Clinics. Any of which would benefit by a new pool of actual paying customers with insurance funded by Exchange subsidies.
Now clearly there are some dangers to trying to transition to Single Payer via crowding out for profit insurers. Especially since there is not an existing Public Option in the way the original plans envisioned. Still there is no reason to cry that Wall Street is not extracting what it considers to be its due pound of flesh by providing health care to rural and poor areas. United Health Care had a business plan. Its success required large rent extraction. That the PPACA as designed didn’t end up making it as easy to extract excess rents as the FirePups assumed is a good thing.
The road to Single Payer is certainly rocky. And maybe we will never get there in total. But if we do seeing the corpses of United Health Care and Aetna as squished road kill should not be triggers for pity and sorrow. Unless you are a Free Market fetishist.
“The company also raised its forecast for 2016 and announced first-quarter results that beat expectations.”
Sorry B. All first time commenters go to moderation. Just got up from my nap to approve you. Won’t happen again.
They can pull out all they want, it doesn’t mean much in the long run.
UHC has a business plan. And now that the Risk Corridor Reinsurance program is essentially defunct that business plan depends on premiums exceeding claims. According to UHC that isn’t happening. So they are threatening to leave the exchange marketplace. But the corpse you’ll see on the way to single payer isn’t UHC ( according to A.M. Best they are the largest insurer in the world based upon net premiums written and the individual marketplace is a tiny fraction of their business) but rather families with incomes higher than 95K per year who can’t afford $1500 per month for coverage in a narrow network with deductibles of 10K. That’s a small percentage of the health insurance consuming public and maybe that will convince them to support single payer. Or maybe they’ll side with Ted Cruz and want to whole thing repealed.
That is a very small group indeed. Most people with such incomes have employer-sponsored insurance.
A start towards a comprehensive public option that would probably be supported by 85% of the population: Medicare buy-in option (in the exchanges, fully funded by premiums, eligible for all tax credit subsidies) for anyone 50-64 who does not have employer-provided coverage.
That should be a no-brainer for any Democratic candidate, and a great way to highlight distinctions from any Republican who would oppose it.
Advocates of the public option I think really underestimated the amount of work and costs involved in entering the health insurance markets. Office space? You mean it would have to be charged fair market for space? Marketing? You mean the mailers aren’t paid by general state funds? Contracts with providers? My deal is worse than that private insurance company who has done $180M of business with you every year for the past 5 years (and I do not have customer 1 yet)? I can’t find a top actuarial manager who will work on state civil servant wage scale? An assessment for snow plowing the parking lot…are you kidding me?! On and on. The public option was going to be a success provided a lot of subsidizes made it through the regulators on the administration cost side and states took the effort to coerce great pricing from providers. Not taking profit alone is nowhere near enough to great the kind of pricing differences that would have upset the markets much.
Medicare, Medicaid, Tri-Care (military dependents and retirees), VA-Choice (new program that allows local providers in lieu of VA Hospitals). All of these have addressed some or all of those issues. A Public Option can draw on them as well as back up from federal and State Public Health facilities and Community Clinics already funded under PPACA.
Plus under my vision the Public Option doesn’t have to “upset’ the markets. It’s main function would be as a control and fall-back for private insurers who attempt a “I’ll take my ball and GO HOME” approach (which is how they have approached State Insurance Boards for years.) With a Public Option in place they simply have to compete on price and service.
Unless we go some route like Medicare Advantage where for years the private insurance companies got a 15% bonus payment per enrollee over regular Medicare. Once that was eliminated they started squealing. Because they were not in fact providing extra care out of magical efficiency or the free market. Instead it was a combination of playing the risk pool in their favor (they advertise in Golf Digest and not Diabetes Today) and having that extra cash flow right from the git-go.
The main advantage of the Public Option is that it prevents coverage deserts. Which imposes costs of its own, like most service businesses there is a lot of expense in the “last mile”. As it is the Exchanges have to endure polite blackmail from the last two insurers.
Another way this might unfold would be that a state faced with one single or no remaining insurers might charter a new one. It wouldn’t be all that different from the way New York State was involved in the creation of JetBlue to provide air service. Setting up a private for profit or non-profit insurer would not be as hard as so many assume, especially if aided by the appropriate legislation with regards to health care providers already having dealings with the state.
We can start by putting federal employees all on Medicaid, and taking away their current insurance.
So major cuts in premiums and copays for Federal workers?
I didn’t think you cared.
I qualify for Medicaid but haven’t used it because I am fully covered through the VA. Also because of income. But since Medicaid covers basic vision and dental in a way that Medicare doesn’t and the VA only does with limits I should be fully exploiting that part of my coverage. And maybe I will. But thanks for your proposal to qualify all children of Federal employees for tooth and eye care. Good of you.
They are already qualified for dental and vision insurance, Bruce, though their parents may opt out of it.
Since the U.S. government is already paying for the feds medical insurance, there is no reason not to move them (and Congress, of course) onto Medicaid, with appropriate payroll deductions to cover costs as they do with the insurance they have now.
The perversion in the system is that the value of a private insurer is in the dollar amount of value of the policies it writes which value is dependent on the cost of the activity they are writing insurance for.
Thus, cut cost and the value of the company goes down. Yeah, I know. Not thought about in this way in the general discussion, but…
We all get the poor UHC cost higher than it’s premium charges can’t make any money, but it’s the value of the company that is taking the hit and ultimately it’s stock price. Can’t have that happening.
Can’t fix this perversion in any other way than to go to a single payer system where making stock price is not of value.
FEHB (the Federal Employees Health Benefit Exchange) may be the best example of a well operated public exchange. Its one anomaly and the thing that would make it even stronger is if Medicare eligibles were required to sign up for Part B (the 1983 fix that put Federal employees into Medicare did not require sign up for Part B – consequently there are no supplemental plans in the exchange).
For those who want a functioning public option exchange, it’s already there and operating quite well. With the exception of Postal Service employees who are slowly equalizing, the agency pays about 72% and the employee pays the balance. It wouldn’t be that hard to come up with a buy in rate that combined with the already offered subsidies.
There would be some actuarial issues depending upon the population that used the exchange but studies done to look at using “postal-centric” calculations for postal employees show that the population of Federal employees isn’t significantly different than the country as a whole.
There are over a hundred offerings in FEHB. Some are national plans, some are localized HMOs, some require becoming an associate member of a union or management association with minimal dues. The plans must meet standards set by OPM which are, I believe, stricter than those set by the PPACA.
It’s an exchange that works, it’s national which helps equalize risk, and it has broad participation by major insurers.
Using the FEHB exchange combined with allowing an early Medicare buy-in -say 62, and rewriting the Medicaid expansion in a way that addresses the SCOTUS decision would expand coverage and address the issue of companies bailing on the state exchanges which seems to be more of a negotiating tactic than anything else.
Given polling of millennials it would seem that some sort of single-payer is within the cards within a generation. The large private insurers are playing a losing game and will likely find themselves totally out in the cold if they don’t figure out how to make the existing system work and work better
Are costs significantly lower for offerings in FEHB than other employers have?
The following link gives you the information on plans, premiums, and apportionment: https://www.opm.gov/healthcare-insurance/healthcare/plan-information/premiums/
This one gives a general overview of the program: https://www.opm.gov/healthcare-insurance/healthcare/reference-materials/reference/cost-of-insurance
GAO does regular audits of Federal programs like FEHB including this one on Fraud and Abuse prevention in FEHB:http://gao.gov/products/GAO-14-39
Here’s a critical look from a physician’s lobbying group: http://www.pnhp.org/news/Fehbp.pdf
And a general look by WP: https://www.washingtonpost.com/r/2010-2019/WashingtonPost/2012/08/06/National-Politics/Graphics/FEHBOPMcompplan.pdf
Here’s a look from the Heritage Foundation which finds FEHB to be “the answer to America’s healthcare problem”: http://www.heritage.org/research/reports/1992/02/consumer-choice-in-health-learning-from-the-federal-employee-health-benefits-program
If the exchange model is the one we’re going to go with (or be stuck with) then FEHB offers an example of an exchange that has worked and worked well for several years. There’s no question that the exchange model is problematic but PPACA was likely the best political solution at the time given the circumstances.
The idea that exchanges can’t or won’t work is more a matter of the constraints that were put on the exchanges, e.g. that they compete within states rather than over a national pool that spreads risk more broadly.
Is FEHB perfect? Of course not, but it does work. It’s greatest flaw at this point is the way Medicare eligibles are handled. GAO found that the so called unfunded liability the Postal Service faced from retiree healthcare would be virtually eliminated if FEHB required full Medicare participation and offered lower cost supplemental plans (yes, they also found that there would be costs to Medicare but that finding ignored the fact that Federal employees contribute to Medicare and there was some disagreement about the actuarial approach the study took.).
The premise of the OP centered around the lack of a public option in PPACA and how that has had an impact on private insurer participation in the exchanges. FEHB is an existing, functioning exchange that offers a solution to that problem.
Mark, four links or more will dump you in moderation almost every time. If you don’t mind waiting until Run, Dan or I come along then cool. Otherwise you might want to break it into two comments.
Hey Mark:
Welcome back! But, but I thought the PPACA look-alike plan was the Heritage promoted plan? And when we get to the Federal government model, will they disavow that one too? Just poking at you. The Federal Plan does have it good points. Too bad Congress did not push it amongst us.
Thanks Bruce – moderation isn’t a problem.