What the Public Option MUST Have To Survive

by: Ian Welsh

Mon Jul 27, 2009 at 10:30

On Saturday I wrote about a piece by Kip Sullivan which attacked the Public Option on its own merits.  Kip's most devastating, and I think, accurate, criticism was that the public option as envisioned by the current House proposal (let alone likely Senate modifications) is so weak it might not even survive.

  • Because it has no built in customer base, which increases its upfront expenses for advertising and a salesforce significantly.  People who have company healthcare plans can't join.
  • Doctors, hospitals and so on are not required to accept it, and providers will not accept it if it provides below market rates unless it also provides large numbers of patients, which it can do because it isn't pre-populated and isn't a good buy for insureds unless it can provide a low premium, which requires it to pay low rates.
  • It must make a profit in order to return the money up-fronted to it, and it has only 10 years to do that, but it has to start from scratch, as noted above.

Looked at through this lens, the idea that the Public Option will survive 10 years is ridiculous.  With these burdens, it can't obtain the necessary number of insureds to allow it to negotiate provider agreements that are low enough to make it attractive enough to enough people to have enough people to negotiatite provider agreements which are low enough to... (well, I'm sure you see where this is going.)

This is a public option designed not just to never turn into either single payer (what Canada has) or comprehensive health care (what France has), it is a public option so crippled it may not even be able to get off the ground.  New companies have significant startup costs, there are massive barriers to entry in the health insurance field, and the term over which the public plan has to return its costs is too short.

So what does the Public Option need to work?

First: it needs to be populated with enough people to be viable.
  Here are some possibilities of how to do that without a lot of auto-enrollment.  You don't need to do all of these, you do need to do some of them or something similar.

  • On the income tax form, have an opt in box for anyone who wants to enroll, so that every American sees the option, without needing to see advertising
  • If there is an individual mandate requiring people to buy insurance, if they don't have it after the first year—if they haven't bought, auto-enroll them at tax time into the public option.
  • auto enroll everyone on disability into the plan, as top-off insurance.  Whatever the gap between what they get from their disability and public option is covered by the public option
  • Veterans auto-enroll into the public option as well, in exactly the same way, as top-off insurance.  They still get all their veterans care, but anything that isn't covered by Veterans, that is covered by the public option, they now also get
  • everyone must be free to choose the public option, including people who are enrolled in corporate healthcare plans (this is baseline, this must be in the plan to give it the ability to drive down costs.)
  • State rollovers.  If a state has a plan that doesn't cover everything the public option does, then everyone on the State plan is automatically enrolled, and the cost of those health care services is taken out of Federal Medicare funds.

Institute enough of these policies, and the public plan can have a large enough enrollment base to matter, and because it is easy to enroll in can put price pressure on private firms.  But even with all of these, the public option will still start out not all that large and have trouble negotiating contracts.  So, what else do you need?

Ian Welsh :: What the Public Option MUST Have To Survive
Second: it needs to work with Medicare and Medicaid.

  • Negotiation must take place between the all three plans as one, and providers.  This will drive down prices the fastest.  It will not just help the public option, it will also drive down Medicaid and Medicare rates.
  • If a provider accepts Medicaid or Medicare they must also be required to accept the public option.  No picking and choosing.
  • The rate does not have to be the same as the Medicare rate, but it must be based off the Medicare rate.  The House plan is Medicare + 5%.  That's fine.
  • All limits on the ability of Medicare/Medicaid and the public option to negotiate prices with providers (for example, not allowing negotiations with pharmaceutical companies) must be removed.  Failure to do so will mean not only that costs won't be contained, but that the government plans will be at a disadvantage compared to private plans which an do this.
The above are the minimum requirements to create a viable public option.  Public option advocates who are not willing to draw a line on the above are advocating for a plan which will, most likely, not survive—a plan that is not viable.  The cry of public option advocates has been "saving even a few lives is worth compromising!"  But if you compromise to the point where the plan is not viable, you've compromised to the point where there's no point.

There are other requirements for a good public option, such as guaranteed issue, the whole population being enrolled in some insurance (mandates in the current debate), the plan being national in scope so it has scale, private plans being required to cover the same things as the public plan, and high enough subsidies so that everyone can actually be enrolled (if you insist on mandates).  Those requirements, however, seem to be better understood by public option proponents.  What is required for viability, however, does not seem to be.

The current House Plan is not viable as written and other options are worse.  There is no practical difference between no public option, and a non-viable public option and at that point the argument of "don't let the perfect (single payer) be the enemy of the good (a public option which will save some lives)" becomes non operational.

I will be happy to support a viable public option.  So far we don't have one.  I urge public option advocates, and even single payer advocates, to push for one.

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Great work (4.00 / 1)
I am a pretty reasonable economist, but I am not a health care economist, so it is interesting to read about these details.

The real issue as I understand it is economies of scale and the power of monopsony.  Clearly the PO is going to have to be big since my guess is a fair amount of a health insurance companies costs are fixed (ie the processing claims system).  Second, obviously the bigger you are, the more leverage you have with providers.

The French as I understand it have non profit co-ops that manage health care that might not be too different from some of the PO options being proposed.  I may be missing something, though, since my knowledge of the French System is less than an inch deep.

BTW: check out the schedule of costs for French Health Care that I found on Wikipedia.  Note the 30% co-pay, and the fee Doctors collect.    It is interesting on a number of different levels.  

Why still have Medicaid? (4.00 / 2)
Why not just abolish Medicaid, roll all medicaid recipents into the public option, and eliminate the inefficiency of having the States administer a Federal program?

I know a few people that while eligible for medicaid (0.00 / 0)
they don't enroll in it due to medicaid's assets policies like no more than $2,000 in the bank

how will this proposed roll-over work in regards to that?

I wouldn't like the PO to adopt the medicaid rules

I hope no such thing is adopted. anyone with knowledge on this issue?

[ Parent ]
This analysis is what finally convinces me that (4.00 / 1)
Obama is not serious about the Public Option.  It explains why he refuses to get squarely behind it.  It is clear that he views the Public Option as a stick to beat some smaller set of concessions out of the Insurance Industry and Big Pharma and that's all he's really after at this point.

The ultimate answer is a single-payer system.  Only that can offer the necessary cost savings.  The Public Option has failed as a strategy - it did not sufficiently disarm the industry or appeal to the people.

In my opinion the tack Single Payer advocates should take given the above is to take whatever ameliorations we can get from the administration while neither trashing them nor pretending that they are in any way the solution the administration would like to claim they are, and come back again in a year or two with a serious push for a single-payer plan.  

Ultimately, this issue, like slavery in another era, is an issue that cannot be "finessed", it must be tackled head on.  Private for-profit health insurance has an inherent conflict of interest that it cannot possibly resolve and therefore needs to go away.

The public option as it exists would be better done without.

sTiVo's rule: Just because YOU "wouldn't put it past 'em" doesn't prove that THEY did it.

I would be happy with a viable public option (0.00 / 0)
I think it's virtually impossible to make a viable option which won't eventually lead to some sort of comprehensive health care system (though it'd probably take 12 to 16 years.)  But even if I didn't think it would lead to single payer, I'd still take it- if it's viable.

It's just that I don't think this plan is viable.  Or at least, it's very touch and go.

[ Parent ]
I agree (0.00 / 0)
except that neither this Public Option nor any we are likely to get out of the congress meets the viability criteria that you and I share.

Another way of saying the same thing is the fight you need to win a VIABLE Public Option is basically the same fight you need to win Single Payer.

sTiVo's rule: Just because YOU "wouldn't put it past 'em" doesn't prove that THEY did it.

[ Parent ]
I admire this work a great deal. It is some of the most impressive work (4.00 / 1)
on "getting there from here" that I have read on any site, in any journal, in any speech. This is numbers and stipulations and reasoning and the line items needed to make the legislation deliverable.

This is reconciliation Ctte. good thinking and planning. I completely and whole heartedly endorse and support this work.

This is of a level to send unchanged to the people we (you) trust to take it as a crow bar into discussions on the building of the final product, the reconciliation.

There is one that may negotiable in the way ity is implemented;

everyone must be free to choose the public option, including people who are enrolled in corporate healthcare plans (this is baseline, this must be in the plan to give it the ability to drive down costs.)

Most plans that are in existence now, are cheaper (har har) when purchased as a group. Employers get 'discounts" (de har) when the company agrees that every single one of the employees is enrolled. Having a stipulation that any employee can bolt, may become,

every one company must be free to choose the public option, including people who are enrolled in corporate healthcare plans (this is baseline, this must be in the plan to give it the ability to drive down costs.)

I am not advocating that negotiated backsliding (duck) But observing.

Congratulations Ian.

Lets get this trusted congressional staffers asap. And lets get this to public discussion.

Have you cross posted this? and if not could we all get that done? A bunch of you total radical dudes should get this posted up anywhere that non-single-payer-immediately-or-death articles are tolerated.


The government has a defect: it's potentially democratic. Corporations have no defect: they're pure tyrannies. -Chomsky

nice post (0.00 / 0)
I agree with both points


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