Rational Arguments

I’ve taken a lot of heat from people on both sides of the aisle this week for saying that I support reform, but that the effects of the current proposals won’t have the massive effects on cost-containment that some believe.  I’ve been consistent in my beliefs, however.  If you want to build on what we have, and increase access without touching quality, costs can’t just magically drop.

More evidence from Ezra Klein:

The graph above tracks premium growth in three markets: the employer market, the Federal Employee Health Benefits Programs, and the California Public Employees’ Retirement System . The latter two are essentially models for the exchanges. They’re regulated markets in which various insurers compete for a relatively large pool of customers who are able to choose among their offerings. And they have not, in general, held costs down much better than the employer-based market at large.

I know the public option isn’t included in this, but I’ve gone into that in detail before.  This data adds some concerning evidence that the exchanges, especially if they are hampered in the way people are proposing limiting the public option, may not reduce costs as much as we hope either.

Let me reiterate, this isn’t a reason to kill reform.  It still does everything I said before.  It’s just going to cost a lot of money, perhaps more than some expect, and we will need much more comprehensive changes to contain costs before too long.

I’ve been fielding a fair amount of comments and email about my Huffington Post piece on the (overestimated) importance of the public option.  My favorite was the one that said I was “in the pocket of big insurance.”  I need to hook that guy up with the one a few months ago who called me “Marxist Welby, MD”.

Anyway, I’m not against the public option!  Even though I don’t think it’s as critical or powerful as many think it is, I hope it passes.   Which is why I’m happy to see Senator Nelson say this (emphasis not mine):

“Well, there are different kinds of public options…. What was interesting in the poll numbers that I saw, that while there’s support for public option generally, generically, when you start talking about it specifically as it relates to states being able to opt out or opt in, have their own, the support overwhelmingly goes up to 76 percent.”

If Senator Nelson, certainly one of the most conservative Democrats, is willing to say something like this, there may be a public option after all.

I spent more time than I had planned answering comments on my Huffington Post piece.  I expected it to cause a bit of a stir, but not quite that much.  Unfortunately, that left little time to blog here.

Luckily it was a slow news day.  So instead, I’m going to send you to some stuff you should read:

1)  Austin Frakt published a new study in Health Affairs today.  In his words:

As legislators merge and amend the bills before them, it’s worth pausing for a moment and considering what this is all about: real people in real need–millions of uninsured and vulnerable Americans for whom successful reform would bring relief or for whom failure would bring additional years, possibly decades, of struggle

Research released today in the journal Health Affairs, by me with colleagues Steve Pizer and Lisa Iezzoni, shines light on a particularly vulnerable set of Americans in desperate need of health insurance and the access to care it would facilitate.

That’s big deal, and it’s important to recognize original research in this field.  Go read his blog post, and if you’re up for it, the whole manuscipt.

2)  Ezra Klein delves into the depths of the excise tax for health care reform in two parts.  If that’s not enough for you, the Center on Budget and Policy Priorities has even more.

3)  Steve Benen reports that the public option (or some form of it) isn’t dead in the senate yet.  Maybe I was too pessimistic…

Many are rallying around the public option like it’s a singular opportunity to save the world. It’s not; it’s not even close.

Go read the entire piece at The Huffington Post.

I’m being inundated with emails asking for my thoughts on the AHIP bombshell over the weekend that reform as prescribed by the Senate Finance Committee will raise the rates for health insurance by more than $4000 by 2019.

Look, I simply have to read the full report before I weigh in.  So give me some time to squeeze that into my day.  But here are some initial thoughts:

• I think this is a likely reaction to the watered down mandate penalties.  The only way the insurance companies can swallow the loss of individual ratings was to get 47 million new customers.  If healthy people can opt out too easily, this is bad for insurance companies.  So they’re pressuring the Finance Committee to think about that.
• This may be a shot across the bow for those seeking reform to give more concessions to the insurance companies, much like doctors and pharma have received.
• On the other hand, I think this may possible backfire.  The insurance companies seem to be saying that they will be completely unable to contain the costs of insurance.  Ummm….  isn’t that the argument everyone makes for the public option?  Many believe that we need the public option to compete with private insurance so that they will be forced to find a way to lower costs.  Am I missing something here?

More later after I’ve fully digested the report.

UPDATE: I should have been more explicit.  AHIP claims premiums will go up $4000 above what is expected.  In other words, they say the bill will add an additional $4000 to whatever crazy amount we expected premiums would already go up already.  I imagine if premiums went up only $4000 total by 2019, we’d all be thrilled.

I’m seeing two moves on the reform front that seem to be pretty smart.

The first is the opt-out public option.  Per Sam Stein:

[T]he “opt-out” approach would start with everyone having access to a public plan. What kind of public plan isn’t yet clear. States would then have the right to vote — either by referendum, legislature, or simply a gubernatorial decree — to make the option unavailable in their health care exchanges.

Why is this smart?  Well, it allows the government to set up a large, robust, national public option instead of smaller local or regional ones.  This public option would have serious bargaining power and a good risk pool.  Additionally, it would allow Congressmen and Congresswomen on the fence to punt the decision to the states.  I like it because it also forces the public option to put its money where its mouth is.  If it works as promised, it will be hard for state governments to deny it to its citizens; if it’s a failure, then more and more states will opt out.

The second smart move comes courtesy of The Hill:

Speaker Nancy Pelosi (D-Calif.) will submit multiple versions of the House’s healthcare bill for cost estimates, she announced on Thursday.

The first proposal will include a “robust public option,” which would tie doctor reimbursement rates to that of Medicare plus five percent. The remaining two drafts submitted for the Congressional Budget Office’s consideration would include a public option based on “the negotiated rates that some in our caucus have supported and which was passed by the Energy and Commerce Committee,” the speaker explained during Thursday’s press briefing. (h/t Bob Cesca)

Why is this smart?  Since she knows that the public option reduces the cost of the bill, and she also knows that the Blue Dogs swear they are committed to fiscal sanity, Speaker Pelosi is going to force them to explain why they are opposing bills that save money and favoring bills that cost more.  It won’t be easy.

I’ve never been the biggest fan of this form of incremental reform, but it’s moves like this that make me believe that they are actually going to get this passed.

A reader writes:

During President Obama’s national health care address he stated that government health care would only cover 5% of the population. If the Republicans are so concerned about a nationalization of healthcare then why not just put into the bill that maximum participation is set at 5% of the American population. Then costs for the program could be budgeted better and the Republicans can stop saying that the President is looking to “Nationalize Healthcare”.

It’s a valid question.  But it’s counterproductive for a number of reasons.  First of all, the reason to have a public option is for competition.  The specter of a government plan is intended to drive private insurance companies to lower rates and/or increase benefits.  If those companies knew that the most business they could lose is 5% of the population (while picking up way more than that from the uninsured now buying insurance), there’s no reason to compete.  Just let that business go.  This would mitigate the public option’s effects on cost containment.

Moreover, many people believe that the public option will succeed and that private companies can’t.  Those people would balk at denying this viable option from growing, when it could eventually save significant over the long haul.

Finally, this isn’t intended to “nationalize insurance”.  It’s just shifting who is providing the insurance.  Changing the bill, in a way to lessen its ability to reduce costs, just to answer a fear not based in reality is not good policy.

Well, it’s not looking good for the public option in the Finance Committee debate.  But the arguments against it are telling.  Per the NYT:

“A government run plan will ultimately force private insurers out of business,” Mr. Grassley said, adding that supporters of the public option were trying to open a back door toward a fully government-run, or single-payer, health system like those in Canada or England.

“Public option is a step toward a completely government run plan that they are hoping for,” Mr. Grassley said.

First of all, if the public option runs private insurers out of business, it will be because it is more appealing to Americans as an option.  How is that bad?  I’m not asking rhetorically.  Seriously.  Senator Grassley, if we believe in the marketplace, and we believe that the group that can offer the best product for the lowest price should win – if private insurance can’t do it, why should we keep them around?

Moreover, how then has Medicare not put private insurance out of business?  How come we aren’t afraid of that single-payer system sliding us down the slippery slope into socialism?

Can someone please ask him?

A reader writes:

You keep saying that it’s not true that this will be paid for by cuts to Medicare.  But I keep seeing that there are cuts to Medicare waste in the bill?  Who is telling the truth?

I just got this one on the radio yesterday as well. If you can find it on replay, you can hear my answer.  But when it comes to writing it agian on the blog, I make it a point not to restate things when others have done it well.  With that said, here is Ezra Klein (emphasis mine):

At issue are payments to the Medicare Advantage program. Medicare Advantage is a Medicare carve-out that allows private insurers to offer plans for seniors. The original vision for the program was simple enough: Private competition will drive costs down. The private market, as you may have heard, is more efficient and effective and adaptable. No reason seniors shouldn’t benefit from that ingenuity. So Medicare would give private insurers the money it would spend on a beneficiary, and the private insurers could try to do a better job with it.

Medicare Advantage, however, failed in its mission: prices shot up. Private insurers complained that they couldn’t compete with Medicare for the same amount of money Medicare spends. So Republicans systematically increased reimbursement rates, and now Medicare has to pay the average private plan 114 percent what it would’ve spent to cover that beneficiary itself. That’s helped the private plans provide better service (as you would expect), and now 23 percent of seniors are in an Advantage plan.

Democrats don’t want to eliminate the Medicare Advantage program. But they want it to live within the same budget that Medicare uses. Republicans argue that pulling back these payments will force some Medicare Advantage plans to trim their benefits. That may well be true. But it is an argument against ever eliminating government overpayments to any program. It is an argument, in other words, for waste and abuse.

It is also an interesting moment of insight into the conservative philosophy on these matters. The problem with government programs, we’re often told, is that they are expensive and wasteful, and the private market could do better. But faced with an instance where the government program proved relatively lean and efficient, and the private market expensive and wasteful, Republicans have mounted a ferocious defense of the market’s right to continue burning through taxpayer dollars.

This is one of those hypocritical arguments that make me want to lose my mind.  You see, we’re paying – with tax dollars – more for private companies to do the same thing the government was doing already for less.  Private companies said that they cannot provide Medicare benefits to the elderly for the same amount that the government does.  Instead of sending them packing, the government started giving them more to do it.  That’s wasteful.  We can stop paying them extra.  If – for the same money – Medicare Advantage can’t provide the same benefits, people will go back to regular Medicare.  That’s not a cut.  That’s a return to fiscal sanity.  Moreover, it won’t affect the 77% of seniors who remained on regular Medicare at all!

Ironically, this is the same pitch you’d make as to why there should be a public option, but why even bother with a rational argument?

A reader writer:

If they pass the bill without a public option AND also have a requirement for all people to purchase health insurance, with subsidies for those who can’t afford it, wouldn’t the result simply be the government paying those subsidies DIRECTLY to the insurance companies with NO WAY of containing costs?

That would be a HUGE boon for the insurance companies!

Why, yes it would!

Look, this is the main problem with the fragmented way we’re implementing reform.  We know we need a large risk pool.  We know we need everyone’s money, especially the healthy people’s.  We know we can’t allow people to game the system.  And since we apparently aren’t willing to go the single payer route, that means we need a mandate.  We have to force everyone to buy insurance.

[W]e conclude that, absent a single payer system, it is not possible to achieve universal coverage without an individual mandate. The evidence is strong that voluntary measures alone would leave large numbers of people uninsured. Voluntary measures would tend to enroll disproportionate numbers of individuals with higher cost health problems, creating high premiums and instability in the insurance pools in which they are enrolled, unless further significant government subsidization is provided. The government would also have difficulty redirecting current spending on the uninsured to offset some of the cost associated with a new program without universal coverage.

This is what then-Senator Clinton said again and again in the primaries.  The biggest danger with the mandate, however,  is that we will wind up forcing people to buy insurance they can’t afford. And then-Senator Obama called her out on it.  He even went after her for it in the following ad:

Although the irony in that it’s his problem now is rich, now, as then, there is no easy solution.  One way to make sure this doesn’t happen is to make sure people get subsidies to buy insurance.  That raises the cost of the bill, though.  And, it results in tax money going directly to private insurance companies who may still be charging too much, as there is little in the bill to contain costs.  This is what the reader points out.

And that’s where the public option comes in.  I’m not going to reinvent the wheel, when Paul Krugman explains it so well:

The first [reason is]… the extent to which even a public plan with limited bargaining power will help hold down overall costs. Private insurers do pay providers more than Medicare does — but that’s only part of the reason Medicare has lower costs. There’s also the huge overhead of the private insurers, much of which involves marketing and attempts to cherry-pick clients — and even with community rating, some of that will still go on. A public plan would probably be able to attract clients with much less of that.

Second, a public plan would probably provide the only real competition in many markets.

Third — and this is where I am getting a very bad feeling about the idea of throwing in the towel on the public option — is the politics. Remember, to make reform work we have to have an individual mandate. And everything I see says that there will be a major backlash against the idea of forcing people to buy insurance from the existing companies. That backlash was part of what got Obama the nomination! Having the public option offers a defense against that backlash.

We need the public option because it (1) may offer a cheaper alternative, (2) promote competition, (3) and provide political cover.  Even the CBO has recognized that its inclusion would likely lower the cost of the bill, not raise it.  Regardless of what opponents say, these are the reasons to want the public option, not as a backdoor to single payer.  If that’s why you want it, sorry to disappoint you.