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Is a Public Option With Negotiated Rates Worthless?

October 31, 2009 - by Donny Shaw

After falling short on a whip count for the “robust” public option, Rep. Nancy Pelosi [D, CA-8] decided to put a watered-down version of the public option in the final health care bill. Unlike the “robust” version that would use Medicare reimbursement rates plus 5 percent, the version she included requires the federal government to negotiate rates with doctors and hospitals just like the private companies.

Conservative Democrats, mostly from rural districts, worried that the robust version, which would use the lower Medicare rates, wouldn’t be enough to sustain hospitals and providers in rural areas because Medicare’s geographically-adjusted rates are lower there.

The non-partisan Congressional Budget Office has done a preliminary analysis (PDF) of the public option with negotiated rates that Pelosi included in the bill and they have estimated that by removing the tie to Medicare rates, the public option loses its only advantage for competing with the private companies.

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 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.)

OK, so the public option in the bill that will be voted on next week by the House will have higher premiums than the private plans. That should pretty much put to rest any concerns that it will lead to a government take-over of the health insurance industry. The CBO figures that the government pan will go easier on sick people. The bill contains a number of consumer protections, like the ban on denying coverage based on pre-existing conditions, but the private companies are still for-profit and are still going to be looking out for their bottom lines when they set premiums. The public plan, on the other hand, will be not-for-profit will probably embody more of the general goals of the health care reform effort. But in order to be sustainable, they are going to have to spread out the relative costs of not gouging their less healthy enrollees.

Making insurance more affordable for sick people is, of course, a good thing, but it’s not really what the public option was meant to do in the greater health care reform picture. It’s supposed to offer cheaper insurance and encourage the private companies to find ways to lower their own prices in order to stay competitive. CBO has previously estimated (PDF) that the “robust” public option plan would be able to offer premiums that are about 10 percent cheaper than what private companies charge currently. But this new public option with negotiated rates is going mean that the health care bill, with its individual mandate, will be forcing healthy people that are currently choosing not to pay hundreds of dollars a month for insurance, to buy insurance without making any cheaper options available to them.

NOTE: The health care bill IS on the House schedule for next week. We have the full text posted online and much more information, including news and blog coverage, here.

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  • Anonymous 10/31/2009 5:57pm

    Who can read and understand 1990 pages of confusion…One would think that a bill could be written much more simply in 50 pages or less and contain everything needed…that 1990 pages refers to this, refers to that…it is utter nonsense to present such a monstrosity…

  • Comm_reply
    justamick 11/02/2009 3:36am

    The reason for the length of legislation like this is because of the requirement of bills to refer to US Code and other laws that are similar to or govern aspects of the legislation in question.

    With that said, I agree, there needs to be a version of the bill that contains all the pertinent information that we all need to know. It is way too difficult for any ole citizen to sit through 1990 pages written like that.

    On a different note, I don’t know about anyone else out there, but 72 hours to read 1990 pages? Really? If you were to spend 8 hours a day for three days reading one page a minute you STILL wouldn’t finish the bill. The 72 hours is a joke and an insult to intelligent Americans.

  • Anonymous 10/31/2009 7:57pm
    Link Reply
    + -1

    Just to be clear, any public option approved is likely to eventually lead to a full government takeover of health care. For example, if they pass this plan, it will be fairly obvious (and trivial) for a future Congress to modify the payment rates to the subsidized versions they couldn’t get passed in 2009. In fact, once you have the public plan in place, it becomes just “cost control” and/or “cost cutting” to lower these payments.

    Pelosi isn’t stupid. She knows that as long as she gets any public option through, future Congresses will push it towards single-payer. The probability that any future Congress will repeat the public option once passed is almost zero.

  • Comm_reply
    spender 11/01/2009 6:48am

    Good. I’m sick of my health being handled by these private tyrannies run by a handful of little Napoleons trying to one-up each other and me. And to hell with employees empowered to authorize multi-million dollar claims, but given bonuses if they can manage to not. I’ll take a government bureaucrat, dully executing policy and stamping forms, any day.

    Do you guys want to know what the most helpful, productive, and polite customer service interaction I’ve ever had was? Calling the IRS and asking for tax advice. I had gone down to H&R Block, but they turned out to be a bunch of shysters. The IRS tax lawyer, however, spent 30 minutes walking me through exactly what I had to do. I did it, and everything was fine.

  • Comm_reply
    Anonymous 11/02/2009 8:54am

    Maybe (just maybe) Pelosi isn’t stupid..but if we vote enough incumbents out and replace them with people with common sense, maybe we could come up with a future congress that would repeal the public option if it passes or not pass it at all in the first place…We need a congress that will stop spending especially on ridiculous things…

  • Comm_reply
    Anonymous 11/02/2009 9:32am

    Maybe (just maybe) Pelosi isn’t stupid… but that won’t matter if we vote out incumbents and replace them with someone with common sense..then maybe we could have a “future” congress that would repeal a public option or hopefully not pass it in the first place

  • Anonymous 11/01/2009 1:58am

    I am on the side of Republicans on this one. What I don’t see is all the complaining about this public option. Here is what the people where we live are saying about Nancy Pelosi’s failed attempt @ a P.O..It’s a joke! It’s not really a public option, but a joke. It’s not gonna help lower costs. People get it together they’re using public option lingo for the people to think they are doing something. I named can name a paper public option also, but thats all it is my friends, a piece of paper that don’t help who they claim to be helping. Us blue people as we are labeled by the media can see right thru her attempts. Upcoming elections will surely be difficult to win for these politicians who claim change and deliver nothing.We have complete control(dems that is)and still playing politics.All thats left to say is VOTE!

  • Comm_reply
    spender 11/01/2009 6:56am

    How can you say it’s not going to lower costs? The post we’re all commenting on stated specifically:

    “Conservative Democrats, mostly from rural districts, worried that the robust version, which would use the lower Medicare rates, wouldn’t be enough to sustain hospitals and providers in rural areas because Medicare’s geographically-adjusted rates are lower there.”

    If the worry is that the public option will lower costs too much to sustain medical providers is some areas, we’re definitely on the right track. (Admittedly, it should be tweaked somewhat to help ensure all providers are reimbursed fairly.) The so called “robust” public option will lower costs. The altered version might not, but that’s not a flaw with the public option. That’s a flaw in the thinking of the people who rewrote the “robust” version and changed it into the expensive version.

  • Anonymous 11/01/2009 2:23pm

    Anyone who thinks that this bill will be read and digested by every person who will be voting on it by the end of the week is as crazy as the people who wrote it. The only thing is they have excluded themselves from any adverse fallout so to them it is just a way to give the government more control over our lives and another failure like Medicare, Medicaid, Social Security etc. Obama wants to claim the supposed 3.5 economic growth for himself, but would be smarter to let Congress claim it. When all things are factored in there is no growth and Congress does the legislating so anything either way is owned by them. I’m proud to be a Tea Party member who cares about the future of our friends and families rather than a name calling Boot Licker. The Public Option is still an abomination. (and I am not a Republican)

  • Anonymous 11/02/2009 5:52am

    Big insurance by refusing care to patients over typos has ticked everyone off. They have a monopoly over the whole process and a well financed lobby team (including Liebermans wife) and representatives on both sides of the isle.

    Over 60% of all US bankruptcies are attributable to medical problems. Most victims are middle class, well educated and have health insurance – (The American Journal of Medicine)

    The insurance companies and their representatives in Congress would love to perpetuate a business model that is crippling our overall economy – a bunch of great Americans aren’t they?

    90% of the wealth concentrated in 1% of the population is no way to run a country but a heck of a way to establish a royalty ruling class. I’m for the public option, competition and a level playing field or break up the big insurers like we did to AT&T.

    Paul Burke
    Author-Journey Home

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