Wednesday, July 13, 2016

The public option is inside out

The public option is back in the ether, though it's hard to see a path by which it may walk this earth. Hillary Clinton has reiterated her verbal support for it as part of her package of Bernie mollifications. Obama has also floated a kind of public option ghost, to haunt only those ACA markets where competition is scarce. Democratic yearning is in high gear.

The public option is designed to mitigate the fact that a private, subsidized insurance marketplace expands the very sector of our healthcare system that pays healthcare providers the highest rates. While a "strong" public option would pay Medicare rates, private insurers typically pay probably more than 150% of that, at least in the employer-sponsored market (many do pay less, some much less, in the ACA marketplace).

Insurers understandably don't like a public option because it would put them up against a competitor that pays less for the care they retail than they typically do. That would seem, in many ACA markets, an impossible task. Competition can't force insurers to charge lower premiums when premium revenue is less than medical payments, as it is in some ACA markets.  Competition is great if it pushes insurers' medical loss ratios from 80% to 85%; it's futile if it pushes them from 87% to 92% or 102% or 120%.

Thus a public option is pushing on a string -- or at best, pushing insurers toward ever narrower networks.

Perhaps what's needed is for the government to set affordable rates, or take bids within a given rate range, and invite the insurers to compete on that basis. That's how Medicare Advantage works, and also how Medicaid managed care programs work, with some important differences in how bidding is structured.

Insurers are making money hand over fist in both Medicare Advantage and managed Medicaid, as Paul Demko notes today in a deep dive into the travails of insurers in the ACA marketplace. While insurers may be loathe to compete against a public entity when forced to free-form negotiate their own payment rates with healthcare providers, they should be happy to compete on a field where the government draws the foul lines. (Medicare Advantage plans pay provider at rates very close to those paid by the government in fee-for-service Medicare.*) The injured party would be healthcare providers, who would be getting government rates from one more source, covering perhaps 6-10% of the U.S. population (or more, if  the all-public exchange were opened to small businesses or even to all businesses).

One potential model for an exchange in which all options are public are the Basic Health Plans established by Minnesota and New York under the ACA (Minnesota's plan actually long pre-dates the ACA and was retailored to conform to its requirements). BHPs are available to residents earning up to 200% FPL who lack access to employer-sponsored insurance and don't qualify for Medicaid, either because they earn too much (over 138% FPL) or because they're legally present noncitizens subject to the five-year waiting period for federally funded access.

In both states, those eligible for the BHP choose among plans offered by multiple insurers. In each of New York City's boroughs at least seven insurers are competing in the BHP, called The Essential Plan. In Minnesota, the state's major insurers participate in the BHP, MinnesotaCare, though in some rural regions there are only two plans to choose from. (FWIW, I've written about NY's BHP here, and Minnesota's here and here.)

A state could propose to extend eligibility for a BHP beyond 200% FPL via ACA innovation waiver -- either to everyone eligible for ACA subsidies, or to everyone at any income level who lacks access to other insurance, and perhaps to small businesses as well. If that seems radical, it's a lot less radical than the one-state single payer concept that Vermont sidled up to an rejected, and that Colorado currently has on the ballot.  Hillary Clinton has indicated that her HHS will be receptive to state proposals that aim to make coverage more affordable

I am wondering when progressives made the leap from proposing public insurance of one kind or another for adults under age 65 who lack access to employer insurance, as in the CHOICE proposal that came out of California in the early noughts, and Jacob Hacker's similar Health Care for America proposal published in early 2007, to a private market in which every insurer is on its own when it comes to rate-setting. If the party is indeed moving left now, perhaps such ideas will at least join the public option in the ether.

* Added 7/18


  1. Providers threaten to walk in a public option world: "rates to low."
    However, I have seen no paper, not one, projecting a public payer threshold over which providers could NOT walk due to a critical mass of non-MCO patients. You would have to take into account early retirees, concierge, and going off the insured/FFS grid, but heck, you think we would have some estimates by now.

  2. The rates which a public option pays providers are only part of the story.
    Equally or more important are reserves and pricing.

    If the public option can use the US Treasury for reserves, and if the public option can raise rates slowly without trying to cover losses..............then the public option is like Medicare, and may as well BE Medicare.

    Otherwise the public option can fade as fast as the co-ops