Blumberg and Holahan on belling the healthcare cost cat

This week, Urban Institute healthcare scholars Linda Blumberg and John Holahan published a report, Designing a Medicare Buy-In and a Public Plan Marketplace Option: Policy Options and Considerations.

The report demonstrates that while designing a Medicare buy-in would be dazzlingly complex (cf. my modest proposal for simplifying it), designing a "strong" public option would be relatively simple. For both programs, the rationale is also simple: moving part (or potentially all) of the individual market population into plans that pay Medicare rates to healthcare providers.  That, the authors note in conclusion, is is basically a sine qua non of healthcare cost control:

Regardless of the approach taken, providers are likely to resist new insurance options that may move more patients into plans paying lower rates. While this is to be expected, it highlights the perpetual quandary of health care cost containment. Health care spending and its growth cannot be reduced without either paying less, on average, per unit of service rendered or reducing the quantity of services provided. No matter the strategy for containing costs, achieving that goal will take money out of the pockets of providers. To protect providers financially means abdicating cost-containment efforts of any type.

Healthcare scholars who propose means of cutting payments to providers know that they're in the position of mice who propose putting a bell on the cat that stalks them. No one in elected office is willing to bell the cat.

Insurers don't like the notion of a public option any better than providers do. Blumberg and Holahan suggest, however, that rather than putting private insurers out of business, a PO might give them the negotiating leverage to get their own provider rates closer to those paid by Medicare:

Others are surely concerned that private insurers would pull out of nongroup insurance markets if forced to compete against a public option. As we have indicated, in some areas, a public option would not be one of the lower-cost options in the Marketplaces. But even where it was a low-cost option, other insurers would not necessarily exit. In areas with little provider competition, a public option may be a strong incentive for provider systems to begin to negotiate better rates with private insurers, allowing them to lower premiums so that the providers will not have the state or federal government as their sole payer.

There's another way to ensure that insurers in the individual market pay Medicare rates: pay them in such a way that they basically have no choice. That is, pay them as Medicare Advantage plans are paid: on a capitated basis tied to Medicare rates. But that would require belling a pair of really big cats: the entire provider community, and a major political party sworn in enmity to "government health care."