The challenges of a Medicare public option for the private insurance market

July 30, 2019

Topics: Quote of the Day

By Reed Abelson
The New York Times, July 29, 2019

It seems a simple enough proposition: Give people the choice to buy into Medicare, the popular federal insurance program for those over 65.

Former Vice President Joseph R. Biden Jr. is one of the Democratic presidential contenders who favor this kind of buy-in, often called the public option. They view it as a more gradual, politically pragmatic alternative to the Medicare-for-all proposal championed by Senator Bernie Sanders, which would abolish private health insurance altogether.

A public option, supporters say, is the logical next step in the expansion of access begun under the Affordable Care Act, passed while Mr. Biden was in office. “We have to protect and build on Obamacare,” he said.

But depending on its design, a public option may well threaten the A.C.A. in unexpected ways.

A government plan, even a Medicare buy-in, could shrink the number of customers buying policies on the Obamacare markets, making them less appealing for leading insurers, according to many health insurers, policy analysts and even some Democrats.

In urban markets, “a public option could come in and soak up all of the demand of the A.C.A. market,” said Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University.

And in rural markets, insurers that are now profitable because they are often the only choices may find it difficult to make money if they faced competition from the federal government.

Some insurers could decide that a smaller and uncertain market is not worth their effort.

If the public option program also matched the rates Medicare paid to hospitals and doctors, “I think it would be really hard to compete,” Mr. Garthwaite said. Even leading insurers do not have the leverage to demand lower prices from hospitals and other providers that the government has.

The A.C.A. is now a solidly profitable business for insurers, with several expanding options after earlier threats to leave. For example, Centene, a for-profit insurer, controls about a fifth of the market, offering plans in 20 states. It is expected to bring in roughly $10 billion in revenues this year by selling Obamacare policies.

In spite of stock drops because of investors’ concerns over Medicare-for-all proposals, for-profit health insurers have generally thrived since the law’s passage.

But a buy-in shift in insurance coverage could profoundly unsettle the nation’s private health sector, which makes up almost a fifth of the United States economy. Depending on who is allowed to sign up for the plan, it could also rock the employer-based system that now covers some 160 million Americans.

Some experts predict that private insurers will adapt, while others warn that the government could wind up taking on the sickest customers with high medical bills, leaving the healthier, profitable ones to private insurers.

One variant of the public option — letting people over 50 or 55 buy into Medicare — is often depicted as less drastic than a universal, single-payer program. But this option would also be problematic, experts said.

This consumer demographic is quite valuable to insurers, hospitals and doctors.

Middle-aged and older Americans have become the bedrock of the Obamacare market. Some insurers say this demographic makes up about half of the people enrolled in their A.C.A. plans and, unlike younger people who come and go, is a reliable and profitable source of business for the insurance companies.

The aging-related health issues of people in this group guarantee regular doctor visits for everything from rising blood pressure to diabetes, and they account for a steady stream of lucrative joint replacements and cardiac stent procedures.

Several experts said that designing a buy-in program that is compatible with the existing public and private plans could be daunting.

“You’d have to do it carefully,” said Representative Donna Shalala, a Florida Democrat who served as the secretary of health and human services under President Bill Clinton.

Linda Blumberg, a health policy expert at the Urban Institute, a nonpartisan think tank, agreed. “The idea of Medicare buy-ins was taken very seriously before there was an Affordable Care Act,” she said. “In the context of the A.C.A., it’s a lot more complicated to do that.”

Blue Cross plans could lose 60 percent of their revenues from the individual market if people over 50 are shifted to Medicare, said Kris Haltmeyer, an executive with the Blue Cross Blue Shield Association, citing an analysis the company conducted. He said it might not make sense for plans to stay in the A.C.A. markets.

Siphoning off such a large group of customers could also lead to a 10 percent increase in premiums for the remaining pool of insured people, according to the Blue Cross analysis. More younger people with expensive medical conditions have enrolled than insurers expected, and insurers would have to increase premiums to cover their costs, Mr. Haltmeyer said.

Dr. David Blumenthal, the president of the Commonwealth Fund, a foundation that funds health care research, said a government plan that attracted people with expensive conditions could prove costly.

“You might, as a taxpayer, become concerned that they would be more like high-risk pools,” he said.

Jonathan Gruber, an M.I.T. economist who advised the Obama administration during the development of the A.C.A., likes Mr. Biden’s plan and argues there is a way to design a public option that does not shut out the private insurers.

“It’s all about threading the needle of making a public option that helps the failing system and not making the doctors and insurers go to the mat,” he said.

While Ms. Shalala supports a public option as an alternative to “Medicare for All,” she is clear about how challenging it will be to preserve both Obamacare and the private insurance market. “You can’t do it off the top of your head,” she said.

https://www.nytimes.com…

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Comment:

By Don McCanne, M.D.

To many, the debate about health care reform does not seem very complicated. Prevailing thought seems to be that we should leave employer-sponsored plans alone, allowing people to choose them if they want. We should also allow individuals to purchase a newly-created Medicare public option if that is their preference. Some would still prefer single payer Medicare for All as a plan that covers everyone since that would resolve health care coverage issues forever, though the KFF poll released today shows that 55% of Democrats would prefer building on the existing Affordable Care Act whereas only 39% would prefer replacing is with a national Medicare for all plan, whereas 62% of Republicans oppose even a public option. So it seems that we should use the democratic process to see which route the majority prefers and then go with that.

But the message in Reed Abelson’s New York Times article shows that it is not that simple. The policy considerations behind the various approaches are very complex. They mostly boil down to the fact that fragmenting the health care financing system introduces inefficiencies, inequities, and profound administrative complexities which divert an inordinate amount of funds from actual patient care, and leave many without the care they need.

What is somewhat instructive are the separate views of Jonathan Gruber and Donna Shalala, both of whom have had considerable experience with our health financing system. They both express the view that reform should preserve the role of private insurers (but why?). Gruber says, “It’s all about threading the needle,” whereas Shalala says, “You can’t do it off the top of your head.”

Preserving the private insurance sector creates a tremendous policy challenge that can be negotiated only by compromising on efficiency, effectiveness and equity, while agreeing to greatly expand our health care spending – already by far the highest in the world.

Why does the policy community keep trying to sideline the definitive model that would work best for all of us – single payer Medicare for All? Are people really that enamored over their private plans that nobody is able to keep over the decades anyway (60 million people leave their jobs each year)? Why are we bending over backwards to keep such a dysfunctional system in place?

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