“Option” advocates should stop comparing the “option” to Medicare - Kip Sullivan

The “chicken and egg” problem: Can the “public option” succeed where Prudential failed?

http://pnhp.org/blog/2009/09/05/the-chicken-and-egg-problem-can-the-public-option-succeed-where-prudential-failed/

Posted by Andrew Coates MD on Saturday, Sep 5, 2009
By Kip Sullivan, JD


"In a previous paper I described the transformation of the “public option” from an enormous program that would insure 130 million people to a tiny program in the Democrats’ health “reform” legislation that will insure somewhere between zero and 10 million people. I predicted that the “options” in the Democrats’ bills would be unable to succeed in all or most markets in the country. I characterized the main barrier facing the Democrats’ shrunken “options” as a “chicken and egg” problem: A person or group trying to create a new insurance company can’t tell prospective customers what the premium will be until they have determined how much they will pay providers; but the person or group can’t know how much it will pay providers until it knows how many people it will insure.


...“Option” advocates should stop comparing the “option” to Medicare

To test your understanding of the “chicken and egg” problem, let me end with a pop quiz: Did Medicare face a “chicken and egg” problem when it started up?

The answer is: No, it did not. It did not because it didn’t have to create a “customer” base from scratch. Its base was created by the law (signed on July 30, 1965) that created Medicare.

Medicare is, by design, the sole insurer for people over age 64. That means that Medicare’s administrators had a precise idea of how many Americans they would be representing on July 1, 1966, the day Medicare commenced operations. Equally importantly, every clinic and hospital in America had a good idea of how many elderly patients they would be getting if they participated in Medicare and, conversely, how many they would lose (and how much money they would lose) if they refused to accept Medicare patients. And because the Medicare law gave the nation’s entire elderly population – the portion of the population with the greatest need for medical care – to Medicare, Medicare’s administrators had a good idea of how much leverage they had on day one over the nation’s providers. This allowed them (eventually) to make an offer to America’s providers that the providers could not refuse – accept Medicare’s below-average rates or lose a lot of money. The offer was not refused. Today, virtually all American clinics and hospitals accept Medicare enrollees even though there is no requirement in the Medicare statute that providers accept Medicare enrollees. In short, having pre-established enrollment, which in turn gave Medicare the ability to set its rates below those of the insurance industry, meant that Medicare did not face the “chicken and egg” problem.

More importantly, Medicare didn’t face a “chicken and egg” problem because it has always been the single insurer for the services covered under Medicare. Medicare has never had to compete with the insurance industry for “customers.” A pernicious consequence of the tendency of “option” advocates to describe the “option” as “just like Medicare” is that “public option” supporters and members of Congress have been lulled into thinking the “option” is bound to succeed just as Medicare did. The tendency of “option” advocates to ignore the daunting “chicken and egg” problem is one manifestation of the lazy thinking that has been induced by the constant comparison of the “option” to Medicare. ”Option” advocates should stop comparing the “option” to Medicare."

Please explain that.

http://pnhp.org/blog/2009/07/20/bait-and-switch-how-the-“public-option”-was-sold/

But here is why I think the public option can compete in every market:

I can only think of two circumstances that would create a market (a region or state or demographic) where a government run insurance plan would not be able to compete would be where existing private insurers have some stranglehold monopoly or unfair advantage.

At this point, the President reminds the private industry of their cries of "unfair advantage" and duly levels the playing field by regulating away that advantage or by other means.

Another way an advantage could exist against which the public plan could not compete would be if private insurers have a "loss-leader" market and, again, the solution above would level the playing field.

If indeed there is a private insurer that really runs a tight efficient program without unfair advantages and high executive pay, they might be able to beat a public option, but then that would be fine.

The president suggests an array of options, people need to choose the one that works best for them.

:patriot:

agenda who only came into being in 2008.

Was it to push the Hacker public option idea, take single-payer off the table and keep the for profit in business?

A public option needs to control the market not compete with it.
It is the only way the two other countries (Netherlands, Swiss) that allow private for profit insurance are able to control costs. It is the only way we will be able to control costs.
Without massive cost controls this feeble attempt at reform will fail. There is no way we can have reform and our current for profit industry.

When insurance companies have this kind of stranglehold and you hand them more power expecting future incremental reform is a pipe dream.

will be difficult.

for months the public option has been described as something similar to Medicare, as pointed out in the current article it is very different...the public option does not have a known number of clients and will have to compete with established private plans.


http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=6365319&mesg_id=6365319

The Power of the Word Medicare -

When the word Medicare is used in the various polls, the number of people who favor the plan automatically jumps, it makes no difference if the question relates to the public option or a national insurance system such as single-payer...the word "Medicare" has a favorable connotation.

The Kaiser Health Tracking poll is one of the few recent polls that asks about a single-payer plan or government run insurance plan for all, many of the polls leave SP out altogether and that includes the widely cited poll from June saying that 72% of people want a public option.

What Kaiser did, at times, was half sample certain questions.

For instance if they were sampling 1200 people, they would ask about a public plan "like Medicare" to only half of the people. The other half they would leave out the word "Medicare" and the support for a public plan, or single-payer, would drop.....

http://wonkroom.thinkprogress.org/2009/02/24/dean-public-option/


That's what Dr. Dean was saying earlier in the year.

Opening up Medicare to younger Americans who wish to buy in is the logical, most workable public option.

Medicare is also the public plan which has overwhelming support.

If we're not going to expand Medicare to a Medicare-for-All Single Payer plan now, is there really any other public plan that will work other than allowing younger Americans to voluntarily opt-in to Medicare?

praised or called good bills.

:(

The word Medicare has a very positive connotation. People relate.

A large majority of Americans want health care reform, and the public option is a choice they like. Put together a strong bill with basic goals that are easily understood.
1-You choose what plan you want.
2-You choose whether to keep a private plan or enter the public option.
3-Medicare will not change.
4-Then define the public option as Medisave or Medihealth - Medicare for younger people.

I don't like triggers, but why not phase it in.
A- ages 45-65 are eligible the first year (This will help get some people out of jobs they have to work to keep health insurance thus opening up some emploment opportunities)
B - ages 25-45 are eligible the second year
C - under 25 who need coverage the third year
If you don't sign up if you are 45 and want to later, open enrollment every year for 3 months.

I have no idea if this would work or some variation of it. I'm not aware of enough details.

has been it will be like Medicare or even it is single-payer, the articles point out why that is not the case.

- but the premiums won't be paid by the government unless your income is less than 3-4x poverty level.

A public option isn't the magic that many people here think it is. It doesn't provide "free" coverage. Without the rest of the insurance reform package, it doesn't require that everyone be eligible. Without the rest of the insurance reform package it doesn't create premium parity. Without the rest of the insurance reform package it doesn't require coverage of pre-existing conditions.

BUT - taken all together (public option + insurance reform), aside from who ends up paying the premium, it is very close to Medicare.

and the current public option will begin with ??? ... estimates are that it will have maybe 10 million people in the plan by 2019 and will compete with the private companies on the exchange.

Historical U.S. Population Growth
http://www.npg.org/facts/us_historical_pops.htm

Also the government did not subsidize the purchase of insurance from private companies as this bill will do.

:shrug:

the purchase of insurance from private companies - go search for health care providers under Medicare Advantage (or Medicare Part C). Those are private insurance plans that are subsidized and competing with the public option (Medicare Part A).

They aren't starting it in the same manner, but the proposal for the public option/exchange is the same structure at its core - aside from the fact that at Medicare age the premiums are paid for primarily by the government and for younger folks the premiums will be paid for primarily by families and/or employers.

insurance purchases, why offer that in the current proposed plans for people under 65 if we are going to cut subsidies for the Medicare Advantage plans.

:shrug:


http://www.cnn.com/2009/POLITICS/07/28/obama.health.care/

"Nobody is talking about trying to change Medicare benefits," he said. "What we do want is to eliminate some of the waste that is being paid for out of the Medicare trust fund."

He cited $177 billion of what he called government subsidies paid to insurance companies participating in Medicare Advantage, an enhanced Medicare benefits program.

Making health insurers compete to participate in Medicare Advantage, rather than paying them do so, is one way to cut costs and improve benefits, the president said..."

part A - not to stop paying them at all. Currently, they are paying private companies more than they pay under Medicare Part A. The suggestion is to stop paying extra - not to stop permitting private insurance to be paid for at all under Medicare Part C. In other words, the same structure they are proposing for the exchange - if you are subsidized, you can choose to spend that subsidy either for the public option (like Part A) or the private options (like Part C). You just don't get MORE government money to spend for private insurance than you get to spend for the public option - you get the same amount (if you are subsidized) and you can spend it where you choose.

they did not originally subsidize private insurance.

Estimates are that few people will be enrolled in the public option plan, giving them less bargaining power and providing less competition for the private insurance companies.

is the original Medicare. Whether Medicare started out subsiding private insurance or not, it does now.

I don't know how anyone can even begin to estimate how many people will enroll in a public option plan when even the basic details are only set forth in one version of the bill and being threatened with removal even from that version. They're not anywhere near being able to predict which will be more popular 4 years after it starts in 2013 when it is finally open to everyone.

BUT, the basic structure (aside from who pays the premiums) is virtually the same as the structure for Medicare. There is no particular reason to believe it would perform any better or worse than Medicare does in terms of providing competition for the private insurance companies.

years after Medicare went into effect.

Returning to the differences outlined in the article posted, the public plan is different because there is no "ready made" base of customers. In that sense it is very different from Medicare.

http://pnhp.org/blog/2009/09/05/the-chicken-and-egg-problem-can-the-public-option-succeed-where-prudential-failed/

"...I characterized the main barrier facing the Democrats’ shrunken “options” as a “chicken and egg” problem: A person or group trying to create a new insurance company can’t tell prospective customers what the premium will be until they have determined how much they will pay providers; but the person or group can’t know how much it will pay providers until it knows how many people it will insure..."


http://en.wikipedia.org/wiki/Medicare_(United_States)#Part_C:_Medicare_Advantage_plans

"Part C: Medicare Advantage plans

With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan (Parts A and B). These programs were known as "Medicare+Choice" or "Part C" plans.

...Enrollment in Medicare Advantage plans grew from 5.4 million in 2005 to 8.2 million in 2007. Enrollment grew by an additional 800,000 during the first four months of 2008. This represents 19% of Medicare beneficiaries.

...The Government Accountability Office reported that in 2006, the plans earned profits of 6.6 percent, had overhead (sales, etc.) of 10.1 percent, and provided 83.3 percent of the revenue dollar in medical benefits. These administrative costs are far higher than traditional fee-for-service Medicare.<20>"

if they would bother to start the program immediately, rather than phasing it in over a 4 year period that doesn't begin until 2013.

The easiest thing to do would be to just open up the Medicare plan to private individuals on a paying basis (with subsidies for low/middle income). The exchange is already set up and running, including a public option (part A/B of traditional medicare). Private insurance can fend for themselves in terms of setting premiums, and the premium for the public option should be relatively easy to set using an age weighted costs from the current care and administration costs of Medicaid and of traditional Medicare.

It isn't as if acting as an insurance company is something the government hasn't been doing for a few decades. The data is available, and may take a couple of years to get it perfect, but there is no reason they can't be pretty close using existing data.

but the proposed plans will split that base between various companies and maybe something called a public option, reducing the power to negotiate with providers.

Your plan sounds better than the proposed plans.

:)

who are no longer eligible for insurance under their parents' plans, aren't likely to have a job that pays enough to provide insurance (either because of age/experience - or because they cannot work a full time job because of their illnesses), and can't afford the high risk pools (which, to the extent they are available, are the only insurance options available).

My daughter is in that category - she is struggling to maintain full time student status despite an illness that keeps her chronically fatigued (and heading for a liver transplant) because at 19 if she isn't a full time student she is out of insurance. Her premium (at age 19) would be $14,000 a year. If she can't handle a full time load at school, the chances she will be able to find a job that pays enough for her to purchase insurance on her own (i.e. $14,000 a year + her other living expenses), or that will provide her with insurance are slim to none.

Whatever reform is implemented, it needs to make insurance/health care immediately available at an affordable rate to individuals who are otherwise uninsurable.

Subsidies based upon income. If you want to prevent RW hysteria about govt forcing healthcare on people :eyes: then leave an opt-out option.

Lots of young and healthy people out there who are uninsured and thus would be automatically enrolled. That would give public option the baseline number of clients it would need to negotiate rates.

Of course the number could change as some people opt-out, as people fed up with private insurance switch to public, etc...and the rates could be adjusted to reflect what should be a growing pool (people coming in from private insurance should outnumber people opting-out).

This approach avoids the chicken-and-egg problem described in OP.

Sadly, because it's actually plausible that it would bring costs down, it will never happen. :(

to compete with private insurance. The key to medicare's success is it controls the market it serves and doesn't compete with for profit ins. giants.

Take that advantage away from medicare and you have just another weak public option.

My post was predicated on public option =/= Medicare

Since Medicare for All will never get out of this Congress :(

Mandating ins., subsidizing private for profit ins and throwing medicare in as the public choice forces medicare to compete. For profit ins. would need to be heavily regulated and operate per medicare rules i.e. overhead and profit limits, in order to be kept in line.
Never happen.

Opening that door without those protections leads to privatization.

Of course this assumes PO isn't handicapped by restrictions on who can get in. I'd prefer the PO that the CBO said would have 130 million switch from private insurance voluntarily, simply because PO wouldn't be a bloodsucking leech charging exorbitant premiums so the CEO can have his $100M salary and his own private jet to fly across town.

Not to mention people who want to get out from the insurance company bullshit like 39% denial rates on claims. Healthy people will worry about that too when that comes out, because denial rates that high directly undermine the security that insurance by its very definition is SUPPOSED to provide.

Unfortunately if the Senate Finance Committee has its way you are probably right--but with a strong PO the private insurance industry would lose so many customers that regulation would be almost redundant.

Switzerland and Netherlands

They use public insurance to keep profit and overhead across the board at approx. 5%.

The swiss, which is the most expensive, have copays in a range from a few hundred to $2400.00 max and an additional charge not to exceed approx $700.00. Individual premium runs about $240.00 per month before employers kick in. A third of the swiss get subsidies. Full freedom of choice regarding doctors and hospitals. The swiss re-distribute high profits to companies who insure sicker patients to level the playing field.

Netherlands has no co-pays (illegal), can't charge more for age or pre existing condition, and the average premium is approx. $140.00 per month for an individual which includes drugs. Subsidies are available.

Children are automatically on gov. insurance in both countries, at no additional cost in the Netherlands.

These countries have strong public ins. that sets the rules not strong for profit corporations that set the rules as we have.

When folks refer to a public option that is how strong it needs to be.

If medicare is the choice for public ins. it must make the rules and the ins. companies must obey.
Excessive profit is distributed and there are caps on both overhead and profit. The public option is not competing with private ins. it sets the standard and rules and then the private companies compete amongst themselves following those standards.

Even with the controls in place these two countries are seeing increases in cost above other countries with no for profit ins. involved.

People aren't forced to use Medicare.

out of everybody's paycheck and everybody can use it when they reach the eligible age. If they chose not that is their business they still pay. They can't not pay and chose to put that money into another plan or investment of their choice.

Everyone buys in, medicare does not compete with any other for profit for those dollars.

Medicare taxes are paid while working, however, once a person reaches 65, they are not required to pay Medicare premiums if they aren't using Medicare. And if they aren't working after 65, they are no longer putting money into Medicare. Therefore, Medicare does in fact compete against private insurers for subscribers.

covers their care. That generation can't put those dollars anywhere but in the medicare pool. Again no competition. Of course that's assuming everyone gets to retire at medicare age. Not the case.

If someone retires who has paid into the system doesn't want medicare but something else they don't get their money back. Medicare isn't competing because those dollars spent on private insurance by someone over the age of eligibility for medicare, wouldn't be medicare's anyway.

...when you say "No they aren't,", to what are you referring?

Bottom line is that Medicare does compete for subscribers. Only if everyone over 65 were forced into Medicare would your contention that they don't compete be true.

no one is forced at the age of 65 to pay Medicare premiums if they choose not to use Medicare for their healthcare. They compete in that when I'm 65, I can choose to stay with my company insurance rather than use Medicare. That's how they compete.

While you are correct that every working person pays into Medicare, that has nothing to do with the fact that Medicare competes with other insurance companies for subscribers over 65. If everyone was forced into Medicare, with premiums, at 65, then there would be no competition, but that isn't the case.

has nothing to do with it.

Now if people could take the money they are forced to contribute and choose between giving it to medicare or another provider then medicare would have to compete with that other provider for those dollars.

That isn't the case.

No one is forced to pay Medicare premiums. No one. Everyone is forced to pay Medicare taxes while they work, but those taxes are totally different than premiums.

public plan which would have given the PO plan more customers, then I learned that we would use tax dollars to subsidize the private insurance companies as well.

:(

If this current "reform" is allowed to go full steam ahead medicare will eventually be privatized.

People refuse to look at the push to privatization of government that has proceeded full steam ahead since the 70's. Our opponents plan a decade or two ahead, building on decades of work, and we plan for the next election, blaming everything on the recent past, exhibiting the foresight of a gnat.

I'm getting caught up on our education secretary. Being of the generation that grew up pre-reagan, I am horrified at what passes for progressive currently. Just another giant 30 year scam culminating in the co-opting of progressive democracy by neoliberal privatization.

to purchase private insurance as well.

"Our opponents plan a decade or two ahead, building on decades of work, and we plan for the next election, blaming everything on the recent past, exhibiting the foresight of a gnat."

It sure seems that way!

The base the OP refers to? 320 million Americans.

Now calculate your fees.