Colorado is trying to pass something that they are calling a public option. Public options have become an almost catch-all term for a wide variety of programs that may be trying to solve a wide variety of problems (some of which are mutually contradictory). I think the problems that Colorado is trying to solve is competition in rural areas and a desire to bring down gross premium levels for the ACA individual market in the short term and the entire health insurance market in the long term. Those problems (little rural competition, and high price levels) are real. They are also really hard to solve.
Premiums can be brought down in one of three ways:
- Reduce administrative overhead
- Pay for fewer services
- More cost sharing (lower actuarial value)
- Restricted list of services covered
- Don’t cover people with expected high costs
- Get the population healthier
- Pay less for services
Reducing overhead is popular but there is not a ton of squeeze left between a well run ACA insurer that is engaged in active case management and Medicare fee for service (FFS) which pays claims with minimal case management. It is quite plausible that Medicare FFS has too little administrative overhead even if the average ACA insurer has too much. The possibility region of optimal overhead might not be that big.
Paying for fewer services is the old, pre-ACA way of making money in the individual market: don’t cover a lot, charge a high deductible, and work really hard to hopefully prospectively but if need be retrospectively avoid covering people likely to generate big claims. The ACA has significant problems with high cost-sharing, especially in the bronze and silver (non-CSR) plan variants. I don’t think Colorado wants to go this route of exacerbating cost sharing as a barrier to care. Getting the population healthier is likely a mutli-year climb in the most optimistic scenario and that has significant free rider problems for any single insurer that wants to spend overhead cash on improving population health.
Finally, paying less for services is the final way to reduce premiums. There are two basic ways to pay less for services. The first is to use competition effects to build a narrow(er) but adequate network where price concessions from some clinicians and hospitals are gained by the promise of a lot of volume of work. The other is to use administratively set prices like in Medicare to drive down compensation rates. 97% of all licensed docs take Medicare because Medicare and Medicare Advantage control enough volume of frequent utilizers to make the business case worthwhile. States with a public option scheme can attempt to develop a large bolus of linked business to drive better rates for a public option by requiring any clinician that wants to be in-network for the state employee health plan and Medicaid to be in the public option network at the administratively set rate. The ACA individual market is fairly small and fragmented so it is unlikely to have enough mass or expected demand to drive great rates on its own.
So I’m scratching my head when I saw this report out of Colorado:
Morning presser w/@COSenDem leaders, @SteveFenberg said amendment on doctors in #HB1232 (Colorado option) is that they will not be mandated to participate. @colo_politics
— Marianne Goodland ? (@MGoodland) May 25, 2021
If participation is voluntary, then the public option has little leverage to get good pricing from clinician groups.
How is this different than a major insurer running their own network?
I’m confused.
Big R
When you keep in mind that “most legislators do not think as deeply about these things as you do,” then it may start to make more sense.
jnfr
Watching local activists try to get a real public option through, and then have it constantly redesigned and whittled down has been a long, sad lesson in what feels like futility.
Grelican
It seems to me that making a low-rate plan voluntary for providers only works if that plan has a marketshare, but a plan will only get a marketshare if they can put together a network of providers for consumers to use if they select their plan.
As a patient, I’m not going to select coverage that doesn’t have any providers, no matter how cheap it is. As a provider, why would I sign on to a plan network that has no patients and pays far less than the alternatives?
Somehow or another, the network will need to be pre-defined. There are a number of ways to do this, like pegging participation in Medicaid to taking the “public option” plan, or requiring that insurers offer public option-like rates in order to participate in the exchanges, but this is not going to happen on its own.
Since the 80s, nearly all attempts at reducing health care costs have relied on payers or providers to enter into voluntary agreements that are somehow going to end up with them receiving less money. The hope with ACOs and a lot of other quality-driven value-based initiatives has been that somehow they’ll make more money while saving money. The hope with HMOs was that they’d lower costs without restricting patient access to necessary care. There is a lot of good in those ideas, but the idea that they’ll somehow snooker sophisticated players into lower margins always seemed ludicrous to me, or at least the product of craven decisionmaking.
Again and again, I keep coming back to the view that someone needs to step in as the 800lb gorilla and enforce price discipline in health care. The people getting paid aren’t going to do it. Like most of us, they like money. The consumer can’t do it. I’m not qualified to shop around for chemotherapy, and even if I could, it’s unreasonable to expect a viable market setting reasonable prices for an inherently expensive product that I’m desperate for. Never mind that one chemo course at practically any price paid in an OECD country would blow through my deductible or HSA, rendering me utterly uninterested in prices, at least until the next plan year resets my cost sharing.
But there are a range of options. You can give everyone Medicare. You can give everyone Medicare-like rates. You can empower states to set rates or enforce global budgeting. You can empower payers to demand lower rates by increasing their leverage points in negotiation. But somehow, the overall power dynamic has to change. It’s a political question before it’s a policy question. That’s the national discussion we need to have.
StringOnAStick
Colorado has both a rural vs urban issue regarding care availability, and a ski area county vs urban area issue. I recall the screaming about the ACA initial coverage requirements because so many of the ski area counties had one or two insurers, both seriously expensive for the working class in those high cost areas. The locals medical groups didn’t feel the need to negotiate lower costs with the insurers since the local well off were such a ready source of bills paid on time with no hassles. The poorer rural areas of CO have been losing providers and hospitals just like the rest of the US; the ski area towns are a different situation but the root problem is the same: huge income inequality.
Lobo
I would suggest reviewing the Colorado “public option” bill when it finally passes. It changes by the day.
Ted Doolittle
Hear, hear, David & Grelican.
The American healthcare cost crisis is due to our internationally abnormal pricing, and the price crisis is centered in the job-based and individual markets (whether self-insured or fully-insured).
If we want to switch to an internationally competitive helathcare expenditure situation, let’s look at the two main comparison areas that do enjoy internationally competitive pricing. The two areas that have been able to generate the internationally competitive pricing that American businesses and families need are: 1) our overseas wealthy-nation direct economic competitors; 2) our public-private partnership programs Medicare — notably including Medicare Advantage — and Medicaid.
What do Thing 1 and Thing 2 have in common? The payers, be they public or private, have some sort of partnership or collaboration with the government in price creation — and this is pretty much universally done with a price justification approach. For instance, Medicare pricing is done by MEDPAC, which annually looks at provider costs, adds a fair profit, and spits out the price for next year. All our overseas economic competitors do something analogous.
That is how it is done in the big leagues, girls and boys.
The 40-year failure of the job-based and individual insurance markets to generate internationally competitive rates is proof positive that — for whatever reason, and that is a complex debate — the insurers acting on their own are not able to create globally normal pricing.
The solution seems pretty clear: the private insurance companies, for whatever reason, need a public-private partnership in price creation, and setting it up as a price justification regime with a collaborative, iterative annual process where the providers must have accountability on price (not volume, BTW, that is proven not to be the main driver the American problem).
The insurance companies need to understand that the public option is not the sound of doom riders about to gallop over the horizon — it’s the sound of the cavalry coming to rescue the insurance industry.
(And at this point, remember that unbeknownst to most, even traditional Medicare is delivered almost exclusively by private industry (not government employees), including all the big insurers, so far from being cut out of any “public option” reform plans, the insurers will benefit from and get big business opportunities out of the public options. In other words, the public options of all flavors ARE GOING TO BE RUN BY PRIVATE INDUSTRY, VERY MUCH INCLUDING THE BIG INSURERS!!)
I’ve written on these issues:
https://thehill.com/opinion/healthcare/457248-private-sector-vs-medicare-theyre-basically-the-same-thing
https://thehill.com/opinion/healthcare/466576-want-to-expand-medicare-youll-need-to-hire-the-insurance-companies-not
https://www.courant.com/opinion/op-ed/hc-op-doolittle-medicare-for-all-0126-20200126-zz3q3gs5mzhqpdeccw4a3gttrm-story.html
Grelican
Ted, nice body of work. I’ve come across your pieces over the years. So what can foment real legislative and regulatory change? Seems like some of the noises that large self-insured corporations are making these days could go somewhere. They might actually have the K Street bench to go toe to toe with the AMA, AHA, etc. Chamber of Commerce would be better. One way or another, this problem isn’t going away until the 800lb gorilla of government gets behind regulating prices beyond public programs.
Whether the ultimate payer is public or private is immaterial to me. In many ways I think the private sector does things better if given the right set of rules. Medicare Advantage and Medicaid Managed Care have done a lot of good. I think a lot of what you wrote points towards this public-private division being something of a policy red herring as well. To me, now that coverage is more or less guaranteed nationally, and with at least some subsidy structure, what really matters now is getting to statutory control of the prices.
quakerinabasement
This is why I usually roll my eyes when advocates for “public option” insurance make their pitch. Too often, they offer little more than screw-the-insurance-companies rhetoric seasoned with a bit of collectivist dogma. It’s all pitch and no policy. This stuff is actually hard.
Bob Hertz
This has been a great exchange of posts…thanks to David and Ted especially.
A key feature of any public option will be how it is priced in renewal years.
When insurance companies have more claims than premiums, they raise their rates. Sometimes they just leave a market.
This makes insurance companies very unpopular.
Medicare raises the Part B premium by statutory amounts, nothing major. Medicaid raises nothing.
This alone makes government programs more popular. James K Galbraith called this the virtue of soft budgeting ( he was referring to the federal government as a whole)
So, the question for me on the public option will be whether it would be a stand-alone corporation, or a branch of government.