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The Public Plan Option and the Possibility of Cost Shifting

by Jaan Sidorov

Advocates for healthcare reform that includes the creation of a publically funded insurance plan seem happy that both AHIP (America’s Health Insurance Plans, the trade group that represents health insurers) and Blue Cross Blue Shield (a federation that represent 39 insurers that sport the Blues ‘brand’) have essentially offered to yield on guaranteed issue in exchange for an individual mandate. Their enthusiasm may be misplaced, unless their intent is to ultimately achieve a single payor system.

For better insight on the issue, check out Aetna’s CEO Ron William’s March 24 statement to the US Senate Health, Education, Labor and Pensions Committee. Go ahead, call the for profit insurers obstructionist, evil or the Devil’s Spawn, but when health insurers like Aetna speak, anyone interested in healthcare reform should listen. Aetna insures 36.5 million persons with $42 billion in assets with a market cap that exceeds $10 billion. It’s not easy, even for the U.S. Congress, to marginalize insurers like Aetna by simply passing a law sometime in the next six months.

What does Mr. Williams have to say? His testimony is that health insurers figured out years ago that their business is no longer about just collecting premiums and paying doctors and hospitals. Their customers are demanding additional value, such as covering medical innovations and technologies, having inclusive provider networks, promoting transparency and offering chronic disease care, wellness and prevention programs. Examples include Aetna’s $1.8 billion investments in Active Health Management and their Care Engine. And while the uninsured are a pressing problem, remember employers are successfully supporting health insurance for a whopping 177 million Americans, many of whom appear to be quite happy with the arrangement. What’s more, the rising cost of their insurance is less a function of companies like Aetna and more a function of the underlying cost of health care. Employers and insurers have been working together on this for years and have had some notable successes in improving healthcare quality, dampening cost trends, increasing consumer choice, promoting transparency and covering wellness and prevention.

And here’s a telling quote.

“An enforceable individual coverage requirement, combined with subsidies and other changes to make coverage affordable, is the best way to ensure that all Americans have continuous access to insurance coverage and high-quality health care. Since 2005, we at Aetna have been speaking out in support of an individual coverage requirement, as we believe it is the critical step for achieving universal coverage.”

So what is the link of all this to the option of a public insurance plan? If there is guaranteed issue and an individual mandate, Mr. Williams suggests a public plan option would be unnecessary. He may or may not have a point about that, but he then raises a critically important issue that has conveniently gone unmentioned by the anti-insurer cognoscenti.

A public plan would probably set provider payment rates akin to those used in Medicare and Medicaid. That’s because the government has the leverage to squeeze low pricing from providers. That in turn would force the providers to engage in even more cost shifting (estimated to already be as high as $88 billion nationwide) from the public insurance plans to the private insurance plans.

There you have it. The private insurers like Aetna don’t fear a public plan would be more ‘honest,’ ‘just,’ ‘quality driven,’ ‘administratively efficient,’ ‘cost effective’ or ‘consumer friendly.’ They think a public plan will simply build on Medicare’s and Medicaid’s long history of what amounts to government supported ‘heads I win’ (non-negotiable provider fee schedules), ‘tails you lose’ (hospitals and doctors will make up for it in the private sector) predatory pricing. That’s not keeping the private insurer’s honest, that’s crushing them.

There is a lot to be said for the private insurers’ leadership in care management programs, agile use of information technology, prevention, wellness, consumerism, novel insurance benefit designs, pay-for-performance, the medical home and the electronic record, but NONE of that will help them - even with billions in the bank - compete against that kind of cost shifting dynamic.

Or maybe that’s the intention?


1 Comment »

  HSR0601 wrote @ March 31st, 2009 at 1:46 am

I guess the best part of competition between the public and private insurance will be that it can bring down the excessive costs and raise the quality of service to survive particularly in private sector , therefore there is no need to worry about the expensive medical costs over time, as EUROPE tells it.

Thank You !

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