Tiered Offering in the “Public Plan” versus EMBRACE

Once again there has been a long hiatus between entries on the blog. This is part because of my schedule and part because of the resignation that there is not much we can now do to influence what Congress is developing as its health-insurance reform legislation.

I cannot say that I am happy with what is immerging as the working proposal, but I did find one interesting detail in the “Public Plan” as can be seen in this graphic in the NY Times today : both the Senate and the House seem to have adopted the concept of “tiering” levels of coverage. In the Senate version this is discussed as the Public Plan covering only “essential health benefits”, while the House version has 3 tiers: basic, enhanced and premium.  Now, although this may indicate someone has read EMBRACE (but I cannot say that EMBRACE is the only one to propose 3-tiered coverage and a concept of ‘basic’ coverage), it is a long way from what EMBRACE would offer.

The three tiered concept in EMBRACE is meant to SEPARATE private insurance from the publicly financed plan in an effort to AVOID competition between the public and private coverage. The Public Plan, on the other hand, is designed to enhance competition and, it is hoped, force the private plans to become more affordable and more efficient. However, it is hard for me to see how this is going to work. In the Senate plan, the lack of more robust offering will effectively relegate it to a second rate policy that would really not be able to compete with the “full service” private plans”. The House version has more of a chance to work, but as Jacob Hacker, one of the developers of the Public Option concept, once stated in one of his earlier works, there are inherent problems when any public plan has to compete with private plans.

Without going into details, the concept goes like this: If left to the natural competitive forces (i.e. without government regulation), the private insurance companies have significant advantages in head to head competition. By picking only the lowest risk clients (young, affluent, Caucasians with no pre-existing disease) they get a huge return for their investment AND they leave the higher risk to the government to cover. This, in a way, is what is happening now with Medicaid. To make the Public Plan or any other government plan work, private insurance must be regulated and in addition some advantages may need to be given to the Public Plan.

This latter scenario (of protective legislation) is what is being done with both Senate and House versions. This may not be a bad thing, especially if you want to even the playing field, but if done too much may actually hurt the delivery of healthcare.

Here are two of the scenarios I am afraid of:

1)      If the Public Plan is not attractive enough to consumers (because it does not offer enough coverage or it is too expensive), it will not be able to compete with the private insurance plans. If nobody buys them it will not be able to force down costs for private insurance. This would then be used as a case study of why healthcare reform can NEVER work and there will not be another push for a long time.

2)      To make the Public Plan more competitive, CMS will likely dictate reimbursements to providers (as opposed to the negotiated reimbursement rates with private insurance companies). These, like standard Medicare, would likely be non-negotiable and would only offer take-it-or-leave-it terms. This in turn can lead two scenarios: a) providers would not take patients with the Public Plan, which would lead to a similar failure as discussed above, or b) CMS would tie the Public Plan to standard Medicare. In this latter scenario CMS would tell providers (who have to sign a pledge that they would take all Medicare patients and not charge them more than what CMS pays) that if they want standard Medicare patients they must also take Public Plan patients. This would force doctors and other providers to choose between private and public plans and would in essence create two types of doctors: government and private. This would be a complete disaster to our healthcare delivery system.

Really the ONLY way to make our healthcare system work is to separate private from public insurance. With the single payer model, this is done by banning private insurance, but since you cannot outlaw them they will still continue to exist as they do in other countries with single payer systems. EMBRACE is the only plan that allows private and public plans to operate freely, but separately.

Please spread the word to your colleagues and to your Congressmen.