By Kip Sullivan, JD
Both the Senate and House versions of the proposed “public option” require that corporations with expertise in health insurance “administer” the “option.” This fact received no attention until October 24 when the Washington Post reported that the “option” would “likely” be run by insurance companies. Several bloggers attempted to assure readers that this news was nothing to be concerned about. They asserted that Medicare has always contracted with insurance companies to process claims, and then leaped to the conclusion that the role of insurance companies within the “option” will be no more significant than it is within Medicare.
But this conclusion is clearly wrong if the Senate version of the “option” becomes law, and almost certainly wrong if the House version becomes law. This conclusion rests on the widespread belief that the “option” will “look like Medicare,” which is not accurate. The most important differences between Medicare and the “option” are size and the environment within which the programs will function. While Medicare enrolls 15 percent of the population, the “option” is projected to enroll somewhere between zero and 2 percent. While Medicare is a single-payer system, the “option” will function within a multiple-payer environment.
These two differences, plus provisions in the Democrats’ legislation authorizing the federal government to hire private corporations to administer the “option,” create a high risk that insurance companies and other types of corporations will play a role in the “option” that greatly exceeds the limited role they play in the traditional Medicare program. Private-sector firms will probably play a role within the “option” that closely resembles the role that defense contractors play in the production of weapons for the Pentagon. Just as Northrop Grumman, for example, carries out all tasks necessary to create a fighter plane, so private corporations (not public employees) will carry out all tasks necessary to create the “option” health insurance programs. Carrying out virtually all of the tasks necessary to establish and maintain “option” health insurance plans is obviously very different from, and more significant than, merely processing claims.
To comprehend the more dominant role insurance companies will almost certainly play within the “option” we must first disabuse ourselves of the myth that the “option” will “look like Medicare.” Although leaders of the “option” movement have vigorously promoted that claim, the claim has been demonstrably false since at least June when Democrats introduced legislation that would create tiny “option” programs that would, according to Congressional Budget Office estimates, insure no more than 10 million Americans.
Once we have determined that the “option” will be tiny, we must then ask whether a tiny “option” can be implemented as easily as Medicare was in 1966. Using just our commonsense and a rudimentary knowledge of the health insurance industry, it becomes obvious the answer is, No, a tiny “option” cannot be implemented as quickly and easily as Medicare was. Unlike Medicare, which was implemented at the national level using a few relatively inexpensive methods (such as press conferences and a public education campaign), the “option” will have to be implemented on a market-by-market basis. The “option” program will have to create one “option” program or plan for the California Bay Area market, another for the upstate New York market, and so on.
Of course, stating that the “option” will consist of numerous local plans and will, therefore, be harder to implement than Medicare was, sheds no light on whether public employees or private corporations will create and run those plans. For information on that issue, we must turn to the Democrats’ legislation. According to bills written by the Senate Health, Education, Labor and Pensions (HELP) Committee and by the House leadership (HR 3962), the Secretary of Health and Human Services will be authorized to contract with corporations “for the purpose of performing administrative functions … with respect to the public health insurance option” (as HR 3962 puts it; the HELP Committee’s bill uses nearly identical language). How we interpret the phrase “administrative functions” depends on our understanding of what has to be done to create the “option” program.
To sum up: The tasks required to implement a small “option” are quite different from the tasks required to implement Medicare; the Democrats’ legislation indicates these tasks will be carried out by insurance companies and corporations with similar expertise. When we piece these facts together, we must conclude that private-sector corporations will very likely play a much greater role in the “public option” than they do in Medicare.
Newsflash: Corporations will administer the “option”
On Saturday, October 24, the Washington Post published an article which said in passing that the “public option” will be run by insurance companies. “The public option would effectively be just another insurance plan offered on the open market,” said the article. “It would likely be administered by a private insurance provider, charging premiums and copayments like any other policy.” To my knowledge, that is the first time any media outlet or blog, with the exception of the blog maintained by Physicians for a National Health Program, has warned the public that the “public option” will be run by private corporations, not public employees.
Within hours of this article’s publication, blogger John Byrne at “the raw story” reported that insurance companies will run the “option.” Byrne quoted the Washington Post article and three paragraphs from one of two papers I wrote on this issue. Byrne’s piece generated a minor ruckus in the liberal blogosphere. By Sunday October 25, a half dozen other blogs had posted it, and hundreds of visitors to these blogs had posted comments.
The great majority of the comments expressed outrage over the fact that the “public option” won’t be a publicly run program. But a few sought to minimize the importance of Byrne’s article by assuring readers that Medicare has always had contracts with insurance companies to process claims. For these people, this fact allowed them to jump to the conclusion that the role of the insurance industry in the “public option” would be no more significant than its role in Medicare – insurance companies would be mere claims processors. According to these people, insurance companies wouldn’t create the “option” plans and would not run them. Here are two examples of those comments:
Calm down everyone – let’s unknot those drawers. Private insurance companies have been running the Medicare system for years and years. They are called fiscal Intermediaries. …Please let’s all understand the way Medicare works before going off.
…. Medicare is already administered through private insurance companies and it works very well. Those companies already have the systems set up for tracking and billing and they do the Medicare administration for a minimal cost.
On Monday, October 26, Susie Madrak posted a comment on “Crooks and Liars” in which she described Byrne’s article as “news that really isn’t such a big deal.” Madrak said the insurance companies that get contracts to run the “option” will be “third party administrators” whose only job will be to process claims for the “option.”
Seduced by the “option” campaign’s misinformation
These comments are mistaken. Their authors have been seduced by the “option” campaign’s constant comparison of the “option” to Medicare. The comparison to Medicare leads the unsuspecting to think the “option” will be a uniform program, administered directly by public employees, like the traditional Medicare program, that is, a program with no insurance companies parked between the federal government and the doctors and hospitals that treat Medicare beneficiaries. It leads the unsuspecting to think that public employees will create and directly administer the “option” and that the role of corporations in the “option” will be limited to the role they play in the traditional Medicare program, which is to process claims.
This excerpt from an April 2009 paper entitled “Healthy Competition” by Jacob Hacker, the author of the modern version of the “public option,” illustrates how aggressively contemporary “option” advocates sell the notion that the “option” will resemble Medicare. Notice that Hacker states clearly that the “option” will not contract with “private plans” and “nonprofit insurers.”
In most discussions of the public plan [i.e., the “option”], the phrase “Medicare-like” is used to describe the new plan…. When people say “Medicare-like,” … they are referring to the traditional portion of Medicare that directly pays doctors and hospitals for care delivered to elderly and disabled Americans. A “Medicare-like” plan is a public health insurance plan that pays providers to deliver care, rather than a government contract with private plans to provide insurance. More specifically, the new public plan should be national (with the same basic terms nationwide for patients and providers), governmental (a true public health insurance plan, not, say, a nonprofit insurer operating under federal charter), comprehensive (providing defined benefits on the same basic administrative platform), and built on Medicare’s infrastructure. … [P]lan offerings and pricing can and should differ regionally, but the public health insurance plan should be a single national plan with its own risk pool separate from Medicare’s that is available with the same benefits and coverage terms in all parts of the nation. (page 7)
But Hacker’s description of the “option” bears no resemblance to the “option” in either the Senate Health, Education, Labor and Pensions (HELP) Committee or the House bill (it used to be HR 3200, now it is HR 3962). The “options” in these bills will not resemble the traditional Medicare program but will in fact consist of numerous insurance programs (or plans) functioning at the level of individual insurance markets, that is, at the level of states and regions within states. Once you understand this, you begin to grasp what it means to say that private corporations will “administer” the “option” program. You begin to comprehend the possibility that the multiple local “option” programs might actually be owned by, or administered by, privately owned corporations, possibly health insurance companies. You begin to understand, in short, that the role of corporations in the “option” could be much more substantial than that of a mere claims processor.
To offer an analogy, the role of private corporations in the “option” will probably resemble the role that Northrop Grumman, Boeing and other defense contractors play in the production of fighter planes for the Pentagon. Through contracts with these corporations, the Pentagon sets the terms under which contractors are supposed to produce the planes, but the actual production of the planes is done entirely by private corporations. If and when the “option” program as it is now described in legislation pending in Congress is implemented, private-sector control in that program will almost certainly resemble the private-sector control of the production of military hardware for the Pentagon far more than it will resemble the level of private-sector involvement in the traditional Medicare program.
Review of the “public option” bait-and-switch campaign
Prior to last spring, the possibility that private corporations might play a dominant role in the “option” was not obvious. But some time during the spring, and by no later than June, it did become obvious, at least to those with eyes to see. Last spring Democrats took the large original “option” proposal and shrank it down to a tiny program.
As I have explained elsewhere, the original version of the “option” proposed by Hacker and endorsed by advocates of the “option” was huge. Hacker and others predicted it would enroll 130 million non-elderly Americans, or about half of the non-elderly population. It was reasonable to predict that a public program of that size would either possess many of the features of Medicare, including its uniform benefits, or would soon acquire those features as it grew bigger at the expense of the insurance industry. It was reasonable to predict it would grow bigger because its huge size would give it the advantage of lower overhead and lower provider costs and, therefore, lower premiums.
But after the Democrats released their draft legislation in June, it was apparent they had no intention of enacting an “option” program as large as the one Hacker originally proposed. The Democrats’ bills eliminated all but one of the features of Hacker’s original version of the “option” that would have guaranteed enormous size. The features the Democrats struck from Hacker’s original model included the requirements that the “option” be open to all non-elderly Americans, that the “option” automatically enroll all uninsured people and all Medicaid recipients prior to the commencement of operations, and that only enrollees in the “option” get subsidies to offset the cost of the “option’s” premiums.
The initial reports by the Congressional Budget Office released in July made it even more obvious how badly the Democrats had shrunk the “option.” CBO estimated the Senate HELP Committee’s version of the “option” would enroll approximately zero people while the HR 3200 version would enroll roughly 10 million people. CBO is now saying
the new House version of HR 3200 (HR 3962) released by Speaker Nancy Pelosi on October 29 will enroll just 6 million people.
By no later than July, then, representatives of the “option” campaign had no excuses for comparing the “option” to the traditional Medicare program. That didn’t stop them from doing so, however. Hence the great confusion among members of the public, the media, pollsters, and even members of Congress about what the Democrats’ proposed “option” is and, therefore, the role corporations will play in its creation and administration.
When we knew for sure the “option” was going to be tiny, commonsense and a rudimentary knowledge of the health insurance industry should have told us the “option” would not be a uniform program like the traditional Medicare program but would instead be broken up into dozens or hundreds of individual programs or insurance companies, each serving a particular health insurance market, for example, California’s Bay Area or upstate New York. Commonsense would not necessarily have told us that these multiple insurance programs or companies would be run by private corporations. They could just as easily (and for less money) be run by the federal government.
For information on who would run these local programs, we had to consult the “option” language in the Democrats’ legislation. It is there we find evidence that these programs will be run by private firms. I have reviewed the murky “option” sections of the Senate bill and House bill in previous papers. In the remainder of this paper I will focus on why our commonsense tells us that a very small “option” has to be a balkanized program consisting of multiple local programs. I believe it is the failure of many people to comprehend this fact that leads some of them to misinterpret the language in the Democrats’ bills authorizing the federal government to outsource “administrative functions” necessary to run the “option.”
What commonsense and a little knowledge of the industry tells us
In this section I want to discuss the Democrats’ proposed “option” as if we know only three things about it: (1) it must compete with private health insurance companies to sell health insurance to the non-elderly; (2) unlike the Medicare program, which was given 100 percent of the elderly to insure and thus began with a huge pre-enrolled pool of people, the “option” will instead be guaranteed zero enrollees on its first day of operations and will have to compete with the insurance industry for every customer it eventually enrolls; and (3) the “option” is expected to perform on a “level playing field,” that is, it is given no advantages over Aetna and its other private-sector competitors (such as subsidies to its enrollees to purchase the “option’s” product that people who buy insurance company policies don’t get).
Commonsense tells us that this version of the “option” will not resemble Medicare, either in the manner in which it must be implemented or in its final structure. If the “option” really were like Medicare and was given 100 percent of all Americans in a large age bracket, say all kids up to age 19 or all adults age 50 to 64, we would have every reason to predict the “option” would spring up as quickly as Medicare did and flourish as Medicare has. We would also have every reason to think the establishment of such an “option” would be relatively easy. The primary task that would need to be carried out by such an “option” would be to announce its existence with press conferences and an advertising campaign like the one that preceded the establishment of Medicare Part D (the drug program). These activities, easily executed out of one office in Washington DC, would, largely by themselves, achieve nearly universal enrollment of the eligible population and educate doctors and hospitals about how to participate in the new program.
Because this hypothetical version of the “option” would quickly enroll virtually all of the eligible population (Medicare accomplished that task within 11 months), it would have little or no problem inducing clinics and hospitals everywhere to accept “option”-insured patients even if it paid providers at rates below those paid by the insurance industry. It would have little or no trouble because very few providers would want to turn away so many patients and so much revenue. Commonsense tells us this would be true across the country (not just in some parts of the country) because the distribution of any given age bracket is roughly the same across the country.
Medicare’s history confirms this commonsense analysis. No law requires doctors and hospitals to accept Medicare patients, and yet virtually all doctors and hospitals have accepted Medicare patients routinely since Medicare began operations on July 1, 1966 even though Medicare has paid providers 20 percent less, on average, than the insurance industry has (the actual difference between Medicare and insurance industry reimbursement rates has varied over time and by region).
On the other hand, commonsense suggests a very different outcome if the “option” starts out as a program separate from Medicare and is guaranteed none or few of the advantages that Hacker specified for his original version of the “option,” including a large enrollment prior to the first day of operations. Commonsense tells us that if the “option” is instead forced to begin operations without a single enrollee, and must compete on a level playing field with existing insurance companies to recruit whatever enrollees it eventually does get, the “option’s” growth pattern will be quite different from Medicare’s.
And here we come to my main point: The major difference between an “option” that really does resemble Medicare and the little one proposed by Democrats is that the little Democratic “option” can’t be rolled out all at once at the national level. Rather, it must be implemented at the local level market by market – in the Bay Area market, in the upstate New York market, in the Chicago market, in the Iron Range-Duluth market, in the Fort Worth-Dallas market, and so on.
Small size dictates market-by-market implementation of the “option” program
A small “option” must be implemented market by market because wholesale activities at the national level – like press conferences and a public education campaign – no longer accomplish, by themselves, the two fundamental tasks that any successful insurance program must accomplish – the enrollment of a sufficient number of people, and achieving some assurance (formal or informal) that a sufficient number of providers are ready and willing to treat those people. For the tiny “option” promoted by the Democrats, those tasks can be accomplished, if at all, by a work plan that (1) goes beyond mere press conferences and advertising that is (2) conducted at the local level.
In short, those who must implement the Democrats’ tiny “option” will have to behave as if they were executives of an insurance company seeking to break into markets in which the company has no presence. However, unlike insurance company executives, “option” administrators won’t have the luxury of merely buying an existing insurance company in the target market. (Insurance companies never or rarely create insurance companies from scratch any more but instead buy their way into new markets. That fact indicates how difficult it is going to be for the “option” to establish itself in any market in the US.)
Once we accept the fact that the Democrats’ “option” will have to be built market by market, an obvious question arises: Won’t the “option” program or insurance company we build in one market differ in important ways from the ones we build in other markets? The answer to this question is, Yes, the “options” could vary by premium levels, benefits covered, level of out-of-pocket payments (this will be true even if the final “option” legislation sets minimum benefit and out-of-pocket levels), degree to which patient choice of provider is limited, or all of the above.
For those who aren’t familiar with the insurance industry, let me elaborate briefly. Health care markets, and therefore health insurance markets, are local. With the exception of prescription drugs and medical equipment, the great majority of medical expenditures are for services provided by health care professionals to people who live near them, that is, within their market area. The fact that most health insurance companies are multi-state or national doesn’t change the fact that the success of any given insurance company depends primarily on how it performs in the local markets in which it attempts to compete. Since at least the advent of managed care, the performance of insurance companies in a particular market has depended first and foremost on its size.
The reason insurance companies do not attempt to penetrate all markets is that there are barriers to market entry that are expensive to overcome and, in some markets, impossible to overcome. One of the most important market-entry barriers, possibly the most important, is the level of concentration within the insurance market. A market in which, for example, two insurance companies insure 80 percent of the population will, other things being equal, be harder to break into than a market in which the largest two insurance companies insure only 20 percent of the population. The level of concentration within the clinic and hospital sectors will also have some bearing on how difficult market entry will be.
A third important factor affecting the ease of market entry is the extent to which managed care has taken over the market. In markets where managed care practices are widely used, insurers typically limit patient choice of provider. Insurance companies do this because it allows them to funnel a large number of patients to relatively few providers, and this in turn augments their power to extract discounts from providers and to induce providers to cooperate with the insurance company’s efforts to deny services to patients. Both of these advantages – paying providers less and paying for fewer services – obviously help the insurer keep its premiums down.
Markets differ in the strength of market-entry barriers. In markets where
• one or two insurers insure the majority of the people who live in that market and
• where those insurers impose restrictions on patient choice of provider and, therefore,
• have succeeded in pushing their provider rates way below those of other insurers and
• have induced their providers to deny care at higher rates than smaller insurers have –
in those markets, establishing a new insurance company that can quickly get its premiums down near or below those of the dominant insurers is very, very difficult. On the other hand, in markets where, say, 20 insurance companies each enroll 5 percent of the population and those insurers make limited use of managed-care tactics, entry and long-term survival by new competitors is less difficult.
To sum up: If we know only that the proposed “option” (1) is expected to compete with insurance companies, (2) will be small, and (3) won’t be given advantages that insurers don’t get, we can predict the “option” will have to be built market by market. We can predict, conversely, that such an “option” cannot be implemented with the simpler and less expensive national-level activities that would suffice to implement a large “option” that truly did resemble Medicare. Exactly how small the “option” has to be before we can predict it must be implemented market by market is not clear. But it seems safe to say that the little zero-to-six-million-enrollee “option” proposed by the Democrats falls far below the critical mass required for a publicly financed health insurance program to be implemented with the relatively simple tools with which Medicare was implemented.
Finally, if we reach the conclusion that the Democrats’ “option” must be implemented market by market, then we must also reach the conclusion that the locally implemented “options” will look different from one another. Why? Because the market-entry barriers they will have to overcome will differ from market to market. Such an “option” will be “national” only in the sense that the federal government will be financing the attempt by the “option” program to break into every market in the US, and in the sense that the federal government will set some minimum criteria (such as minimum benefit levels) that “option” programs must meet in each market.
Option advocates offer no information on who will create and run the “options”
Reaching the conclusion that the “option” program will have to be implemented market by market does not necessarily mean individual local “option” programs will be created by or run by private firms. One could imagine Congress passing a law that requires “option” programs to be created and run by public employees.
To shed some light on this issue, it would be helpful if we could find discussions about the implementation of the “option” in documents prepared by “option” advocates, by the staff of the Democrats who wrote the “reform” bills, or by independent consultants who reviewed the “option” proposal. But, amazingly, the available documents contain not a word about how the “option” will be created. The following documents about the “option” say nothing at all about how “option” plans will be established:
* Jacob Hacker’s 2001, 2007, and 2009 papers describing the “option”;
* All three reports on Hacker’s version of the “option” by the Lewin Group (the first two of which Hacker and his allies endorsed);
* Press releases and other documents about the “option” prepared by representatives of Health Care for America Now and of the Congressional Progressive Caucus;
* All five reports by the Congressional Budget Office to members of Congress about the impact of the “option” on the uninsured rate and on federal spending issued between July and September as well as CBO’s latest (October 29) report on the “option” in the House bill.
On October 27, I attempted to induce Jason Rosenbaum, a blogger for HCAN, to explain how the Democrats’ “option” would be implemented. I posted a question to Rosenbaum on an article he wrote for the Firedoglake Website in which he called Sen. Reid’s announcement the previous day (that the Senate version of the “reform” bill would contain an “option”) “a huge victory.” My question, which is presented in an appendix to this post, laid out my best guess as to how an “option” plan could come into existence plus several questions about aspects of my scenario. Rosenbaum declined to discuss my question. “Sorry Kip, not interested,” was the extent of his reply.
Divining the intention of the authors of the Democrats’ legislation
Thus, the only documents available to the public at this date that shed light on the extent to which private corporations will create and run the “option” program are the Democrats’ “reform” bills – the Senate HELP Committee bill and HR 3200, now HR 3962. As I have noted in previously posted papers, both bills clearly authorize the Secretary of the Department of Health and Human Services (the official in charge of implementing the “option” in both bills) to hire private-sector insurance companies and other types of corporations “for the purpose of performing administrative functions … with respect to the public health insurance option” (as HR 3962 puts it at page 212; the HELP Committee bill uses identical language but substitutes “with respect to the community health insurance option”). Both bills state that these “administrative functions” include at minimum the claims-processing functions now carried out by insurance companies for Medicare. Both bills, especially the Senate bill, clearly imply that the administrative functions that will need to be carried out to create the “option” will go way beyond mere claims processing. However, neither bill explains what these non-claims-processing tasks will be.
In my view it is reasonable to infer that the non-claims-processing functions will be all those tasks necessary to create and run “option” programs in every market in the US. I said above that the Senate HELP Committee bill is especially clear about this. That’s because it not only explicitly acknowledges that the “option” will consist of numerous “community option” programs, but because it limits the use of the start-up funds to loans to the “contracting administrators” (the Senate HELP Committee’s name for the corporations the Secretary may contract with). There is, in other words, no language in the “option” section of the Senate HELP bill that gives the Secretary money to hire more public employees to carry out the task of creating “option” insurance programs. The Secretary’s only choice is to outsource all the tasks necessary to create “option” programs market by market to private sector corporations, most of which will probably be insurance companies.
Using our commonsense and a few basic bits of information about the Democrats’ “option,” we can deduce that the “option” will not be uniform like Medicare, but will be a smorgasbord of local plans. When we consult the Democrats’ legislation, it becomes apparent – in the case of the Senate bill, obvious – that the “option” will be created and possibly run by insurance companies and other corporations.
Once we establish that the “option” will consist of multiple local plans, then it becomes obvious the contracting administrators will have to set those up. What’s not obvious, but what seems inevitable, is that (a) the contracting administrators will hire non-public-employees to staff the local plans and (b) the contracting administrators will either eventually retire from the scene and leave those plans in private hands (in which case we can say the local “options” are privately owned and run) or the contracting administrators will continue to play some ownership or supervisory role indefinitely (in which case it would be accurate to say the contracting administrators not only created the local “options” but ran them thereafter).
Thanks in large part to the bait-and-switch tactic employed by the leaders of the “public option” movement, the high probability that the “option” will be a balkanized program created and run by insurance companies is not obvious to the public. The constant description of the “option” as “like Medicare” and “available to all Americans” has created widespread confusion about every aspect of the “option,” including how big it will be, whether it will be uniform like Medicare or balkanized into dozens or hundreds of local programs, and who will create it. Given this confusion, I definitely understand why some people thought Byrne’s article overstated the role insurance companies will play in the “option.” But that doesn’t excuse them. The movement for universal health insurance does not need ditto-heads. We need well informed people capable of playing a role in improving, not diminishing, public understanding of the Democrats’ “reform” legislation.
I want to stress that the issue of whether the Democrats’ tiny “option” is run by public employees or private corporations is secondary to the question of whether the “option” will work as advertised, in particular, whether it will be big enough, efficient enough, and sufficiently immune to adverse selection to seize substantial market share from the insurance industry and force its premiums down. The important issue is the impact the small size of the Democrats’ option will have on its ability to keep its administrative costs and provider reimbursement rates down. The use of private firms to create the numerous “community insurance option” programs will probably add to the total administrative cost of setting up the “option” program, but those additional costs pale in comparison to the higher administrative costs created by the need to build the “option” program on a retail basis, that is, market by market, rather than on a wholesale basis.
Most importantly, if the Democrats’ feeble “option” is used as a fig leaf by liberal members of Congress to throw hundreds of billions of dollars per decade at the insurance industry, and if the “option” fails to have any effect on the insurance industry, serious damage will be inflicted on Americans, both as patients and as premium- and tax-payers. Those who wish to alleviate human suffering in all its forms will care little whether the “option” failed under the guidance of public employees or insurance companies.
Nevertheless, this issue of whether corporations will play a significant role in the “option” is an important one because truthful reporting about it helps educate Americans, including those Americans who hold seats in Congress, about what the “option” is and isn’t. Right now the Democrats’ “option” looks like a tiny little program that will hire insurance companies to create little privately run insurance companies from scratch on a market by market basis. It is extremely unlikely that if pollsters asked Americans what they thought of this version of the “option” that a majority would say they like it. It’s hard to believe a majority of the membership of Congress would vote for it.
My question for HCAN blogger Jason Rosenbaum, posted October 27, 2009 on Firedoglake’s blog:
Could you walk us through the process by which the Department of Health and Human Services will set up an “option” plan in any given market, say Boston, under the Senate health bill, HR 3200, or HCAN’s blueprint? Here’s the scenario I believe will occur under both the Senate HELP bill and HR 3200 assuming the “option” actually survives.
* Beginning in 2013, the Secretary of HHS contracts with a “contracting administrator,” that is, a corporation such as Blue Cross Blue Shield, to set up an “option” plan in Boston. The Secretary also loans Blue Cross several hundred million dollars to carry out all the tasks necessary to set up an “option” plan.
* Blue Cross then hires 80-100 people to create an insurance company to serve Boston. These people do the things you’d expect people to do to create a new insurance company, including making cold calls on clinics and hospitals to see if they’d be interested in accepting “option”-insured patients at Medicare rates plus 5% (or about 15% below the insurance industry average).
Question: Do you anticipate that Blue Cross will at some point ask clinics and hospitals to sign contracts with Blue Cross indicating their commitment to be part of the Boston “option” network? Or will contracts be unnecessary?
* After six months of making numerous cold calls, Blue Cross succeeds somehow in inducing a sufficient number of clinics and hospitals to agree to accept “option” enrollees. Now Blue Cross incorporates the Boston Public Option Plan (BPOP) and hires 80 people to staff BPOP.
Question: Does Blue Cross exit the scene now, or do you anticipate Blue Cross will continue to serve as an advisor to BPOP? Obviously, Blue Cross, if it does retire from the project, has to leave in place a contract with BPOP that at minimum ensures BPOP will repay the loan that Blue Cross got from the Secretary of HHS.
* BPOP/Blue Cross now begins advertising heavily and making cold calls on employers seeking to induce tens of thousands of Boston residents to pay their premiums to BPOP in the event that these people are eligible to shop in the MA exchange.
Question: How many people will have to enroll in BPOP in order for BPOP to have sufficient leverage over local providers to get them to accept reimbursement rates even with or below the rates paid by Aetna et al. in the Boston area? I’m not looking for precision, just some evidence that you or someone you know in the “option” movement has thought about this.
* Let’s assume BPOP solves the chicken-and-egg problem of trying to assemble a critical mass of providers and enrollees roughly simultaneously. BPOP formally opens for business. BPOP makes enough money within the next 8 to 9 years that it can repay to Blue Cross the loan it got from the Sec or HHS. Blue Cross in turn repays HHS.
Is this the process you envision?
Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program. He is the author of The Health Care Mess (AuthorHouse, 2006).