By Kip Sullivan, JD

Leaders of the campaign for a “public option” have circled their wagons around two sentences in HR 3200 (the House health “reform” bill). These sentences, which are not in the bill passed by the Senate health committee, appear in Section 223 of HR 3200:

Health care providers participating under Medicare are participating providers in the public health insurance option unless they opt out in a process established by the Secretary.

[T]he Secretary shall base the payment rates [for providers] on the payment rates for similar services and providers under parts A [the hospital services part] and B [the physician services part] of Medicare.

“Option” advocates are claiming these two sentences are “crucial” and “critical” to the success of the “option” and absolutely must be in any final “reform” bill. The Congressional Progressive Caucus has even warned President Obama that if these two sentences are not in the final bill, they will vote against it.

In this paper, I demonstrate why these two sentences accomplish nothing. In a paper I will post soon, I will go on to show that the “option” in HR 3200 is no better than the “option” in the Senate health committee bill.

Review of recent history

Five committees in Congress have jurisdiction over health care reform, two in the Senate, and three in the House – Health, Education, Labor and Pensions (HELP) and Finance in the Senate, and Energy and Commerce, Education and Labor, and Ways and Means in the House. The Senate HELP Committee has produced a bill, and the three House committees have produced a bill. The Senate Finance Committee has yet to report a draft bill.

The Senate HELP bill is called the Affordable Health Choices Act. A draft version of the HELP Committee bill was published last June. It passed out of committee on July 15, but at this date still has no number and is not available as a single bill. In this paper “the HELP bill” will refer to the portion of the HELP Committee’s draft bill known as “the additional Chairman’s mark on coverage,” available at the Website of the HELP Committee.

The House bill is called America’s Affordable Health Choices Act (my emphasis). A draft version of this bill, written by the chairmen of the three House committees, was published last June. It was formally introduced in July, which means it was given a number (HR 3200). HR 3200 passed out of all three House committees in late July and early August. To placate the Blue Dogs, the version of HR 3200 that passed out of the Energy and Commerce Committee was stripped of the language authorizing the “option” to use Medicare’s rates plus 5 percent. In this paper, “HR 3200” will refer to the original version of that bill which, at this date, is the only version available via the search engine at the Library of Congress.

Both bills, the HELP Committee bill and HR 3200, contain “public option” provisions. It has been obvious since the draft versions of these bills were published last June that the “options” in them are so weak they will have no effect on the premiums insurance companies will charge, and they might not even survive. “Option” advocates refuse to acknowledge these facts.

Instead of taking steps to strengthen the “option” provisions in the HELP bill and HR 3200, “option” advocates have taken the position that the “options” in both bills are “strong” and “robust,” and the “option” in HR 3200 is particularly “strong” and “robust” because it contains the two sentences I quoted above. In fact, the leadership of the “option” movement has decided to make those two pipsqueak sentences their bottom line, their Alamo, their litmus test for whether they will support the final “reform” legislation.

The two sentences “option” supporters say they must have

Here again are the two sentences from HR 3200 that representatives of the “option” movement now claim they must have:

Health care providers participating under Medicare are participating providers in the public health insurance option unless they opt out in a process established by the Secretary. (Section 223(b)(3))

[T]he Secretary shall base the payment rates [for providers] on the payment rates for similar services and providers under parts A [the hospital services part] and B [the physician services part] of Medicare. (Section 223(a)(2)(A))

(Language elsewhere in the bill says the Secretary shall pay providers who participate in both Medicare and the “option” an extra 5 percent during the first three years of the program.)

By contrast, the HELP bill says providers do not have to participate in the “option” program. It authorizes the Secretary only to negotiate with providers about rates (with the proviso that the negotiated rates cannot exceed the average paid by the insurance industry).

Yet “option” advocates treat these two sentences in HR 3200 – the providers-are-assumed-in and the Medicare-rate provisions – as if they were crucial weapons in the “option’s” upcoming battle with the insurance industry.

For example, in a July 15 post entitled, “Why the House’s public option is better than Kennedy’s public option,” Wonk Room blogger Igor Volsky wrote:

Though the House bill is not perfect—it encourages providers to participate rather than compels them to—it goes much further than the Kennedy bill [i.e., the HELP bill] to take full advantage of a public plan’s market power. Under the House legislation, Medicare providers are auto-enrolled as providers in the public option (the legislation presumes they will offer coverage unless they opt out) and their reimbursement rates, which are tied to Medicare rates for the first three years, include a 5 percent bonus for physicians that participate in both Medicare and the public plan (emphasis added).

In a paper posted on August 20, Jacob Hacker, the man credited with inventing the modern version of the “option,” makes the same argument. Hacker lumps the magic Two Sentences into a single concept he dubs, misleadingly, “a Medicare tie-in.” According to Hacker:

Under a Medicare tie-in, providers participating in Medicare would automatically be considered participating providers in the new public plan (although in the House bill, they would have the right to opt out) and payments to providers would be based on Medicare rates – for example, Medicare rates plus 5 percent. If the public plan is required instead to adopt the “not-so-good” approach of signing up providers and bargaining over payments directly with them, the public plan may have a very hard time building a network and obtaining reasonable rates to act as a true competitor to private plans, given the barriers it will face in consolidated insurer and provider markets. The versions of the House bill approved by the House Ways and Means Committee and House Education and Labor Committee contain a Medicare tie-in…. By contrast, the House Energy and Commerce Committee approved the House bill with amendments that preserve only the first of [the] two elements [of the Medicare tie-in – the assumption that providers will participate]. The HELP Committee bill has an even weaker guarantee that the public plan will be able to establish itself. … [I]t states that the Secretary has to negotiate rates directly with providers. But the legislation also lacks the presumption in the House bill that Medicare providers will participate (with an opt-out option), putting the public plan at a disadvantage against the private insurers with established networks. This is also a not-so-good provision that should be changed to the House approach of presuming participation. (pages 4 and 5)

By September, “option” advocates within the Congressional Progressive Caucus had decided to make the Two Sentences their Alamo. In a September 3 letter to President Obama, the CPC abandoned its previous promise to compare HR 3200’s “option” with the CPC’s criteria for a strong “option” and explicitly endorsed the HR 3200 “option” (the version that retained the Medicare-rate requirement):

We continue to support the robust public option that was reported out of the Committees on Ways and Means and Education and Labor and will not vote for a weakened bill on the House Floor or returning from a Conference with the Senate. Any bill that does not provide, at a minimum, a public option built on the Medicare provider system and with reimbursement based on Medicare rates – not negotiated rates – is unacceptable. A plan with negotiated rates would ensure higher costs for the public plan….

Note how easily each of these three statements – Volsky’s, Hacker’s, and the CPC’s – glides right past reality into another world where whatever we wish comes true. All three statements make the utterly unrealistic assumption that the task of “opting out” of the “option” program is going to be so onerous that providers who really don’t want to participate in the “option” will do so just to avoid the opt-out process. All three statements assume that all or most providers won’t want to work for below-industry rates (otherwise why give the “option” the authority to pay such rates), and yet all three statements assume the flimsy little “opt out” requirement will cause providers to change their minds.

Although the language of HR 3200 does say the Secretary will be responsible for developing an “opt out” process, there is nothing in that language to suggest that Congress expects the Secretary to make the process burdensome. What if a future Secretary of DHHS did create an onerous process to keep providers in the public plan? The inevitable a lawsuit to force the Secretary to rescind the onerous process and replace it with a simple one would succeed precisely because HR 3200 contains not even a hint that the process is supposed to cause headaches.

A far more realistic assumption is that the “opt out” process will amount to filling out a form on a computer and mailing it in to the Secretary or to the local “option.” Obviously, an “opt out” process that simple is, in the real world, no different from the voluntary process called for in the Senate HELP bill.

Similarly, the assumption that the Secretary is going to be able to induce clinics and hospitals all over the country to accept Medicare’s rates simply because HR 3200 authorizes the Secretary to use those rates is speculation at best and a daydream at worst. Providers will accept Medicare’s rates for “option” patients only if they think it’s in their financial interest to do so. As I have argued elsewhere, a provider’s judgment about whether to participate in the “option” will be based upon the total revenue that participation in the “option” will generate for the provider, not merely the fees the “option” pays. Total revenue is a function of the fees the “option” will pay and the number of patients it will deliver to the provider. But nothing in HR 3200 guarantees large enrollment in the “option.”

The CPC’s reference to a “Medicare provider system” is particularly egregious. There is no such thing. There is only the reality that the vast, vast majority of American providers accept Medicare patients at Medicare rates without legally being required to do so. Referring to the “Medicare provider system” is like referring to the “Wal-Mart customer system.” Yes, millions of people shop voluntarily at Wal-Mart. That doesn’t make them part of a “system.”

So if the magic Two Sentences can’t create the equivalent of “the Medicare provider system … with reimbursement based on Medicare rates,” to quote the CPC, what will? If the “option” isn’t going to have a ready-made supply of providers to work with, how will it be able to determine what premiums it will charge and which providers its enrollees can see so that it can begin the process of recruiting a customer base? I have discussed this complex “chicken and egg” problem in two previous papers (here and here). Essentially, the problem is that the “option’s” managers won’t be able to negotiate advantageous rates with providers unless they can give providers some idea of how many patients they will deliver to them, but they can’t make that estimate until they have some idea of what premiums the “option” will charge, but they can’t do that till they know what they have to pay providers, etc.

The chicken-egg problem could be solved if HR 3200 contained a provision that created a huge customer base for the “option” in every state prior to the day the “option” opened for business. Alternatively, HR 3200 could require all providers in America to participate in the “option” program (although it is not clear that even this requirement could solve the “chicken and egg” problem by itself). But HR 3200 contains neither provision. All it offers are the magic Two Sentences – providers are assumed to participate unless they say otherwise, and the Secretary is authorized to use Medicare’s rates. Offering the Secretary the Two Sentences is like offering someone scissors with one blade. The CPC’s vow to oppose legislation that does not contain the equivalent of scissors with one blade is silly.

It’s time for truth in advertising about the “option”

The decision by the leadership of the “option” movement to cash in all their marbles for the Two Sentences was dumb. It raises the obvious question, Why did they do it? Were they really unable to determine that the simple “opt out” provision in HR 3200 isn’t worth the paper it’s written on? Are they really incapable of understanding that merely authorizing the “option” to pay Medicare rates plus 5 percent is, by itself, no solution to the chicken-and-egg problem?

Or is there something else going on here?

Perhaps the CPC and other leaders of the “option” movement comprehend that the Two Sentences really are worthless and that the “option” in HR 3200 really is extremely weak, but they can’t bring themselves to say this publicly because they believe any “option,” not matter how pathetic, is better than no “option.” They think a “foot in the door” is better than nothing at all. As I have argued in a previous paper, the “option” will not be a typical government program. It will be a business. One does not open a business on the “foot in the door” theory. You either open a business with a solid business plan and a good chance of succeeding or you don’t.

I suspect the latter explanation (that “option” advocates know the Two Sentences are worthless) is the correct one, with one wrinkle. I suspect the leadership of the “option” movement didn’t start out thinking they would settle for any legislation so long as the naked phrase “public option” appeared somewhere in it. I suspect they decided (wrongly) that the reason Bill Clinton’s 1993 Health Security Act failed was that Clinton revealed way too much detail in his bill and this gave his enemies lots of ammunition with which to sink his ship. If I’m correct about this, the “option” movement’s leaders decided early on that they simply wouldn’t say much about how the “option” would work; they would simply ask their followers to chant “public option, public option” over and over, much the way advertising for consumer products often repeats a brand name or a concept over and over (as in, “great taste, less filling”).

If we measure this repeat-the-mantra strategy by whether it catapulted the phrase “public option” into the news media and resulted in the phrase being incorporated into legislation supported by the leadership of congressional Democrats, we would have to say it worked. But if we measure it by whether it resulted in legislation that (a) describes in sufficient detail a workable program and (b) has a chance of passing, we would have to say it failed.

If I were a foot-soldier in the “option” movement I would ask my leaders to abandon the know-nothing strategy – the strategy of saying nothing about the details of the “option” and concentrating only on the “brand” name. If I believed that a “public option” could truly reform health care I would now conclude that it was a mistake to sell the “option” as if we were selling detergent or lip gloss. I would conclude that “public option” leaders have created great “brand recognition” but they have not created legislation that will implement real health care reform.

All of us desperately need real reform of our sick health care system. The present system ruins human lives daily through preventable deaths, devastating bankruptcies, hideous disparities and gross injustice and indignity. We cannot afford to experiment with “reforms” like the “options” in HR 3200 and the HELP bill which, coupled with the enormous insurance industry bailouts called for by those bills, will merely perpetuate the current system.

It’s time for the “option” movement to insist that its representatives start speaking truthfully about the “option” provisions in HR 3200 and the HELP bill. They might start by admitting that the Two Sentences in HR 3200 are, by themselves, incapable of giving the “option” the tools it needs to survive, much less thrive.

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: How We Got Into It and How We’ll Get Out of It (AuthorHouse, 2006).