The public option refers to a new public plan that would compete with private health insurers in an effort “to keep them honest”. It is a concept trumpeted by Jacob Hacker, now a professor of political science at the University of California Berkeley. His original idea, as first envisioned in the 1990s, was that a large public program, operated along the lines of Medicare, could cover as much as one-half of the non-elderly population by shifting all or most of the uninsured, as well as all Medicaid and SCHIP enrollees, into the plan from the start.  Because of its size and efficiency, such a large plan would be able to keep its premiums much lower than private plans, thereby increasing its attractiveness to enrollees. In addition, all non-elderly Americans, whether privately insured or not, would be eligible to participate. Government subsidies would be extended to those unable to afford the plan. Private insurers would be required to offer the same minimum benefits as the public plan.

So the initial idea was premised on the idea that a public plan could bring needed competition into the financing of health care. Forget that dream.  Although the current House and Senate bills both include a “public option”, it is in name only. What might have roared like a lion is becoming, at most, a mouse that barely squeaks. The details change every day, but already these kinds of changes from Hacker’s original concept make it a policy non-starter:

•  Many people with private insurance who want to change will not be able to select the public option
•  The public plan may not kick in until 2013 or until such time as private plans have been demonstrated not to save money (a so-called “trigger”)
•  Whatever new regulations that are imposed by the reform bill will only apply to new private plans; existing plans will be grandfathered in as is
•  Private insurers worry that a public plan would crowd them out by undercutting their premium levels, so they lobby to keep the public program small
•  The current proposals in Congress do not impose caps on private insurance premiums; nor do they allow the public option to significantly lower its premium rates below private plans
•  The public plan will not be “pre-populated” with all Medicaid and SCHIP enrollees from the start, thereby keeping the plan small
•  Instead of initial coverage estimates in the range of 120 million enrollees by public plan advocates, the Congressional Budget Office (CBO) estimates that only 10 million would be enrolled because of the fine-print restrictions now being placed on the plan within Congressional committees. These restrictions are being heavily lobbied by the private insurance industry to ensure that they won’t have any real competition.

The transformation of the public option from a potentially useful policy to its present irrelevance is well described in the recent brilliant analysis by Kip Sullivan, attorney and member of the Minnesota chapter of Physicians for a National Health Program. (PNHP web site at www.pnhp.org)  This transformation is no accident.  Opponent of a public plan have so far successfully and deceptively argued that it would be a “government takeover”. The Lewin Group, a supposedly non-partisan health services consulting group now owned by UnitedHealth, the second largest private insurer in the country, serves its new masters in two ways — by making projections for a public plan in the range of 120 million (a scare tactic), and keeping its silence during Congressional testimony on the cost-saving advantages of single-payer financing (as it has demonstrated in many state studies in recent years).

The fight against real competition is a do-or-die battle for the private insurance industry. Over many years, it has demonstrated its inability to control health care costs, is in business to make money for its shareholders by covering healthier people and avoiding sick people, and has already failed to compete against Medicare in efficiency, reliability or value. The currency of the realm in this industry is the medical-loss ratio (MLR), or how much is paid out for actual medical care, its “losses”. Between 1993 and 2008, industry-average MLR’s dropped from about 95 percent to 80 percent, diverting more money away medical care to administration, profits and shareholder returns.

We are now being told by the Obama administration and many legislators that the public plan will bring competition into the system and will help to cut costs and make insurance more affordable. At the same time, they are trying to reassure the insurance industry that the public plan will not put them out of business. This is double-talk and snake oil of the worst kind.

As just another plan available to a small segment of the population, the public plan if ever enacted will further fragment the system, increase bureaucracy, and still not result in either cost containment or open choice of coverage. The playing field would remain tilted in favor of private insurers, and the public plan would likely become a dumping ground for poorer and sicker patients through adverse selection.

Though many may not yet realize that the public option is dead on arrival if it ever gets to a floor vote in Congress, it is high time to move the debate on to consider real policy alternatives in our quest for cost containment, universal access, and improved quality of care. Let’s check the closet. Where is that H. R. 676 when we need it?

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com

Employer-sponsored health insurance (ESI) dates back to World War II when the nation rapidly mobilized to a wartime economy. Facing a severe labor shortage and needing a healthy work force, employers had to compete for workers by offering higher pay and health benefits. IRS rulings freed employers from taxes on the costs of health insurance, and these benefits were not taxable for their employees.

We now have an almost 70 year experience with ESI, and that method of financing U.S health care has been steadily unraveling. Employers today are spending an average of about $10,000 a year for health coverage for each employee with a family of four.  Premiums have gone up by 120 percent for ESI since 1999, nearly triple the rate of inflation and six times cumulative wage growth. Only three in five large employers now offer any kind of health care coverage, and many are cutting back or eliminating retiree health benefits.  Smaller employers are abandoning ESI at a rapid clip.  National surveys have found that the proportion of small businesses offering coverage dropped from 61 percent in 1993 to just 38 percent today.

So are employer mandates good health policy?  If we base that answer on history and their track record, instead of ideology and wishful thinking, we have to say no. Employer mandates will not give us an effective way to control health care costs, which will only become a bigger burden on employers and make them even less able to compete in a global economy. Taking General Motors as an example, it has had to spend about $1,500 per car for health care, hardly competitive with manufacturers across the border in Toronto that spend one-fifth of that amount on health care within the Canadian single-payer system.

Employer mandates have been tried for many years in a number of states, and have never resulted in universal coverage or cost containment. The longest experience has been in Hawaii – 30 years – where initial gains in coverage later reverted to growing numbers of uninsured and higher health care costs. Later experiments with employer mandates, often combined with individual mandates, have been carried out in California, Connecticut, Massachusetts, Maine, Minnesota, New Mexico, Oregon, Vermont, and Wisconsin.

Over the years, employer mandates have usually been opposed by the business community, including conservative market advocates and the Chamber of Commerce.  In the current debate over reform proposals, the business community is increasingly vocal in its opposition to the cost and burdens of an employer mandate.  Flash points in the debate now focus on whether ESI health benefits should be taxed and what exemptions ought to be extended to small business.

Forty percent of the private U.S. labor force works for employers with fewer than 100 employees, who are represented by the National Federation of Independent Business (NFIB). The small employer market is one of the most profitable markets for private insurers, but small employers find insurance premiums increasingly beyond their reach.  According to the Kaiser Family Foundation, premiums for single workers in small businesses climbed by 74 percent between 2001 and 2008. Not surprisingly, the NFIB is very concerned about the impacts of reform proposals in Congress. There is a basic economic truism that will come into play — make the purchase of something mandatory and its cost will rise, if only because the seller knows the buyer must but it.

What American business desperately needs is containment of its health care costs and a healthy work force in order to compete in the 21st Century.  It will not get that from “reforms” now being debated in Congress. If enacted after political compromises with the major corporate stakeholders, a bill will likely make the plight of American business, as well as the broader public, even worse.

Ironically, the goals of health care reform — cost containment, universal access, and improved quality of care — can be met by a paygo option, single-payer national health insurance, which would provide universal coverage and cost less than what employers and the public are paying now.  But since that option would reduce corporate profits in a runaway market system, it is still not being considered by most politicians, beholden as they are to corporate money.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com

• only about one-half of the previously uninsured now have some coverage.
• The public “Connector” established to implement the program has added another layer of 4 to 5 percent overhead without enough leverage to rein in costs of private insurers.
• As health insurance and out-of-pocket health care costs take up 15 percent or more of their family income, many people still forego needed care because of  costs.
• the State has had to exclude many people from the program, the cost of  subsidies (for those earning up to three times the federal poverty level) are much  higher than anticipated, and the costs of health care continue to soar out of control (Massachusetts pays one-third more per person than the national average).
• In its budget crisis since the Fall of 2008, in order to keep the program going, the State has had to cut safety net programs, including providers, emergency rooms, primary care, and chronic mental health services; and coverage of legal immigrants will soon be eliminated.
• In order to try to get a handle on soaring costs and overutilization of health care, the State is now considering a plan to radically change how providers and hospitals are paid, eliminating the customary fee-for-service system and replacing it with some kind of risk-adjusted global payments.

Mandates are not a new idea.  They have been tried in a number of other states, including California, Oregon, Pennsylvania and Maine. The results in Maine are no better than they are in Massachusetts.  As a state with a large rural, poor and elderly population and an economy based on small business, employer-based insurance coverage is limited.  The State enacted a law in 2003 with the goal of covering all 130,000 uninsured residents by this year.  It has also failed:
• the plan now covers only a small fraction of the target population.
• the State had to cap enrollment due to financing problems.
• Most private insurers have left the state, and the dominant insurer has priced coverage in the individual market beyond the reach of most uninsured.

So we already know that mandates don’t work as well as their supporters claim.  They have not resulted in universal coverage in any state.  They are complex, very expensive, not sustainable, and have unforeseen unintended consequences.

Yet an individual mandate that requires all, or nearly all, uninsured Americans to purchase health insurance is a basic part of all the proposals now being developed in Congress. Government subsidies will be provided for people below specified federal poverty levels, and those who still cannot afford insurance will be exempted. Under the House bill, a family of four earning less than about $88,000 a year won’t have to pay insurance premiums that take up more than 11 percent of their income.  Individuals will be penalized by fines if they do not have at least a minimal level of coverage. The current House and Senate bills vary a bit on the penalties (eg. 2.5 percent of adjusted gross income over $18,700 for a couple in the House version and up to $750 a year a person a year in the Senate version).  Many other details lurk in the fine print.

The basic goal of a 2009 health care reform package is to address the problem of 46 million Americans without health insurance through a combined mandate on individuals and employers. The current House bill will cost $1 trillion over 10 years, but will still leave 36 million Americans uninsured, according to the CBO.

Based upon the poor performance of mandates in all states in which they have been tried, why is it that policy makers, politicians, and most stakeholders still support the concept of mandates? The basic answer, of course, is money.  Insurers see nearly 50 million new enrollees, many subsidized by the government. The drug industry sees new profits for its products.  Hospitals and physicians foresee many previously uninsured patients becoming insured. And many legislators benefit from corporate money flowing into their future campaign war chests.

Based on substantial experience at the state level, we can anticipate that “reforms” based on mandates will be very expensive (for both patients and taxpayers), add even more bureaucracy and complexity than we now have, fail to control costs and still not provide much additional access to care. In sum, if enacted as these bills are shaping up, these “reforms” will be policy failures but another bonanza for the medical-industrial complex.  In the next post, we will look at the other mandate — the employer-based mandate — to ask whether that makes any sense.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com