Healio, November 10, 2020
POINT by Benjamin Sommers, M.D., Ph.D.
A public option can improve health care affordability with continued private insurance and better access to quality providers, but only if the design is set up in a way that provides more financial protection upfront. You could also push private insurers to do this, but a public option is a better vehicle to make sure the cost-sharing terms are affordable for patients.
Many individuals who are currently insured in the marketplace have high deductibles — up to several thousand dollars in some cases. This leaves many people paying out of pocket for their care unless they get critically sick.
If the public option aggressively negotiates payment rates to providers, it will bring down the overall costs, as is the case with Medicare and Medicaid. There is a trade-off because it could possibly limit the number of providers but, on the other hand, it would save the whole system money.
There are a lot of varieties of public options. The one from the Biden campaign is for patients not in Medicaid expansion states. This would help patients who are too rich for Medicaid but too poor for the marketplace. Those people — and there are a lot of them — have fallen through the cracks.
This could also help patients in places where there is limited competition, which leads to higher premiums. Creating more competition brings down the costs.
However, there isn’t a magic number when, once hit, suddenly everyone is able to afford care and be covered. Every step taken squeezes people out. The only way to get everyone insured is through a single-payer system but, even then, it has to be more generous than the current Medicare plan. That being said, there doesn’t seem to be the political will or leverage to implement that.
The Medicare component of the public option is popular, but it also has substantial cost-sharing; about 20% in most cases. That’s why there are supplemental plans.
The U.S. Congress — Democrats and Republicans alike — gives away benefits with a value that substantially exceeds what the users pay. Each beneficiary on average receives $310,000 more in benefits than they pay. The unpaid bills — $37 trillion at last count — have been kicked down the road to future generations in the form of bigger federal deficits. The Galen Institute reports that Medicare’s annual deficits are responsible for one-third of U.S. federal debt.
Yet, Medicare’s enormous scale confers genuine administrative and purchasing efficiencies. Medicare spends up to seven times less than private insurers on administrative costs. It also pays hospitals 40% less and providers 2 to 3.5 times less than private insurers pay for the same services. Some contend that providers merely shift Medicare and Medicaid’s unpaid charges to private insurers, but that charge has been refuted. Rather, it is plausible that these payments appropriately help to squeeze out the one-third of health care expenditures that many experts view as sheer waste.
Americans generally like both private insurance and Medicare but universally hate their costs. “Medicare for All” eliminates private insurers and increases taxpayers’ burden. The public option keeps private insurers and controls health care costs.
Benjamin Sommers, MD, PhD, is the Huntley Quelch professor of health care economics at Harvard University T.H. Chan School of Public Health.
COUNTER by David Himmelstein, M.D.
A public option insurer that doesn’t try to dodge unprofitable enrollees like traditional Medicare does would be saddled with more than its share of sick, expensive patients and would become a de facto high-cost, high-risk pool. Although a public option really can’t achieve universal coverage, a single-payer system, usually referred to as Medicare for All, can.
CMS’s decades-long efforts to level the playing field have not worked against private insurers, which breaks their promises of fair competition. Insurance companies have also used their political muscle to sustain and increase their competitive advantage over traditional Medicare. The result is that a public plan and the taxpayers absorb the losses while private insurers skim off profits. This imbalance is so big that private plans can outcompete a public plan despite squandering vast sums on overhead costs, CEO salaries and shareholder profits.
The bottom line is that a public option is a more expensive way to do this than a single-payer system.
Private insurers currently take in $252 billion more than they pay out per year, which is equivalent to 12% of their premiums. A single-payer system with overhead costs comparable to Medicare’s could save about $220 billion of that money. A public option would save far less, or possibly nothing, if much of the new public coverage is channeled through Medicare Advantage plans, whose overhead, at 13.7%, is even higher than the average commercial insurer.
A single-payer system would put private insurance companies out of business. Drug companies and medical suppliers would also stand to lose billions because they would face a buyer that could actually drive down costs.
The excess overhead inherent to multipayer systems imposes a hidden surcharge on the fees that doctors and hospitals must charge all patients — not just those covered by private insurance. All told, a public option reform would sacrifice about $350 billion annually of single payer’s potential savings on providers’ overhead costs, over and above the $220 billion in savings it could sacrifice annually on insurers’ overhead.
Finally, a public option would undermine the rational health planning that is key to the long-term savings under single payer. Each dollar that a hospital invests in new buildings or equipment increases its operating costs by 20 to 25 cents in every subsequent year. At present, hospitals that garner profits have the capital to expand money-making services and buy high-tech gadgets, whether they’re needed or not, while neglecting vital but unprofitable services.
I’m not sure what innovation people think is going to be stifled with a single-payer system. In fact, Medicare has been much more innovative than private insurers. Most scientific innovation has come from the NIH and other countries. The CT scan, for example, came from Great Britain. Most of the money drug companies and insurance make goes to their shareholders; an astonishingly low amount goes to innovation. We’d be much better taking the money from those profits and amping up funding to the NIH.
Because a public option would leave the current dysfunctional payment approach in place, it would sacrifice most of the savings available via single-payer reform. I’m not opposed to having a public option because it would give more people insurance, but I just think it’s a bad way to provide insurance in this country. The bottom line is that a public option would either cost much more or deliver much less than single payer.
David U. Himmelstein, MD, is a professor of health policy at City University of New York School of Public Health at Hunter College.
By Don McCanne, M.D.
This is one of those situations where it is better to answer the question they should have asked rather than the one that they actually asked.
A Medicare-like public option that benefits from government-administered pricing and that is subsidized by the government obviously would bring down costs for patients who are enrolled in the program when compared to private commercial plans that are not government subsidized. But what about all of the other patients who are not enrolled in the public option? Some have suggested that competition from a public option might cause private plans to reduce their premiums, but they would do so by reducing their own costs through benefit reductions, increases in patient cost-sharing, and perhaps moving to more restrictive provider panels, shifting more costs to the patients, so any net cost reduction would be negligible.
Compare adding a public option to our current expensive, administratively complex, highly dysfunctional health care financing system to replacing the system with a well designed single payer system – an improved Medicare for All. Not only would everyone be covered with a high-performance system, the average costs for patients, except for the very wealthy, would be less than the average costs we are paying now simply because the entire system would be funded through equitable, progressive taxes – that’s on top of the sharp reductions in profound administrative waste and the efficiency of public purchasing.
As David Himmelstein explains, the bottom line is that we would have a superior system that would be affordable for each of us if we enacted and implemented a single payer system. Even Benjamin Sommers says, “The only way to get everyone insured is through a single-payer system,” and “Medicare’s enormous scale confers genuine administrative and purchasing efficiencies.” It’s nice to see that these experts appear to agree even if the question superficially seemed to bring them to opposite yes or no conclusions.
Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.