A New Public Plan Compromise: Government Promises A New Public Plan Would Pay Better Than Medicare

Jonathan Cohn (via Uwe Reinhardt) describes a new public health plan compromise in which “the government could promise that the new public plan would pay better than Medicare–say, by 10 or 15 percent on average. That should ease the concerns of insurers, providers, and other groups worried that a public plan wouldn’t pay sufficiently high rates”:

But in exchange for the higher payments, industry groups–particularly doctors and hospitals–would have to stop resisting changes in the way government pays for medical services. In particular, Medicare (along with the new public plan) would get to bundle payments, make contracts selectively, reward providers who meet quality standards, and tilt reimbursements towards primary care. These shifts have the potential (if done properly) to improve the quality of care while reducing costs in the long run. In other words, it’s a straight-up trade: Providers would get (relatively) higher payments. The government would get tools for steering money towards more efficient care.

Getting providers (and insurers!) on board with the public option is no small goal, but promising higher payments sounds a bit like a government subsidy a la Medicare Advantage. Here is the big picture: currently, providers fear that a new Medicare-like program would reimburse with Medicare rates (which are about 20 percent lower than what private insurers pay) and lower profits. Public plan advocates like Jacob Hacker have proposed that the new program negotiate prices with providers. This latest “twist” would promise providers a 10-15 percent boost in payment from the current Medicare rates (bringing the payments of the public option closer to what private insurers now pay) but would allow the government to use the new public program to spearhead payment reforms that would, in the long run, lower overall health care spending.

But it’s unclear why providers would accept a public plan that pays lower than most private insurers or sit on their hands and stay silent about payment reforms. Under Reinhardt’s approach, a public plan that piggy backs off of Medicare could more easily steer payment reform and would probably be easier to implement. But wouldn’t a bargaining process that forces private insurers to consider the price of the competitor have a greater impact in lowering overall costs?


Here is Tim Foley’s take:

Aside from the objection that there’s something a little messed up about creating a consciously un-level playing field and asking the public plan to compete with one arm tied behind its back, I’m skeptical this will solve anything. It looks like a grand compromise, but doesn’t do anything to improve policy. Instead, it water down the effectiveness of competition to no real improvement.

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