"Insurers Respond To Schumer’s New Public Health Plan Compromise"
Today’s Senate Finance Committee hearing on coverage options may have started with single-payer advocates loudly protesting the limited discussion of single-payer reforms, but the bulk of the conversation revolved around the public plan option.
Earlier today, Sen. Chuck Schumer (D-NY) released an outline (largely based on CAP’s report on the public plan) for how a new public health option could compete on an equal playing field with private insurers and Senate Democrats pressed representatives of the private insurance industry to reply to Schumer’s proposal.
Sen. Robert Menendez (D-NJ) asked BC/BS Association CEO Scott Serota to explain “what is the principle position in the opposition that the association has” to fair competition. Serota argued that health insurance markets are already overflowing with competition and stubbornly insisted that it would be impossible to design an equal playing field (Listen here).
America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni told Schumer that AHIP “appreciate[s] how thoughtful you are working to reconcile all these different views” but insisted that private insurers would be unable to fairly compete with a Medicare-like public plan that did not have the capital reserves of private insurers or the ability to build networks of providers:
There are a significant amount of Capital requirements that we need to meet, Medicare would have failed the capital test right now and so that is a very significant dollar figure that would have to be imbued into this plan and I know you’ve thought about that. The third issue is the payment issue…it would take a very long time, for government to develop the infrastructure to negotiate with physicians. Government doesn’t have networks, can’t put together networks, the Disease Management program failed in traditional Medicare and we all know why—because there’s no predictability with respect to who’s coming through the doors to the physicians’ offices, etc.
But here, Ignagni’s sense of fair competition is itself unfair. Ignagni does not want a new public health insurance plan to have any inherent advantages, but she’s insisting that private insurers preserve their advantage to create provider networks and enter or exit markets as they wish, etc. As Schumer pointed out, “it’s sort of as if you’re saying well the public advantages we should get rid of, but the private advantages we should keep. Let them compete.” (Listen here).
Indeed, while Ignagni is seeking to clone the public model into a private plan, most public public plan advocates envision a system in which both private and public plans compliment each other and one in which each plan uses its inherent advantages to offer Americans a real choice of coverage. So, while the public plan does not have explicit capital reserves like private plans, it will not be able to enter and exit different markets like most private plans could. Public plans may not have different networks of providers but it is a reliable source of coverage that contracts with any provider who is willing to accept its reimbursement rates (like Medicare does). In other words, public and private plans are inherently different and will use those differences to compete and attract beneficiaries.
Ignagni also argued that if the new public health option reimbursed providers at a lower rate than private plans, hospitals and doctors would shift the cost difference onto Americans with private insurance. But this too assumes that private plans are always right in setting reimbursement rates. As it turns out, however, “high payments from private insurers do not result from low payments for Medicare patients.” As one recent MedPac study found, “claims of extensive cost shifting imply that hospital costs are largely fixed and that it is hospitals in the worst financial sate that will have the greatest need and incentive to shift costs onto private payers due to low Medicare payment.” But MedPAC concluded that “it is the most financially pressured hospitals that are most efficient and thus capable of earning money on Medicare patients.” In other words, over-paying providers, as some insurers do, will not slow the growth of health care.
As Schumer concluded, “the private sector will have some advantages and we can’t just get up and say public advantages we should just get rid of in this competition, but the private sector advantages we shouldn’t.”
Thank you Mr. Chairman, Senator Schumer we appreciate how thoughtful you are working to reconcile all these different views, so let me start there because it needs to be said.
Secondly, there are a significant amount of Capital requirements that we need to meet, Medicare would have failed the Capital test right now and so that is a very significant dollar figure that would have to be imbued into this plan and I know you’ve thought about that. The third issue is the payment issue, and that’s where I want to spend—a quick point here because right now, and it would take a very long time, for government to develop the infrastructure to negotiate with physicians. Government doesn’t have networks, can’t put together networks, the Disease Management program failed in traditional Medicare and we all know why—because there’s no predictability with respect to who’s coming through the doors to the physicians’ offices, etc. etc.
So you would drop back, understandably, by saying we’re not going to solve one problem by saying we’re not going to use Medicare rates– say we’re going to go to 100% just for purposes of discussion—so we go from 80, Medicare is paying 80 cents on the dollar which will go to 100. So it’s still an administrative pricing system. Right now, and in our testimony, we provided some California data, the one thing that should be done as far as health care reform is we should be able to have the same data we can get in California in every state in the country. So we know exactly what’s being paid by payer. So you see now, government paying roughly 80%, a little less on average in California. Private sector is paying anywhere from 130 to 140.
So if you set up a new system where government’s paying 80 and we’re still subsidizing the 130 and 140, that immediately takes more people there- moving every employer, whether they’re small or large, using great economic sense would say well why do I have to pay that subsidy, it doesn’t make sense, I’m migrating the plan.
So that’s why we want you to know when we thought about our recommendations to this committee and this Congress we did not rule out anything, we looked at everything, which is why we’ve been so far reaching in our market reforms to try and create a situation that would solve the problems that consumers have—the trust factor. So again, you’re out of the room, we’re not asking people to trust us, but to trust government and to do that very transparently. You’re talking about a lot of disclosure, you’re talking about rules, and we’re very comfortable with that. That’s the way AHIP works, the way Switzerland works, Germany, the Netherlands, and I think that we could actually provide a great deal of help to the committee structuring something that solves that trust issue.
We accept that proposition, you are right we need to do more, we have to have a complete overhaul of the rules. But I hope that gives us, gives you a window, into what we’re very concerned about.