On Tuesday, Sen. Kent Conrad (D-ND) floated the idea of replacing a public health insurance option with consumer-owned health cooperatives that would “be subject to the same standards [as private plans],” and now Senate Finance Committee Chairman Max Baucus has indicated that he is “inclined toward a co-op”:

“I am inclined, and I think the committee is inclined, toward a co-op,” Mr. Baucus said.“It’s not going to be public, we won’t call it public, but it will be tough enough to keep insurance companies’ feet to the fire,” Mr. Baucus said of the co-op.

Conrad’s proposal would establish regional or state-based entities that, upon enrolling enough individuals, would either self-insure or contract out to a third-party administrator. In this sense, a co-op would act like just another non-profit health insurance plan and would have no ability to improve health quality by championing payment innovations or other delivery system reforms.

After all, one of the advantages of a truly national public plan is its ability to improve care quality by spearheading reforms and innovations. A new public plan has the potential to do even more to drive improvements in the health care system and set the standard for developing new payment models and investing in preventive care and care coordination.

Baucus suggests that co-ops would “be tough enough to keep insurance companies’ feet to the fire,” but it’s unclear how 50 different health plans or even one national non-profit plan could influence the market. For some health care reformers, a trigger alternative — an arrangement under which a robust public plan enters the market if premiums do not decrease by X% over Y years — is preferable to just another non-profit insurance plan(s) that is unable to improve care quality.

Today, Karl Rove penned an editorial in the Wall Street Journal attacking the public health care option. Rove’s ‘myths’ echo the poll-tested talking points of Frank Luntz and other conservatives determined to protect the private insurer’s monopoly over coverage and deny Americans choice. Below is a fact-check of Rove’s assertions. [Download a PDF version.]

Myth 1: A public option is unnecessary.
Myth 2: Private competition in Medicare Part D has reduced costs.
Myth 3: A public plan would shift costs to Americans with private insurance.
Myth 4: A public plan will lead to a welfare state.
Myth 5: The public option is too expensive.
Myth 6: Americans will be forced into a public option.
Myth 7: The public option would put a bureaucrat between you and your doctor.

MYTH 1: A public option is unnecessary: “It’s unnecessary. Advocates say a government-run insurance program is needed to provide competition for private health insurance. But 1,300 companies sell health insurance plans. That’s competition enough.” [WSJ, 6/11/2009]

TRUTH: Insurer and hospital markets are dominated by large insurers and provider systems. Private insurers rarely negotiate with dominant hospital systems and typically pass on the higher costs to beneficiaries in the form of higher premiums. Already, “1 in 6 metropolitan areas in a 2008 study of more than 300 U.S. markets is dominated by a single health insurer that controls at least 70% of consumers enrolled in health maintenance organizations or preferred provider organizations.” Such consolidation negates any real competition. Without it, insurers don’t negotiate prices and boost their profits. In fact, “there have been over 400 health care mergers in the last 10 years,” and premiums have risen “nearly eight times faster than average U.S. incomes.” A public plan could, in an environment of head-to-head competition, push private insurance companies to negotiate more aggressively with providers and dramatically lower health care spending.” [Urban Institute, 10/03/2008; LA Times, 4/09/2009]

MYTH 2: Private competition in Medicare Part D has reduced costs: “The results of robust private competition to provide the Medicare drug benefit underscore [the ability of private competition to lower prices]. When it was approved, the Congressional Budget Office estimated it would cost $74 billion a year by 2008. Nearly 100 providers deliver the drug benefit, competing on better benefits, more choices, and lower prices. So the actual cost was $44 billion in 2008 — nearly 41% less than predicted. No government plan was needed to guarantee competition’s benefits.” [WSJ, 6/11/2009]

TRUTH: Medicare Part D beneficiaries have experienced significant cost increases. According to a recent analysis by the Kaiser Family Foundation shows “significant increases in premiums, costsharing amounts, use of specialty tiers, and utilization management restrictions since 2008 that could have important implications for beneficiaries’ access to needed medications and out-of-pocket expenses.” [KFF, 6/2009]

MYTH 3: A public plan would shift costs to Americans with private insurance: “Second, a public option will undercut private insurers and pass the tab to taxpayers and health providers just as it does in existing government-run programs. For example, Medicare pays hospitals 71% and doctors 81% of what private insurers pay.” [WSJ, 6/11/2009]

TRUTH: Private insurer payments promote medical inefficiency. A new public option will change the way the health care reimbursement system so that we pay for value, not volume and reward efficient providers. According to MedPAC, Medicare rates are adequate and consistent with the efficient delivery of services. In fact, over-payments by private insurers to health-care providers drives up overall costs. “Hospitals which didn’t rely on high payment rates from private insurers ‘are able, in fact, to control their costs and reduce their costs when they need to’ and ‘combine low costs with quality.’” [WSJ, 3/17/2009]

MYTH 4: A public plan will lead to a welfare state:“If Democrats enact a public-option health-insurance program, America is on the way to becoming a European-style welfare state.” [WSJ, 6/11/2009]

TRUTH: Americans will choose a public health insurance plan from a menu of different options. The private insurance market isn’t going anywhere. Private insurers will play an important role in providing more integrated coverage options than the public plan and would retain a “brand advantage” (in the same way that a lot of people rather have the branded drug than the generic) for consumers. Private insurers who “offer a superior product through high levels of efficiency, satisfaction in consumer preferences and ease of access to quality medical services” will thrive in a reformed market. [Urban Institute, 10/03/2008]

MYTH 5: The public option is too expensive: “Fourth, the public option is far too expensive. The cost of Medicare — the purest form of a government-run “public choice” for seniors — will start exceeding its payroll-tax “trust fund” in 2017. The Obama administration estimates its health reforms will cost as much as $1.5 trillion over the next 10 years. It is no coincidence the Obama budget nearly triples the national debt over that same period.” [WSJ, 6/11/2009]

TRUTH: A public option will lower family premiums. If a public plan is “far too expensive” and has higher premiums, then Americans will not enroll. But if a public plan offers lower premiums, it will motivate private insurers to lower their costs. As a result, health care costs would decrease across the board.

MYTH 6: Americans will be forced into a public option: “Government-run health insurance would crater the private insurance market, forcing most Americans onto the government plan.” [WSJ, 6/11/2009]

TRUTH: The government would not force Americans to purchase coverage from the public plan, but Rove would force everyone under 65 to enroll with a private insurer. Rove is essentially arguing that the public plan would work too well. It would use its inherent efficiencies to lower family premiums and force private insurers to aggressively negotiate on behalf of their beneficiaries.

MYTH 7: The public option would put a bureaucrat between you and your doctor: “The public option puts government firmly in the middle of the relationship between patients and their doctors.” [WSJ, 6/11/2009]

TRUTH: A public option improves the doctor-patient relationship. Existing reform legislation explicitly preserves the doctor-patient relationship. As a draft of the HELP bill notes, “a strong doctor-patient relationship is essential to the practice of medicine, and patents have a right to an effective doctor patient relationships…Doctors, nurses, and other health professional have the right to judge what is best for their patients.” Moreover, the public plan’s payment innovations would reward doctors for providing quality care and spending more time listening to their patients. [HELP Legislation, 6/09/2009]

The New York Times is reporting that the American Medical Association will be lobbying Congress to oppose a public health insurance program, an integral part of health reform. In an attempt at damage control, the AMA has responded with a statement declaring it would support a public option if it operates like a for-profit insurance agency. In effect, the AMA still opposes reform. While Igor Volsky details the various reasons why the member physicians of the AMA should support a public health insurance program, it is important to consider that the AMA as an institution is not a neutral player simply representing doctors. Started in the mid 19th century as an accrediting organization, the AMA has morphed into a behemoth lobbying and member services entity that is deeply entwined with the for-profit health industry.

In the past century, the growth of AMA has been not only funded by health industry lobbies such as drug makers, but this relationship has tailored AMA’s anti-reform policy agenda. In reading the Huffington Post and the New America Foundation articles revealing AMA’s opposition to health reform during the New Deal, its efforts to block the passage of Medicare, and the AMA’s critical role in defeating health reform in 1993, questions arise over why the AMA has historically opposed any initiative to take health care out of the hands of the for-profit health industry.

In the first 50 years after its inception, the AMA struggled to fill its coffers. Because member dues were deemed insufficient to fund its various activities, the AMA eventually decided to sell advertising space for its medical journal JAMA to drug companies. Expanding on this business model, AMA President George Simmons decided to create the “AMA seal-of-approval” for favored drugs in 1899, resulting in a five-fold increase in advertising revenue by 1909. Simmons, it turned out, had no credible medical credentials and the AMA did no drug testing for the products given the seal-of-approval.

Simmons was later driven out of the AMA, but his model for extracting fees for branding medical practices and products persisted. Simmons’ focus on molding public opinion also became one of the greatest weapons of the AMA – his “Propaganda Department” would soon expand to communicate the AMA’s views through a column syndicated published in over 200 newspapers, a weekly radio program, and various books about how homeopathic practices and non-AMA approved drugs were “quackery.”

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The American Medical Association is walking back from its strong opposition to the public option. This morning, the New York Times’ Robert Pear reported that in comments submitted to the Senate Finance Committee, the AMA stated that “the introduction of a new public plan threatens to restrict patient choice by driving out private insurers, which currently provide coverage for nearly 70 percent of Americans.”

But now, the AMA has issued a statement saying that it is willing to accept a public plan that looks like the private option:

Today’s New York Times story creates a false impression about the AMA’s position on a public plan option in health care reform legislation. The AMA opposes any public plan that forces physicians to participate, expands the fiscally-challenged Medicare program or pays Medicare rates, but the AMA is willing to consider other variations of the public plan that are currently under discussion in Congress. This includes a federally chartered co-op health plan or a level playing field option for all plans. The AMA is working to achieve meaningful health reform this year and is ready to stand behind legislation that includes coverage options that work for patients and physicians.”

A public plan that lacks the ability to negotiate cheaper rates with providers and push private insurers to do the same is a public plan in name only. While it may provide a repository for individuals who don’t trust private insurers, it will be unable to significantly lower health care costs. A trigger proposal would postpone the enactment of a public option and the co-op public health alternatives would be unable to exert the purchasing power of a Medicare-like public option.

As President Obama prepares to address the American Medical Association on Monday, America’s largest physician organization — which has so far avoided criticizing the Democrats’ reform efforts — has registered its opposition to the public health insurance plan. In comments submitted to the Senate Finance Committee, the group argued that the option was not “the best way to expand health insurance coverage and lower costs“:

The A.M.A. does not believe that creating a public health insurance option for non-disabled individuals under age 65 is the best way to expand health insurance coverage and lower costs. The introduction of a new public plan threatens to restrict patient choice by driving out private insurers, which currently provide coverage for nearly 70 percent of Americans.

But the AMA, which has a long history of opposing the enactment of Medicare and other health reform legislation, does not speak for all doctors. Many in the provider community would welcome an option that eliminates unnecessary hassle with private insurance companies, provides timely and adequate pay, and spearheads payment methods that reward providers who offer quality care in an efficient manner.

As Doctors for America — a grassroots organization of doctors dedicated to health reform– argues, “one of the critical features of competition between public and private plans is that in addition to competing for patient participation, plans have to compete for physician participation as well.” Indeed, if public plans institute rock bottom rates that aren’t accepted by health care providers, “Americans having a choice of private plans alongside the public plan would not opt for the latter, which would then either whither away or have to raise fees until it is competitive in the market for enrollees.”

To attract medical providers, the public plan would have to deliver timely, adequate, and efficient payments. As CAPAF Senior Fellow Peter Harbage recently pointed out, “if providers were sure that the public health insurance plan would make timely adequate payments absent the paperwork gimmicks (such as pre-authorization) used by insurers today,” they would likely participate in the program.

Currently, “physician practices report that overall the costs of interacting with insurance plans is $31 billion annually and 6.9 percent of all U.S. expenditures for physician and clinical services.” Approximately “one-third of the average primary care physician’s compensation is spent on physician practice-health plan interaction”:

On average, physicians spent three hours a week or nearly three weeks per year on these activities, while nursing staff spent more than 23 weeks per physician per year, and clerical staff spent 44 weeks per physician per year interacting with health plans. More than three in four respondents said the costs of interacting with health plans have increased over the past two years.

All this paperwork sometimes prevents patients from receiving the care they need. Doctors frequently have to haggle with insurers over denied payments, preauthorizations, or other administrative barriers. A new public plan could eliminate this unnecessary requirements and allow doctors to focus on delivering the best quality care to their patients.