Today, in a conference call with bloggers, President Obama underlined the shortcomings of Sen. Kent Conrad’s (D-ND) co-op compromise and expressed support for a “robust” public option:

I’m still working out the details of a co-op approach. I will tell you that there are some instances of co-ops being set up and just having a very difficult time getting off the ground because they don’t have the scale and the resources to be able to compete effectively. What I’ve asked my health care team to do is to look at what evidence we have that this could provide the kind of competition that drives or helps to promote insurance reform and helps to include quality and drive down cost. If I can see some some evidence that this could work, then I’d be happy to consider it. But I will tell you that, as I’ve been very clear about before, I continue to believe that a robust public option would be the best way to go.

Listen:

Both the Kennedy health bill and the Tri Committee bill in the House give Americans the choice of a public option. The Senate Finance Committee, which is expecting to produce a bill by Thursday, is still considering Conrad’s co-op compromise. Under Conrad’s proposal an insurance co-op would be “owned and operated for the benefit of its members — individuals and businesses with fewer than 10 employees” and would operate “at the state level or regionally” to “provide a non-profit, non-government, consumer-driven coverage option in every state to deliver maximum value for consumers.”

But as a Commonwealth brief points out, most co-ops have difficulty fulfilling their goal of offering small employers and individuals a choice in health plans and reducing costs. That’s because to attract a wide array of health plans and exert purchasing power (bargain on behalf of its members), co-ops must enroll large numbers of employers. But without the ability to “offer substantial choice among well-known health plans, it is difficult for co-ops to attract enrolless, who are drawn to co-ops in part because of their ability to offer such choice.” In other words, co-ops would lack the clout of Medicare — which can drive system innovations and payment reforms — Medicare-like administrative efficiencies, or the ability to use Medicare leverage to ensure a large provider network that accepts Medicare prices. A new cooperative health care plan won’t be able to lower costs and drive private insurers to aggressively bargain with providers (and pass the saving on to its beneficiaries in the form of lower premiums).

As former Gov. Howard Dean (D-VT) explained, “the co-ops are too small to compete with the big, private insurance companies. They will kill the co-ops completely by undercutting them, using their financial clout to do it…This is a compromise designed to deal with problems in the Senate. But it doesn’t deal with problems in America.”

Heritage’s The Foundry is calling my claim that House’s Tri Committee health care bill is deficit neutral “flat out untrue,” quoting directly from the the CBO’s analysis of the bill. “Here is the CBO letter (pdf) that Volsky was referring to. Click on it. Search for the term “deficit neutral” … or even just “neutral”. You’ll notice that those terms do not appear anywhere in the document. This is what the CBO letter actually says“:

According to CBO’s and JCT’s assessment, enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion over the 2010-2019 period.”According to CBO’s and JCT’s assessment, enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion over the 2010-2019 period.”

But as the CBO letter explains, that $239 billion is not the cost of a specific reform. Rather, it is the cost of fixing the so-called Sustainable Growth Rate (SGR). Congress created the formula in 1997 to check rising health care costs. According to the formula, “the amount Medicare pays doctors for an average Medicare patient can’t grow faster than the economy as a whole.” In 2002, once medical inflation outpaced economic growth, physicians experienced a cut in reimbursement rates, and Congress has patched the cut every cut since (by eliminating the pay cut).

“The net cost of the changes in physicians’ payment rates would total $245 billion,” the CBO concludes in its letter. In other words, the House’s SGR fix and its $239 billion price tag has little to do with health care reform; the policy is not adjusting unsustainable growth in health care spending or some other system imbalance. It is fixing a complex formula that Congress created to control health care spending but has largely over-ridden in an effort to please a powerful political constituency. So I was right, health care reform is budget neutral; patching Congress’ patches is not.

After Congressional Budget Office director Douglas Elmendorf suggested that the current reform legislation would do little to reduce the growth of health care spending, the White House doubled down on its support for establishing a MedPAC-like commission — MedPAC is an independent agency advising Congress on issues affecting the Medicare program — that would help lower future health care spending.

Every year, MedPAC publishes two reports chock full of the kind of payment reform that could truly transform the health care system from incentivizing quantity to quality and value of care and every year Congress ignores them. By giving a MedPAC-like panel the power to implement the kind of payment reforms that MedPAC has always advocated, the proposal would free the panel from the constraints of congressional politics and allow it to actually influence Medicare spending patterns. The goal is to adopt reforms that slow the growth of Medicare spending and modify payment methods — reforms that the private sector could then emulate.

As Tim Foley explains, under the White House’s proposal, every year the new panel would release a set of recommendations for how to best control Medicare expenditures. “The President could choose to submit all of MedPAC’s recommendations as a package deal. Congress would have 30 days to intervene, but they couldn’t pick and choose what proposals they’d like – they could only vote up or down on the whole package.” This kind of proposal kicks payment reform into high gear. While the current legislation already expands the use of models and allows the Center for Medicare and Medicaid Studies to implement successful variations, this proposal would more aggressively change the incentives in the system.

As Greg Poulsen, senior vice president at Intermountain Healthcare, a nonprofit system of hospitals and doctors in Salt Lake City, points out, “Unless we get the incentives right, nothing else in health reform really matters.” Poulsen is part of a group of officials at so-called “integrated” institutions that already operate using MedPAC’s many of recommendations and are generally able to provide quality care more efficiently. The group believes that “the congressional health overhaul bills, at least in their current form, would do little to reward them or encourage others to follow their lead” and is “pressing lawmakers to move much more aggressively to revamp the way Medicare pays for care to discourage unnecessary services and reward “value” over volume.”

The administration is a strong proponent of these reforms, but the challenge lies in pleasing the CBO — which finds savings by following Potter Stewart rule life: “I know it when I see it.” However, since the MedPAC-like proposal is predicated on the President accepting its recommendations and Congress not voting them down, (and MedPAC is only required to not “increase in the aggregate level of net expenditures under the Medicare program,”) the CBO — which rarely defines the criteria of savings — is unlikely to “see” savings.