The Obama Public Competitor, Part 3: Red Flags

The public competitor model embraced during the presidential campaign, and now the most likely option to be proposed in the Senate once attention turns from the stimulus package, works in theory. But as with all campaign plans, it will need fleshing out in order to work in practice. Improving the public competitor likely won’t make it into the political debate – we’ll likely spend time with the usual debate over whether we can afford to do nothing, or whether any government intervention is inherently a bad thing.

Here are my five big concerns about the practicality of the public competitor. None of them sink the idea, but all of them are cause for concern if it gets implemented. After all, the devil is in the details.

1.) No such thing as a level playing-field

Proponents of the model often say that this gives public coverage and private insurance to compete “on a level playing field.” The problem is, the level playing field is usually a myth. The theory goes that public coverage will deliver just as good health care at reduced cost and reduced hassle because of the economies of scale involved and the absence of exorbitant administrative costs.

But those administrative costs are part of what gives insurance companies a competitive advantage over each other in the free market. Medicare, with its 3% administrative costs, has no need of a marketing department, or a sales team, or the bells, whistles and television advertisements that help procure market share. Private insurance, with its 14%, has the resources to do just that.

So what will the public competitor do? Go toe-to-toe in marketing dollars, driving up some costs of the plan? Use the bully pulpit of the White House to make a hard pitch to give the public option a try? Do nothing and hope that customers will come them based on the merits? Or – and this is the nightmare that AHIP is already complaining about – use their bargaining power and price controls to set lower rates for reimbursement, leading to premiums that are less even than the differential of administrative rates?

The reality is, those of us looking for a test on the merits may instead get a test on whose ad and salesforce is better.

2.) Choosing by the merits ain’t what it used to be

With its involvement of choice, the public competitor appeals both to our faith in the free market and our choice as rational consumers to make the right decision to us. However, what’s gone on with Medicare Advantage calls that all into question. In a few rare instances, a private insurance company offering you Medicare Advantage might pose a decent deal if you have a lot of medical needs that, for some reason, aren’t covered by regular Medicare, and you also happen to have high prescription drug needs. I repeat, in a “few rare instances.”

Outside of those instances, Medicare Advantage is a terrible deal. It costs 13% more than traditional Medicare, switches you from the network of all Medicare providers (still pretty freaking vast) to the smaller set of “in network” providers for your plan, makes you susceptible to the usual claims, pre-approval and HMO-style rationing of care. And that’s before we get to them occasionally overcharging you. On the merits, you shouldn’t see anything close to the 10 million currently enrolled in Medicare Advantage

Humana’s Medicare Advantage ads are my favorite. They don’t make any pretense at all of claiming their plan is better than traditional Medicare, or provides more options, or has more doctor choices, or is less of a hassle, or anything. They’re entirely conceding the argument on the merits. However, they continue selling to you anyway, on the most vacuous of arguments:

The scary thing is “they have your back” (despite overwhelming evidence that when it’s a choice between your health and your profits, they don’t have your back) and “they were less obnoxious than the other guys” seems to be working.

There’s one obvious way around this, and that’s to take the parallel to Medicare all the way. Make the public competitor the default choice. (Indeed, Obama advisor and health economist David Cutler suggested this in an interview in 2007, although the idea has never been brought up again -- likely because that was way ahead of both where Edwards and Clinton were on the issue). Doing this would not show we've learned from the disastrous implementation of the Medicare Part D prescription drug program, where there was no default and, if you did not choose one of hundreds of plans, one would be assigned to you at random, with no regard for your particular needs. It would also ensure that the public competitor has a fighting chance both for those choosing on the merits and those choosing on the trifles.

3.) Great for the uninsured – what about the rest of us?

If you’re uninsured, you suddenly have a terrific plan on your hands, which is affordable, portable, free from the threat of pre-existing conditions and priced with community rating. That’s phenomenal, whether you choose the public or (we hope) the private plans.

But what about the 200 million of us stuck with our current plans? The public competitor and the National Health Exchange don’t apply to us. We’re still stuck with a policy where we’re paying twice as much in premiums or individual contribution compared to someone who didn’t have a history of heart disease in his/her family. We’re still dealing with a policy that provides no dental, little preventative care, or caps the number of rehab visits we can use in a year after the car accident. We’re still stuck agreeing to the plan where everything’s covered except the right arm, because that’s where the mole that we removed in plenty of time turned out to be malignant.

The public competitor creates market pressure within a closed system. If you’re in the closed system, that’s great. If you’re not, the market pressure is no match for much stronger insurance regulations. That’s why the question of how easily you can extricate yourself from employer-based insurance needs to be addressed sooner or later. The goal should be to make it as easy as possible.

4.) Keep an eye on Massachusetts

So what happens if, after all this, we learn that a deep-seated fear or distrust of government dooms the experiment, and the public competitor just can’t get market share? Then we’ll all be Bay Staters, in a sense. After all, the Massachusetts Health Connector as passed by an all Democratic Statehouse and Republican Governor Mitt Romney (a turn of events so strange that Romney immediately needed to distance himself from his signature accomplishment to run for president) is essentially the National Health Exchange without the floor and without the public competitor.

The experiment is ongoing, but we’re noticing some trends already. They’ve been able to hit most of their targets for covering a majority of citizens in a relatively short period of time. But the costs have greatly exceeded initial estimates. And there’s been no noticeable change in behavior on the part of private insurance – largely because there’s been no incentive or necessity for them to change. You still don’t have a floor of minimum benefits. You don’t have a curb on the most costly insurance practices. Suffice to say, the massive costs and the lack of meaningful change in the insurance industry is related.

If the public competitor model is not popular, and insurance industries adapt not for quality but for skirting around the rules that have been set for them, the effect on skyrocketing national health care costs is likely to be bad.

5.) How do you get to zero?

The main reason to try this model rather than single-payer, according to Obama, is that there are people who need relief now who can’t wait either for five or more years of public debate that allows the public to become comfortable with the idea of losing the coverage they have now, or for us to beat and demolish a major industry into obsolescence (especially since that turns into hundreds of thousands of jobs at a time when unemployment is a grave concern.)

It’s a fair concern. But also of concern is that this model won’t get us to zero uninsured.

To be fair, it will get us very close, very fast. PriceWaterhouseCoopers did an independent analysis of the Obama plan that determined that it would extend coverage to 2/3 of the uninsured in Year One. Getting to 95% compliance shouldn’t take much longer. But, as we’ve learned from SCHIP and the Massachusetts experiment, getting that last 5% is a doozy. In clinics in New York City, it’s not uncommon to see special deals – sign up your eligible kid, get an iTunes gift certificate – just to get those last few families under 200% of the poverty who have not signed up. In Massachusetts, they have an individual mandate – everyone’s required to buy insurance or pay a fine on their taxes. Yet they’re still struggling with “invincibles” like Lucas Wyatt (profiled on Karen Brown’s blog) who are willing to risk fines and accidents to avoid the hassle of signing up for a plan -- not to mention a number exempted each year because even with subsidies, they still can't afford the premiums.

There’s no easy answer to this. Is it better to have only 5 million uninsured in this country by 2012? Or is it better to wait for a single-payer solution which, like Social Security, covers everyone – even if that means living with 46 million + uninsured for four, eight, ten years?

If there’s a way out of that ethical puzzle… no one’s thought of it yet.

(Photo credit:  TexasEagle on Flickr.)