Uwe Reinhardt's Un-level Playing Field

Economist Uwe Reinhardt has been dropping hints that he knew the solution to the problem of insurers and conservatives being dead set against offering the choice of a public plan that would compete with private insurance, one of the cornerstones of the Obama health care reform plan. As reported by Jonathan Cohn, Reinhardt unveiled his idea in a speech at Association of Health Care Journalists: make the public plan run with its shoelaces tied together. So much for a level playing field.

The original idea of the public plan as envisioned by Obama, Jacob Hacker, Baucus, Hillary Clinton, John Edwards and a cast of thousands was to offer it as one of the choices in the National Health Exchange. It would have an equivalent benefits package and equal subsidies as those offered to customers of private insurance through the Exchange.  But because public coverage is more efficient, saves on administrative waste, is more forthcoming in its analysis of cost for health outcomes, and has more of an incentive to reduce costs overall, it would force the private insurance industry to become more efficient on cost and quality in order to compete for customers. The main objection we hear again and again is that the public plan would have an unfair advantage were it to use Medicare rates for providers – something no one supporting the plan seems inclined to have it do in the first place. Private insurance and its defenders say there’s no way private insurance could compete with the lower rates and would be forced out of business.

Yes, the argument is that public coverage would do too good a job and too many Americans would want to use it, so we absolutely shouldn't use it. You couldn't make this stuff up.

Many people, including Jacob Hacker, who came up with the idea of a public competitor in the first place, think the public plan should negotiate rates with providers like any other insurance plan. It doesn’t need to use Medicare rates to be more effective, and it’s clearly a sticking point.  So why bother?  Suffice to say, no one against the plan has addressed this because bashing Medicare rates is, frankly, an easier argument to make.

Into this breach comes Uwe Reinhardt’s proposal that “the new public plan would pay better than Medicare--say, by 10 or 15 percent on average.” However, Reinhardt would tie this to a mandate for substantial payment reforms in both the public plan and Medicare, including the ability “to bundle payments, make contracts selectively, reward providers who meet quality standards, and tilt reimbursements towards primary care.” With this grand bargain, Reinhardt proposes, private insurance should be satisfied, since it means the public plan would spend more on care than the industry would, with insurance only having to be slightly more efficient, not more efficient in a transformational way, to compete. Providers should be satisfied in that they wouldn’t see their reimbursements go down an aggregate 1%, which is the Lewin Group’s projection if the public plan has to negotiate rates one-on-one. And the government has ensured it gets payment reforms that it needs without a fight – payment reforms that will potentially save far more money in the long term.

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. Bundled payments for coordinated care, increased pay for performance and deeper investment in primary care needs to be something that happens anyway – and which many providers are pushing for. It’s the focus of Republicans and Democrats alike, and a huge area of bipartisan agreement. (Follow Bob Doughtery of ACP’s advice and see how many times the words “primary care” came up during yesterday’s roundtable discussion at the Senate Finance Committee). This would be a pretty lopsided trade.

Finally, let me put this out there. We know private insurance doesn’t want a public competitor forcing them to change, period. We know that conservatives don’t want to increase public coverage at the expense of private, period. This would be the case even if the phrase “Medicare rates” had never been uttered – as evinced by the fact that they weren’t uttered until just recently. The issue isn’t the reimbursement rates, it’s the fact that you’re competing with private insurance at all. If anything, Medicare rates are only the current excuse. If you took that argument off the table, I guarantee you they’ll find another.

(Photo credit:  garretkeogh on Flickr.)