Wednesday, July 01, 2009

What is a Public Option?

I've been watching the Health Care debate with interest, but little understanding. Everyone seems to speak in a code only they understand.

As a small business we have provided our employees with 100% paid health insurance almost since the beginning of our firm. It isn't cheap and most employees don't appreciate it. Every year or so I have someone come and ask me to pay them in lieu of providing health insurance. There are a lot of reasons, some say they can buy insurance cheaper, some say they are covered by their spouses coverage, occasionally they say they would simply like more money. Unfortunately I can't do that. Because we are a small firm we can't get group coverage for only some of our employees, all must participate. I also believe in treating every employee equally so we provide the same benefits to everyone (including me).

It seems certain that the changes coming will upend medical coverage as we know it. Already the changes agreed to by the Republicans will cause a seismic shift. I'm not sure it is all good.

My understanding is the the insurance industry has already agreed it would support a universal mandate that includes "Community Rating". Rates would be set based on location and age, without regard to preexisting conditions. Already under The Health Insurance Portability and Accountability Act (HIPAA) group health plans and issuers may not exclude an individual’s preexisting medical condition from coverage for more than 12 months (18 months for late enrollees) after an individual’s enrollment date. Community Rating goes beyond that. Presumably groups would as still get a discount based on cost of administration and credit worthiness but individuals would also be able to buy insurance without regard to preexisting conditions. The rationale for the current situation is that some people would inevitably wait until they got sick to sign up for health insurance if coverage of preexisting conditions was not limited.

Many People seems to think a Public Option is necessary for universal coverage.
I question why a public option is necessary to achieve that end. I'd like someone to explain that to me, based on what the insurance industry has already agreed to.

It is possible to craft a system of universal coverage which does not require a public program. Under the system outlined above anyone would be able to get coverage at the same rate as anyone else in the age and location, without any exclusion for pre-existing conditions. The use of Community Rating would insure that pricing was not discriminatory. You should in fact be able to look up the cost on a web site and compare plans since no health questions would be asked or probably even allowed. Your age, zip code and possibly gender should be enough,

If on the other hand you mean by a "public option" (as I suspect some do), a taxpayer funded system which has no direct cost to the individual, then you can't. That is certainly the goal of some people. It is more that providing coverage.

In fact there are at least several current government systems which might be opened on a premium basis to those who cannot otherwise obtain required coverage.
  • Medicare, which provides for some co-insurance.
  • Medicaid which is "complete" coverage.
  • Public Employee Insurance (at many levels, usually provided by private insurers).
  • Veterans Administration
  • Tri-Care, the military dependent and retired military system.
Any or all of these can be opened to individuals or companies to purchase coverage.

I just looked up some figures Medicaid in Louisiana. In 2008 it covered just over 1,000,000 people out of a population of 4,400,000, that surprised me. The average cost per person was $6,760.00/per person or $563.00/month. That's about what my monthly premium is.

I tried looking up Tri-Care but couldn't find enough information. It's a $12 billion program but I couldn't find how many are actually covered. There are 9.2 million eligible. I know, for example, my brother (retired Air Force) and his wife are eligible but not enrolled because he has insurance through his job. My mother-in-law (My father-in-law was retired Navy) is covered but is also under Medicare.

Medicare covers approximately 44,831,390 people, as a result only around 1% of all elderly people don't have insurance. Medicare also $325 billion or $ 7,249/year per person or $604/month.

If what you are looking is a subsidy for those who "can't afford" insurance, that is very different from "a government option", as I understand it. Taxpayers already pay for almost a quarter of the people in Louisiana under Medicare and cover many more as government employees and retirees. I suspect that many who qualify (especially young people ) aren't enrolled.

One option could be to lower the qualifications for Medicaid or subsidize private insurance. It is already possible for some people to "buy in" Medicaid for a "premium" of $35/month. One option I thought of is to coordinate Government Employee coverage and Medicaid, enroll everyone else not on a private plan in it then collect a sliding scale of premium as part of payroll tax for those working. Extending free coverage to people on unemployment, although that would probably at least double unemployment taxes. The question here is how is going to be paid for.

Assuming the 44 million uninsured were added to Medicaid the cost would be in the range of $297,440,000,000/year based on the cost of the Louisiana program. That's $300 Billion Dollars, of course the uninsured tend to be relatively young and therefore healthy, some can afford to pay for coverage and some (like illegal aliens) will still not be covered.

Many people on Medicare who have a low income also qualify for Medicaid. But, Medicaid is also broken because some poor people may chose not to work (or work off the books, which is very common in some parts of this community) because they can't afford to lose coverage.

One of the chief arguments made by backers of the public option is that is will be cheaper, but it doesn't seem either of the two large government programs which cover around 90 million Americans are particularly cheap. Some studies advocating the public option make various comparisons but all basically fail to consider the coercive nature of the Medicare and Medicaid programs and the incremental cost of adding patients to an existing system. If government programs dominate those costs could shift dramatically.

I don't really understand all of the ins and out of it but government pricing of health reimbursement works something like this. The Government requires providers set rates based on covering the entire cost of treatment. It then requires providers to actually charge that to anyone who doesn't negotiate a better deal (i.e. people without private insurance AKA the uninsured). If a provider is insufficiently aggressive in pursuing those collections then they can lose government funds. If on the other had a provider serves a sufficiently large low income population they can qualify to be paid more money. That seems to me an implicit recognition of the inherent cross subsidy.

Those who say the Government could "use market clout" to "negotiate" lower rates are ignoring the actual method the government uses for reimbursements today. They set a rate and most providers (especially small ones) either take it or leave it. Since government patients represent a little more than 30% of all insured, that's a pretty big piece to pass on. So far the government has been pretty good at gauging how much they can force in cross subsidies, preventing mass defections. They are banking that the lower incremental cost of serving additional patients will encourage providers to honor the discount. Except for very large institutional providers no one sits across the table from a bureaucrat and discusses pricing. Even if they do the Government holds all of the cards.

Finally I wonder how this will impact employer coverage. I believe many companies will look at the "Public System" and dump private insurance. Insurance is a pain in the ass and simply paying larger salaries will likely attract employees, especially in middle income jobs. I'm not suggesting poverty level or minimum wage jobs but normal middle class jobs. I am talking about people making 30, 40 or 50 thousand dollars a year. The mean annual wage for people according to the BLS is just over $42,000. Many people at that income level could be eligible for health insurance subsidies, especially if they have families. This could be a windfall to both business and families, but it will be expensive and could make private insurance less available.

One of the reasons we maintain group coverage is to ensure that we have coverage. If I could buy individual insurance competitively, I could consider losing the headache of group coverage.

There is little doubt the health care system we have needs reform. But I'm apprehensive about the unintended consequences that will accompany any reform.

I do have one suggestion. If a public option is to be enacted, require all federal employees and officials (including Congress and the President) to be part of it. I'm pretty sure that would have a massive effect on the quality of the program.

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