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What is the “Public Option?” Can It Compete With Private Health Insurers?

Still in the tight grip of the COVID-19 pandemic as the incoming Biden administration takes center stage, we are hearing more every day about the ‘public option.’ It is being bandied about as a way to increase access to affordable health care that is so sorely needed in this country. Unfortunately, however, the term is confusing to many and is surrounded by both hype and lack of information. The objective of this article is to clarify what is known about the public option and assess its potential value in improving access to affordable health care.

What is the ‘public option’?

We have had a public option for many years with traditional Medicare, not Medicare Advantage, which is privatized. Another kind of public option was introduced ten years ago with passage of the Affordable Care Act (ACA), whereby enrollees could choose not-for-profit plans on the ACA’s exchanges under the then new Consumer Oriented and Operated Plans (CO-OPs). It was assumed that these not-for-profit plans could compete with their for-profit counterparts, push them to lower their rates, and allow enrollees to receive better access to affordable health care.

Now, debate over this term is being revived within the Democratic Party as it takes back the White House and moves forward with President Biden’s health plan. But there is confusion and disagreement among the Democrats about whatever their policy on health care should be. The progressive wing has called for Medicare for All while Biden’s position has been to build on the ACA and lower Medicare’s eligibility age to 60. A Biden-Sanders Unity Task Force issued a 110-page report that called for supporting the ACA while adding a ‘public option’ and lowering the Medicare eligibility age to 60. Medicare for All was not even mentioned! (1) Soon thereafter the Democratic Party Platform, for the first time mentioned (without endorsement) Medicare for All in these words:

Generations of Democrats have been united in the fight for universal health care. We are proud our party welcomes advocates who want to build on and strengthen the Affordable Care Act and those who support a Medicare for All approach; all are critical in ensuring that health care is a human right. (2)

Biden has been calling for some kind of a not-for-profit ‘public option’ that could somehow compete with private plans, but no details are yet available. Its goal would be to provide more access to affordable health care by pressuring private insurers to offer more competitive rates. (3) But as Yogi Berra would say, “this is deja vu all over again.”

Why public options cannot compete with private insurers

Private health insurers, bent on profits instead of service, hold all the cards in making any not-for-profit public option unable to compete fairly. Private insurers can still set their prices via premiums and cost-sharing to what the traffic will bear. These four strategies—mostly legal but often bleeding over to fraud— protect their profits for themselves and their shareholders:

+ Obstructing expensive care—by such means as prior authorizations, high copays, narrow networks, and restrictive drug formularies.

+ Selectively enrolling healthier people and disenrolling sicker people who need more care.

+ Upcoding, finding irrelevant diagnoses by chart reviews for higher billing purposes.

+ Lobbying Congress for continued industry friendly policies, including excessive payments. (4)

Most citizens are unaware that the federal government, with taxpayer dollars, has been subsidizing private insurers for many years, with average annual payments of $685 billion a year. (5) It is therefore no surprise that this creates an unequal playing field with public programs. Lobbying by the private health insurance industry has continued industry friendly policies that allow private insurers, bent on profits instead of service, to skim off profits while not-for-profit public programs take financial losses from the care of sicker patients. During this pandemic, private health insurers have prospered even as many enrollees postpone or defer needed care due to fear of the virus. As one example, net income for UnitedHealth more than doubled to $2.3 billion for the second quarter of 2020 compared to that of 2019. (6)

Meanwhile, the political power and deep pockets of the insurance industry, as further increased by collaboration with other corporate stakeholders in the medical-industrial complex, maintain their market supremacy. As one example, leading insurance, hospital, and pharmaceutical lobbyists have formed the deceptively named America’s Health Care Future to defeat Medicare for All through heavy lobbying and a targeted disinformation campaign. (7)

Ten-plus years’ experience of public options

We know that not-for-profit traditional Medicare, as well as the not-for-profit CO-OPs set up under the ACA, cannot rein in prices and costs of their profiteering private counterparts. The evidence is clear.

Privatized Medicare Advantage

Compared to traditional Medicare, privatized Medicare Advantage pursues these strategies:

• Deceptive marketing, by claiming new benefits for less money,

without mention of restrictions. (8)

• Cherry picking enrollees, then disenrolling them when they become sicker and less profitable. (9)

• Restricts choice through narrowing networks of hospitals and physicians.

• Averages 18 percent denial rate for in-network claims. (10)

• Has worse quality of care. (11)

• Does chart reviews to increase patients’ risk scores with upcoding of diagnoses for increased revenues. (12)

• Exits markets with insufficient profitability, often on short notice. (13)

• Has 6-fold higher overhead and 6% higher total costs (after accounting for cherry picking and upcoding) than traditional Medicare. (14)

CO-OPs

• Of 23 CO-OPs offering plans on the ACA’s exchanges that received $2.4 billion in federal start-up loans, just 4 survive today, covering only 150,000 enrollees, down from a peak of 1 million enrollees in 2015. (15)

Whither the public option in 2021?

With this new opportunity to adopt real health care reform, not just another failed incremental step in the form of a public option, the battle isn’t just against external forces. We will see another battle within the party in power as ‘moderate’ centrists portray progressives as ‘radicals.’ As this new battle is joined, we need to learn from the past. Based on their long experience with health policy and previous failed attempts to reform U. S. health care, Drs. Peter Arno and Phillip Caper bring this important insight:

The real struggle for a universal single payer system in the U. S. is not technical or economic, but almost entirely political. Retaining anything resembling the status quo is the least disruptive, and therefor politically easier route. Unfortunately, it is also the least effective route to attack the underlying pathology of the American health care system corporatism run amok. Adopting the easiest route will do little more than kick the can down the road and will require repeatedly revisiting the deficiencies in our health  care system until we get it right. (16)

The private health insurance industry has failed the common good, though still not widely understood, and has become the central issue requiring action. As exposed by the coronavirus pandemic, its employer-sponsored coverage is its Achilles heel. Dr. Atul Gawande, surgeon, public health researcher and author of Being Mortal: Medicine and What Matters in the End, observes:

The central error of our system has been attaching our health care to where we work. A company-sponsored insurance plan for a family adds an average of fifteen thousand dollars to the annual cost of employing a worker—effectively levying a fifty-per-cent tax on a fifteen-dollar-an-hour position. We’re all but paying employers to outsource or automate people’s jobs. The result is to make both work and health care less secure and more fragmented—and to deepen our inequalities. (17)

Without government subsidies, the private health insurance industry would not still be here. We cannot expect the market to solve the health insurance problem, as Jonathan Gruber, Professor of Economics at the Massachusetts Institute of Technology and an architect of the ACA ten years ago recently acknowledged:

After decades of trying to figure out market-based solutions to cost control, I don’t think there are any. I think it’s time to regulate healthcare prices. I do not see a purely competitive market-based solution to the excessive prices we charge in health care. (18)

The battle between the private health insurance industry, its corporate allies in the medical-industrial complex, Wall Street interests and Main Street has joined once again, together with a barrage of disinformation to confuse people. We will have to be smarter this time around, which will test our democracy to its core.

References.

1. McCanne, D. Quote of the Day. Biden-Sanders Unity Task Force Recommendations, July 9, 2020.

2. Terkel, A, Golshan, T ‘Medicare for All’ gets nod in Democratic Platform for first time ever. Huff Post, July 22, 2020.

3. Lazarus, D. Is Biden’s ‘public option’ already dead? Los Angeles Times, November 12, 2020.

4. Himmelstein, DU, Woolhandler, S. The ‘public option’ on health care is a poison pill. The Nation, October 21, 2019.

5. Ockerman, E. It costs $685 billion a year to subsidize U. S health insurance. Bloomberg News, May 23, 2018.

6. Abelson, R. Major U. S. health insurers report big profits, benefiting from the pandemic. New York Times, August 5, 2020.

7. Fang, L, Surgey, N. Lobbyist documents reveal health care industry battle plan against Medicare for All. The Intercept, November 20, 2018.

8. Tillow, K. Beyond the Medicare Advantage scam. All Unions Committee for Single Payer Health Care, September 14, 2020.

9. Schulte, F. As seniors get sicker, they’re more likely to drop Medicare Advantage plans. Kaiser Health News, July 6, 2017

10. Silvers, JB. This is the most realistic path for Medicare for All. New York Times, October 16, 2019.

11. Li, Y, Cen, X, Thirukamaran, CP et al. Medicare Advantage associated with more racial disparity than traditional Medicare for hospital readmissions. Health Affairs, July 2017.

12. Livingston, S. Insurers profit from Medicare Advantage’s incentive to add coding that boosts reimbursement. Modern Healthcare, September 4, 2018.

13. Tracer, Z, Darie, T. More than 1 million in Obamacare to lose plans as insurers quit. Bloomberg News, October 14, 2016.

14. Curto, V, Enav, L, Hinkelstein, A et al. Health care spending and utilization in public and private Medicare. Am Econ J Appl Econ 11: 302-332, 2019.

15. Woolhandler, S, Himmelstein, DU. The American College of Physicians’ endorsement of single-payer reform: A sea change for the medical profession. Ann Intern Med, January 21, 2020.

16. Arno, P, Caper, P. The social transformation of U. S. health care. Health Affairs, March 25, 2020.

17. Gawande, A. A Nation’s Health Care: Rescuing the System. The New Yorker, October 5, 2020, pp. 12-13.

18. Miller, C. Q & A. ACA architect sees the future of healthcare. American Healthcare Journal, September 9, 2020.

John Geyman, M.D. is professor emeritus of Family Medicine at the University of Washington School of Medicine in Seattle, where he served as Chairman of the Department of Family Medicine from 1976 to 1990. His most recent publications are Struggling and Dying under TrumpCare: How We Can Fix this Fiasco (2019) and a pamphlet, Common Sense: The Case For and Against Medicare for All, Leading Issue in the 2020 Elections (2019).

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