Healthcare Public Option and Costs

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Let me start by saying that for more than 50 years, I have favored universal healthcare.  The question is how do we get it?

I have been receiving solicitations for support of the Healthcare Public Option.  They say, please send a fax to your senators, or sign a petition to Congress urging them not to abandon the Public Option so that everyone will have a choice of private healthcare insurance or the Public Option.  Here are four Healthcare Reform criteria recommended by one of the emails I received:

  • Available to all of us: A strong public health insurance option should be available to anyone who chooses to participate. If you like your current plan, you can keep it; if you want to participate in the public health insurance plan, you can choose that.
  • A national plan with real bargaining clout: In order to truly control costs and compete with private health insurance plans, a strong public health insurance option must be available nationwide.
  • Ready on day one: Every day we wait on real reform, health care costs continue to rise. A strong public health insurance option with a broad network of providers right out of the gate is key to building a competitive program that will help control costs.
  • A truly public plan: To ensure it’s held to the highest standards of accountability, a public health insurance option must be truly publicly run—accountable and transparent to Congress and to voters.

This sounds like Medicare for everyone

There seems to be an assumption that a national public healthcare insurance organization can use its bargaining power to reduce healthcare costs.  This point of view may be a little naïve.  Nancy-Ann DeParle and her staff at the White House have been holding weekly seminars on healthcare reform, and serious discussion of controlling costs usually leads to a consensus that we need a different model of healthcare delivery to control healthcare costs.

Medicare is certainly better than being old with no health insurance.  However, Medicare is a fee-for-service health insurance plan whose costs have been rising rapidly, at a rate far exceeding the rate of inflation.  The only way that Congress has agreed to fix the escalating costs of Medicare is to cap payments to doctors and hospitals, and threaten to actually reduce the fee schedule.

Medicare needs reform.  Medicare does not pay for preventive care; it should, even if it does not substantially reduce overall healthcare costs.  Medicare does not pay for immunization; it should.  Medicare does not pay physicians for telephone or email consultations.

In my opinion, the Medicare fee schedule pays primary care physicians too little, and in many cases pays specialists too much.  We need a healthcare system that allows people to go to the physician of their choice, including both primary care physicians and specialists, but encourages people to use their primary care physicians to coordinate their care when they have complex conditions or chronic diseases.

We need a healthcare system that pays for treatment of a disease or condition, rather for each procedure performed.

We all want to control healthcare costs; who does not?  It would be nice to have a list of major healthcare cost categories, so that we could focus on the major cost categories.

Here is my list of major healthcare cost categories:

  • Care during last year of life.
  • Treatment of chronic diseases such as diabetes, Parkinson’s disease, Cerebral Palsy.
  • Lifestyle issues such as obesity, smoking, nutrition, and lack of regular exercise.
  • Mental health problems such as depression.
  • Emergency room visits by the uninsured
  • Insurance administrative costs (healthcare providers and insurers)

The Public Option may reduce the last two costs, but what about the first four cost categories?  It is difficult to find credible data on what these costs are in the U.S. Nevertheless, I assert that these categories need to be addressed by healthcare reform.  How is the Public Option going to reduce costs for these categories better than a system of non-profit healthcare cooperatives?

Dr. J. Deane Waldman, MD, gives the following list[i] of what drives up healthcare costs:

There are nine reasons for escalating health care costs.
1. New value (new medical capabilities) resulting in
2. More people who live longer.
3. Inefficiency, Reconciliation and Disconnection
4. Regulatory compliance and unfunded mandates
5. Perverse incentives
6. Defensive medicine
7. Adverse outcomes and errors
8. Profits taken out of healthcare (insurance and medical malpractice)
9. Fraud and embezzlement

As Dr. Waldman writes, we want to preserve the first two items while reducing the others.  Again, it is difficult to find credible data quantifying these reasons for health care costs.  Nevertheless, any comparison of the Public Option versus the Non-Profit Healthcare Cooperatives Option should address these causes of rising healthcare costs.

I hasten to explain that I support President Obama’s overall objectives and guiding principles for healthcare reform, whereas Dr. Waldman has been very negative about President Obama’s program.  Remember, however, that the President has stated that he would like to achieve a bipartisan agreement on healthcare reform.  Therefore, I call on Dr. Waldman to tell us what program he would propose in place of the Public Option proposed by the Obama Administration.  How would Dr. Waldman design legislation to reduce the factors driving up healthcare costs?

There seems to be a consensus on the creation of a healthcare insurance exchange from which people could choose a healthcare plan if they don’t get one from their employers.  The debate is over whether the choices offered through the healthcare insurance exchange should include a publicly managed option in addition to private insurance plans.

Senator Kent Conrad (D, ND) has proposed a national network of healthcare cooperatives as an alternative to the public health insurance option favored by the Obama Administration.  Rather than being dismayed by this proposal, I am reminded of the Japanese healthcare system.

Japan spends 8% of GDP on healthcare, versus 16% for the United States, but Japan has lower infant mortality and the Japanese live longer than we Americans.  Although genetics and diet may play small roles, Japan must be doing something right with their universal healthcare system.  The Japanese government requires everyone to have health insurance.  Many Japanese get their healthcare insurance through their employer, but if not, they can get healthcare insurance through a nonprofit community-based insurer.  These insurers are not allowed to deny anyone coverage, or charge extra, because of pre-existing conditions.  Only the poor get a government subsidy for their healthcare insurance.

The Japanese healthcare system is highly competitive.  There is no gatekeeper requirement.  Anyone can go to their internist, or directly to a specialist of his/her own choosing.  Unlike the British National Health System, 80% of Japanese hospitals are privately owned and managed by doctors.

To hold down costs, Japan regulates the prices of healthcare procedures in great detail.[ii] The Japanese regulators hold biannual meetings with doctors and hospitals to negotiate prices.  There is constant pressure to increase efficiency and reduce prices for healthcare procedures such as MRIs and quadruple coronary bypass surgery.

The argument for a public option is that it will provide competitive pressure to hold down healthcare costs.  The tacit assumption is that Japanese-style price regulation is not possible in the United States, so we must rely on artificial market forces to control healthcare costs. Of course, you can imagine the Republicans howling about the giant government bureaucracy that would be required to regulate healthcare prices in the United States, despite the fact that the Japanese Health Ministry is not so large.  The rest of us should howl about the high cost of our current healthcare system.

Fundamentally, we must make a commitment that everyone in the country is entitled to good quality healthcare.  We need to end a system that provides incentives to insurance companies to drop sick people and deny coverage to people with pre-existing conditions, or make premiums for those people so expensive that they cannot afford their healthcare insurance.  I think we should take the profit out of healthcare insurance, crack down on fraud and abuse, pay doctors well but not exorbitantly, and relieve new doctors of the huge debts that they now face by public financing of accredited medical schools.   Germany has competitive healthcare insurance companies, even though they are not allowed to make a profit.  Just the prospect of higher executive salaries for growing insurance companies is enough to keep the companies competitive [ii]. If we made all U.S. healthcare insurance companies nonprofit, we would not need a “public option”.


[i] http://thesystemmd.com/?p=248

[ii] http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

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