Yesterday’s post on the decline and fall of the Vermont single payer experiment will be leading to a couple of long responses from me as there was a great discussion on building universal coverage and default enrollment schemes in the comments. I think single payer in this country will be extraordinarily hard to do because it is such a massive disruption of middle class and upper middle class lives. And those are the people who vote in disproportionally large numbers, so pissing them off is a great way to lose political power.
I also think that if PPACA is not gutted at the Supreme Court this summer, the groups that benefits from single payer will continue to shrink as more and more people will get and maintain either Medicaid expansion coverage or Exchange individual policy coverage. Single payer is hard. It is also not necessary for universal or near universal coverage as the rest of the OECD has examples of successful systems that produce better results, at less cost than the pre-PPACA cluster fuck and still better results at lower costs than the improvement upon status quo kludge that is PPACA.
JGabriel asks if continuing a campaign for a public option would be a good way to get single payer:
The most obvious answer – to me anyway, but I am not a health policy expert – would appear to be a public option that could become single-payer by default as more and more people began using it.
So, Richard, is a public option a viable route for transitioning to single-payer?
I don’t think a public option as passed by the House but disapproved by the Senate in 2009/2010 would lead to de facto single payer. I think in several states, such a public option would be the market leader, but in most states given the experience that we’ve seen in the 2014 and 2015 rate cycles, a public option as passed by the House with three votes to spare in 2009 would be an interesting choice but not a market leading choice.
I am only looking at public options that are no stronger than the 2009 House public option that passed with three spare votes. I think I am putting my thumb on the scale signficantly in favor of a public option with that qualification as it is as I don’t see a more liberal public option passing any chamber of Congress at any point in the next ten years.
Why is that?
CBS News had a good explainer of the House public option in 2009:
House bill mandates that the program be self-sustaining and run without federal subsidies, which means it must pay administrative costs and benefits out of premiums from its subscribers…
fees will be negotiated rather than imposed, and second, the public option will have less bargaining power than the massive Medicare system because it will likely have far fewer participants.
That is the most liberal public option that has passed a single chamber of Congress ever. Its fee structure would be in the range of Medicare to Medicare plus 10%. It might have access to slightly cheaper credit than typical due to a perceived implicit federal backstop but that is speculative. The major area of cost savings for a CMS run public option would have been on the administrative end. Medicare has a Medical Loss Ratio (MLR) of roughly 95% to 96%, so if we assume a public option has an MLR of 93% to 95% (individual market with geographic specific plans is just more expensive to run), the public option would still have best in class MLR rate and thus a low administrative rate. MLR would be higher if there is a single EPO like product offered nationally with regional pricing variations. MLR would be lower if the public option creates multiple products with multiple networks per region.
How does this fit in the marketplace as it is today?
In competitive regions, the typical 1st and 2nd priced Silver plans are narrow networks with Medicare plus a bit pricing. Claim costs are kept down with two metrics. The first is the actual reimbursement rate is fairly low. In my region, the low cost Silver plans cluster their provider payment rates from Medicare +3% to Medicare +7%. A public option as passed by the House would also have provider payments in this range. Current low cost Silver plans often exclude high Medicare cost providers such as academic teaching hospitals that don’t have a quality edge over community hospitals.
If the public option was a single plan design with a national network, it would not be cost competitive for the low cost Silver segment which is by far the largest single Exchange segment right now. The public option would have a 2% to 5% MLR advantage but that would be eaten up by competitors having lower average net provider payments per unit of service rendered. If the public option was to customize its offerings for each region and slice and dice its provider network, the MLR advantage shrinks while pricing probably gets closer to low cost Silver pricing per unit of service rendered.
So in competive regions with lots of current insurers in 2015, the public option would be a decent choice but it would not be a clearly dominant player. Going forward as more and more health insurance companies increase their MLRs, the wedge that the public option would have exploited (low admin costs, equal provider payment rates) gets narrower.
The public option as passed by the House would have been useful and popular in regions with minimal market competition. For instance, West Virginia would probably flock to a public option even at the broad/non-differentiated version as the state has a single insurer selling Exchange plans in the state. New Hampshire in 2014 could have seen aggressive enrollment in a public option as again, only a single insurer was selling plans in the state. In 2015, New Hampshire would have transitioned to a competetive market, so the public option would be less notable/desirable.
In this counterfactual world, the public option gets decent enrollment with it more focused in low competition states as well as providing a good national network for people who travel a lot but it is not a dominant player. It could not dominate the subsidy Silver segment so it is just part of the landscape but it does not take over the markets in five years. It would serve its role as keeping pricing honest by being a competitive entity.