Kip Sullivan of pnhp: The public option chicken and egg dilemma

[maryf]

Kip Sullivan again helps clarify the public option problems:

http://pnhp.org/blog/2009/09/05/the-chicken-and-egg-problem-can-the-public-option-succeed-where-prudential-failed/

The “chicken and egg” problem: Can the “public option” succeed where
Prudential failed?

By Kip Sullivan, JD
In a previous paper I described the transformation of the “public
option” from an enormous program that would insure 130 million people
to a tiny program in the Democrats’ health “reform” legislation that
will insure somewhere between zero and 10 million people. I predicted
that the “options” in the Democrats’ bills would be unable to succeed
in all or most markets in the country. I characterized the main
barrier facing the Democrats’ shrunken “options” as a “chicken and
egg” problem: A person or group trying to create a new insurance
company can’t tell prospective customers what the premium will be
until they have determined how much they will pay providers; but the
person or group can’t know how much it will pay providers until it
knows how many people it will insure.

In this comment I elaborate on this chicken-egg barrier by presenting
an illustration of the barrier at work – the departure of the
Prudential Insurance Company from the Minnesota managed care health
insurance market in 1994. Although Prudential was (and still is) a
huge Fortune 500 company, it was unable to survive Minnesota’s highly
concentrated group health insurance market and was forced to withdraw.
If a company as large and as experienced as Prudential could not crack
the Minnesota market, why should we hold out any hope for the little
“options” proposed by the Democrats?

A recap of the transformation of the “public option”

Jacob Hacker laid out his vision of what is now called “the public option” in papers published in 2001 and 2007. Hacker spelled out five criteria he believed the “option” had to meet:

(1) It had to be pre-populated with tens of millions of people;

(2) Only “option” enrollees could get subsidies (people who chose to buy insurance from insurance companies could not get subsidies);

(3) The “option” and its subsidies had to be available to all non-elderly Americans (not just the uninsured and employees of small employers);

(4) The “option” had to be given authority to use Medicare’s provider reimbursement rates (which are typically 20 percent below the rates paid by insurance companies); and

(5) The insurance industry had to offer the same minimum level of benefits the “option” had to offer.

Although I question some of the assumptions Hacker made in these papers, including his assumption that the “option” will inevitably enjoy Medicare’s low overhead costs, I have little doubt that an “option” which met Hacker’s five criteria would stand an excellent chance of surviving its start-up phase in most markets in the U.S. (I am ignoring here the question of whether an “option” as strong as Hacker’s original has a better chance of being enacted than a single-payer system does. Events of the last few months should disabuse the entire world of that myth.)

But when the Democrats drafted legislation early in 2009 that included provisions creating an “option,” they abandoned the first four of Hacker’s criteria and kept only the last one (the one requiring insurance companies and the “option” to cover the same benefits). Proponents of the “option,” including Hacker, did not raise a fuss about this. Not surprisingly, the “option” provisions of the bills introduced in July – one by the Senate Health, Education, Labor and Pensions (HELP) Committee and the other by the chairs of the three House committees with jurisdiction over health care reform – were basically unchanged from those in the draft versions. The Congressional Budget Office estimates the HELP Committee’s “option” will insure approximately zero people and the “option” in the House bill (HR 3200) will insure roughly 10 million people.

The advent of managed care augmented the chicken-egg problem

for full post see

http://pnhp.org/blog/2009/09/05/the-chicken-and-egg-problem-can-the-public-option-succeed-where-prudential-failed/

[maryf]

1. kick for info, nt.

[maryf]

2. one more kick...

I'll stop here! ;)