This will all depend on where the Democratic majority goes with health reform. If they focus solely on expanding insurance coverage, costs will continue to explode, with government on the hook to pay for more and more. Expanding coverage in a broken system offers no long-term solution. Having insurance does not guarantee that you will get quality care. Improving health and delivering better care is where we should focus. The Congress and the President should focus on health-based health reform, not coverage-based reform.

There is more than enough money in the system to pay for quality-improvement reforms. It’s a question of paying for the right priorities. Senator Sheldon Whitehouse and I wrote an opinion editorial for the Washington Times that talks about this:

We must change the way we pay for care. Right now, we pay for all the wrong things. We do not pay doctors to coordinate care, to deliver care with electronic health records, to focus on prevention or to teach healthy behavior. We pay family doctors the least of all specialties, even though these physicians are often in the best position to provide low-cost, coordinated care.

On the other hand, we pay doctors more the sicker their patients are, more for each additional service they deliver and more for each additional test they perform.

There is no magic here: We simply need to pay more for what we want more of, and less for what we want less of. These priorities are absolutely essential. We will never cover the uninsured or resolve the looming budgetary nightmare without them.

If done right, paying for quality shouldn’t require new money, since we will save an immense amount of money. There is also a staggering amount of money spent on healthcare fraud that if we could implement the systems to prevent it, as well as improve the scoring models at CBO and OMB to account for the savings, we’d have more than enough dollars.

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In response to David Kendall's post, I want to be clear that that I favor changing Medicare's payment systems so that they better reward high-value care. I think my views, and MedPAC's, on that issue are clear. Nevertheless, I believe (and this is a personal view, not necessarily MedPAC's) that there are limits on what can be accomplished in program founded on the principle of giving beneficiaries free-choice of provider -- and that operates within political constraints. My personal opinion is that the latter could, and should, be loosened somewhat by delegating some decisions to a Medicare Board. But neither constraint will disappear completely. As David suggests, Medicare administrative costs will increase as it becomes a more innovative payer; indeed, I would argue that under-funding of CMS is currently a huge impediment to improvement. Even after those increases, however, Medicare's administrative costs will remain lower than those of private insurers, in part because of scale and in part because Medicare does not make a profit and does not need to market its product. That is an inherent advantage of a public plan. As I said in my first post on this topic, I think innovative private plans have the potential to overcome the handicap of higher administrative costs. A well-managed public plan and well--managed private plans can complement one another.

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The most troubling aspect of this discussion, which is nonetheless very interesting, is an ideological undertone that threatens to undermine a successful endgame for health care reform. Some on the left take the efficiency of a public insurance plan as an article of faith and offer the lower administrative costs of Medicare as proof. Some on the right see the efficiency of private market competition as indisputable and point to waiting lines for care as the inevitable result of collective action. Surely, there’s enough inefficiency in both the public and private health care sectors that the nation can’t afford another ideological fight over which sector is superior, which led to gridlock in 1994.

Glenn Hackbarth suggests a possible solution whereby competition between one public and many private health insurance plans can solve the inefficiency problem, which would render the ideological conflict moot. He argues that Medicare’s virtue is its fee-for-service system that pays doctors and hospitals the same regardless of their quality of care. But haven’t MedPAC, Sen. Max Baucus, the Bush Administration and many others been trying to change Medicare from a passive bill payer to active manager of care? Won’t that require some additional administrative expenses? The Dartmouth Atlas shows that upwards of 30 percent of Medicare spending is wasted on health care services that do not do anything to improve patient’s health or satisfaction with care. The nation can ill afford to abandon the goal of making Medicare more efficient, which is exactly what would happen if Medicare as it exists to today were codified as the fee-for-service alternative to private plans.

Stuart Butler would avoid the ideological conflict by making the government a referee of the health insurance marketplace but not a player offering its own health insurance plan. That approach makes sense generally, but it doesn’t solve the problem in this case. The kind of rules that Stuart and others have recommended for a health information exchange include highly regulatory insurance underwriting restrictions such as guaranteed issue and some form of community rating. I support such regulations, too, but their justification stems from the inefficiency of competition between insurance companies without such regulations. If it’s fair to have special ground rules over insurance underwriting, then it’s only fair to question the apparent inefficiency of multiple insurance companies performing identical tasks such as processing insurance claims.

Resolving this issue will require both sides to take a step back and consider what we really want to accomplish: high quality, economical care for all Americans. From there, it’s not a big leap to an agreement that private sector health insurance plans should lower their administrative costs and the public sector should find more efficient ways to pay for health care delivery. If that were the discussion, then maybe new alternatives might emerge. For example, are there ways to eliminate unnecessary duplication of fee-for-service functions such as claims processing across private plans? Why haven’t those functions consolidated already? (In some cases they have.) Could the government play a role in making the payment system more efficient without stifling innovation? Answering those questions is still a big challenge, but at least it’s not one that threatens a meltdown in the debate.

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I agree with Uwe Reinhardt's comments, and I will not repeat them. Having worked in a top HMO and in government, I realize that private plans have strengths -- and so does Medicare. Their respective strengths are different, making competition between them desirable. Private plans have the potential to change patterns of care: substitute outpatient for inpatient care, while reducing unnecessary admissions and readmissions; substitute effective primary care for unduly expensive sub-specialty care; substitute cognitive services for a rote use of expensive imaging. Private plans are better positioned to achieve these goals than Medicare because they have tools at their disposal that Medicare does not have -- namely, the ability to steer patients toward high-value providers and flexibility in payment methods. Medicare, on the other hand, has different strengths. Because of its size, Medicare is able to command low payment rates, and it has low administrative costs. These are important advantages given research done by Uwe and others indicating that high unit prices and high administrative costs are important contributors to the difference between U.S. health care costs and those in other developed countries. Rather than rely on one model or the other, we should strive to offer Americans a fair choice between the two different approaches, a public plan modelled on Medicare and more flexible, innovative private plans. That "fair choice" should include a strong incentive to select a low-cost, high value plan. Some private plans will not survive this competition -- namely, plans that do little more than offer free-choice of provider, fee-for-service coverage. We don't need those plans; a public plan can do that better. By combining a public plan with universal coverage, we would instead be providing a strong market signal, and opportunity, for innovative private plans, those that do things that a public plan finds very difficult.

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After following the health-policy debate in this country ever since coming to America a while ago, I have learned to my amazement that Americans crave a free choice among health insurance products more so even than free choice among doctors and hospitals, which is why many Americans have given up the latter choice to have the former.

People in other countries do not quite understand this, because they typically crave free choice among providers more than free choice among insurance products. I view it as the essential difference between Americans and peoples elsewhere. (The latter-day de Tocqueville going by the name Ian Morrison would add another essential difference: in other countries, having health insurance is a right while owning a gun is a privilege. In the U.S. it is the other way around. Thus he defines Canadians as “unarmed North Americans with health insurance.”)

Now, given this fervent yearning for free choice among health insurance products among Americans, what is wrong with giving Americans under age 65 the same privilege their elders have, namely, choice of a publicly administered health insurance program, alongside the plethora of health insurance products among which Americans now can choose (unless they work for the many mid-size or small employers who offer their employees only one insurance product as an option)?

Some commentators on this bog have argued that the public plan may have a price advantage in the market for health care, which would give them an advantage in the market for health insurance products, which they consider unfair. That may well turn out to be the case; but I would ask these worriers two questions.

First, large insurance companies, such as Aetna or Wellpoint, also have a price advantage vis a vis smaller insurance carriers in the market for health services. Is that unfair? Does that make for a level playing field?

Second, did you express in writing an equal concern over an uneven playing field when, with the MMA ’03, Congress voted to grant the private Medicare Advantage plans a subsidy – really a tip – equal to an average of 13% above what a Medicare beneficiary choosing a private plan would have cost under Traditional FFS Medicare? (For some Medicare Advantage FFS plan the tip amount to some 20%). If so, would you share that writing with me? If not, why did you not raise that concern?

Finally, John Goodman worries that the public plan would set fees so low that doctors and hospitals would not accept patients covered by the plan. If that obtained, then presumably Americans having a choice of private plans alongside the public plan would not opt for the latter, which would then either whither away or have to raise fees until it is competitive in the market for enrollees. This is how competitive markets work, John.

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Fixing health care means offering choice and flexibility as part of any solution. Too often, Americans are presented with false options: either a government-run system funded by high taxes or a deregulated private market that puts profits ahead of patient care. Neither extreme would get the job done.

That's why we were pleased to see Sen. Max Baucus's "Call to Action" offers strong support for access and coverage – including a public plan option that ensures coverage for every American – as well as strategies for cost containment, payment and delivery system reform, transparency, and more options for long-term care. President-Elect Obama has also called for a new public plan – not exclusively, but as an option offered by a National Health Insurance Exchange along with a range of private options.

Clearly, government has a role to play as a watchdog to guarantee quality, affordable health care for all Americans. Government already sponsors the Medicare program for seniors and people with disabilities, and workers and employers pay to support Medicare on a fairly progressive basis. Medicare is popular because its benefits are guaranteed and don't vary depending on where you live, its red tape and administrative costs are minimal, and beneficiaries have a wide choice of providers. In addition, private insurers have not been able to compete to deliver Medicare's guaranteed benefits on a consistent, cost-effective basis.

Our public programs should be modernized and strengthened as part of fixing health care, and SEIU supports HHS Secretary-designate Tom Daschle's vision of an entity that would harness the buying power of the federal government and use cutting edge payment strategies to promote prevention, chronic care management, and improved patient outcomes. We know a small proportion of patients account for a large proportion of healthcare costs, and we already know many ways to help these patients treat their asthma, diabetes, depression, and other conditions—yet we don't consistently provide the care and supports that would both control their conditions and control costs. Our public programs can and should set standards and goals for the delivery system.

The bottom line is, everyone should have a meaningful healthcare benefit similar to the one that is available to federal employees and Members of Congress. And financing should be shared fairly by employers, individuals, and the government. The result would be a system that works for everyone.

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I agree with Stuart and James and would add two additional points.

If it really looks like Medicare, it will not be very attractive. Most Medicare enrollees pay three premiums to three plans (basic Medicare, Medigap, and prescription drug insurance) and still have less coverage (e.g. the "donut hole") than the rest of the population typically has.

It will be even more unattractive if the public plan pays Medicare rates. Many doctors today will not accept new Medicare patients and in some specialties Medicare patients face much longer waits for treatment than younger patients. If a large number of people are added to plans that pay well below private fees, there will be inexorable pressure to evolve into a two-tier payment system with two-tier quality of care.

As we discuss how to ensure access to affordable health insurance for all Americans – a goal I hope to achieve in a bipartisan manner in the next Congress – we must focus on promoting new options and choices for patients. This means expanding competitive, free market plans – not moving toward a single payer health care system.

When insurance plans compete freely, market forces provide the best chance to drive down costs, get better value for every dollar spent, and encourage innovative efforts to expand coverage. Government programs like Medicaid, on the other hand, undermine the free market through price controls, cost-shifting to other purchasers, and underpayment to health care providers. In addition, public plans can hide their true costs, because various government agencies pick up many of the costs that private plans have to account for in their premiums. If Congress forces private plans to compete against a public plan, the public program will have an inherently unfair advantage. Over time, this will drive more and more individuals to choose the public option – at the taxpayer’s expense.

Creating a Medicaid-for-all program, and requiring free market plans to compete with it, would undermine true competition and could be a giant step toward single-payer, Washington-run health care. Ultimately, this would limit patient options and drive up costs to the taxpayers. It would take health care decisions out of the hands of patients and doctors and place them in the hands of another costly, inefficient federal bureaucracy, complete with burdensome over-regulation and mountains of red tape.

Instead, we must reduce health care costs through substantial reforms, and then let Americans keep more of their money so they can choose the health care plans they want and need.

One way to do this would be by combining standard tax deductions for most Americans who purchase health insurance with tax subsidies for low-income Americans in order to help everyone afford health insurance. We need to reform our flawed, unfair tax code so that individuals who do not receive insurance through their employer can purchase it without being penalized by the IRS. If you work hard to provide a living for yourself and your family, the government should make it easier – not harder! – for you to afford health insurance.

We also should expand options for small business owners and working families who do not receive insurance through their employers by giving them the flexibility to pool their members across state lines, and even across the country, and use their combined purchasing power to negotiate affordable health care options. This kind of flexibility would allow small business owners and their employees to choose the plan that best suits their needs, at prices they can afford.

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Here's what Jason Rosenbaum, deputy director of online campaigns for Health Care for America Now, a national grassroots campaign advocating quality, affordable health care for all, has to say about public health programs:

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House Ways and Means Committee Chairman Charles Rangel, D-N.Y., indicated his strong support for a "strong public health insurance program" in an op ed in Roll Call Monday. Here is what he said:

"As we undertake health reform next year, we must remember that a strong public health insurance program is a central component of a healthy and workable public-private partnership. A public program would serve as a safeguard available to everyone, protected from the whims of the marketplace, and we must ensure their future for generations to come.

"Unfortunately, some of my colleagues like to scapegoat public programs because it is convenient to rail against “big government.” They argue that costs in these programs are unsustainable.

"However, the problem of rising health costs is not unique to Medicare or Medicaid. Just as the problem of rising health costs is system-wide, we need a system-wide solution. By undertaking reform, we cannot toss out the backbone of our health system; we need to build on what is working. I hope my colleagues will abandon political rhetoric and join me in health reform efforts, and in shoring up and building on our public programs in the short and long term.

"To that end, Congress will soon revisit SCHIP, and under the leadership of a new president, we will finally accomplish the goal of expanding the program to cover millions more needy children. We also need to bolster the social safety net by helping state and local governments pay for the growing Medicaid costs that they will face as more individuals turn to them for help.

"We should also provide short-term help to individuals who are losing their jobs and their health care through no fault of their own, especially those who may not be able to turn to Medicaid. Finally, we must strengthen Medicare by eliminating wasteful corporate welfare for private insurance plans, improving efficiencies and ensuring patients continued access to their physicians."

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If the government runs a national exchange, determining the rules for competing plan, and also operates a public plan as one of the competitors, the end result is inevitable. There will be no level playing field. Instead the rules will be designed to favor the government’s public plan. And Medicare-style plan, with its heavy subsidies, would enjoy an artificially low price advantage. Very soon it will drive out the private plans.

Little wonder that the Lewin Group estimates that over 20 million Americans would discover very soon that their employers had assigned them to the public plan.

Understandably, many advocates of single-payer or “Medicare for All” see a Medicare-style public plan within a national exchange as the route to achieving public coverage for all.

To be sure, working Americans need to be able to count on at least one affordable, adequate option no matter what their medical or financial situation. In the Federal Employee Health Benefits Plan, the supposed model for the exchange/public plan idea, there is no public plan. Instead, a group of private national plans, with community rating and government premium subsidies, provide affordable coverage to all federal workers and their dependents in an exchange with the same level playing-field rules applying to every plan. The major private insurers have offered to design guaranteed issue coverage in a future national system. Congress should work with them to do that, not create a public plan designed ultimately to drive them out of the market.

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The creation of a public health insurance plan has the potential to not only help extend affordable coverage to all Americans, but also drive efficiencies and innovative practices throughout the health care system.

First, it is estimated that a public plan option modeled on Medicare, offered through a national health insurance exchange, would have 30-percent lower premiums than those for the private plans. Recent analysis conducted by the Lewin Group for The Commonwealth Fund show family coverage under a Medicare-like public plan would be $8,424 annually in 2008, compared to $12,106 in a typical employer private plan. This 30 percent reduction in premiums would go a long way toward making coverage more affordable for small businesses and individuals.

Modeling of a comparable Commonwealth Fund "Building Blocks" proposal showed that 40 million of the estimated 60 million Americans gaining coverage through a national insurance connector would enroll in the new public plan option. Competition from a public plan could transform the private market, as private insurers endeavored to "meet the competition" by lowering overhead and adopting innovative practices in pursuit of greater value. For example, private insurers might form more highly integrated delivery systems or select high-value providers for participation in networks.

A Medicare-like public plan also provides a model for the private sector with respect to satisfaction, access, and financial protection, all key components of insurance coverage. The Commonwealth Fund 2007 Biennial Health Insurance Survey shows that Medicare beneficiaries are much more likely to rate their insurance as excellent or very good than are those covered by employer plans or individual coverage. Meanwhile, Medicare beneficiaries are less likely to report going without needed care in the past year due to costs and less likely than adults under age 65 to report problems paying medical bills. If private plans can meet the same level of performance, consideration could be given to opening up Medicare payment rates to private plans as well.

Finally, when combined with selected provider payment and health system reforms, this strategy could make it possible to cover nearly everyone at minimal cost to the federal budget. Modeling by the Lewin Group shows that offering a public plan option in a national health insurance exchange, along with payment and system reforms, will help bend the curve of the nation's unsustainable health spending, with savings of at least $1.6 trillion over 10 years possible. It is clear that the nation's public programs are especially valuable components of health reform. It is time to build on what works and provide a public health insurance plan option to Americans.

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I don’t think anyone is 100 percent positive what kind of effects or market distortions a new government health plan would bring about, but here is what we know for sure:

(1) The plan would be modeled after Medicare. Medicare is in dire financial straights. Listing the problems with Medicare would take a lot of space – but the question is, will Medicare be modernized and improved? Will the new plan include cost-saving efficiencies, or would it just be more of the same?

(2) The plan might have undue market advantages. Government is always able to “negotiate” the lowest rates – after all, they have the guns, the money, and the regulating authority. How much below market rates will the government plan pay – as bad as Medicare or Medicaid? Will the plan have to advertise at all? Probably not. This will make the government plan artificially cheaper than the other plans.

(3) Private plans might be too strangled to compete. The proposal to create a new Medicare-like plan is always coupled with strict regulations for private plans – they must accept all comers, charge similar rates to the sick and the healthy, young and old. They must cover a long list of specific drugs, services, and conditions. Are we, in essence, forcing the private plans to be the same as the public plan? And then artificially lowering the costs of the public plan? That kind of competition would not bode well.

Would a new public plan be the beginning of the end for private plans? Would this be creating a massive new debt to pass on to our grandchildren? Both of these questions will need very clear answers before many will support such a plan.

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