Jacob S. Hacker is the Stanley B. Resor Professor of Political Science at Yale University. An expert on the politics of U.S. health and social policy, he is author, coauthor, or editor of numerous books and articles, both scholarly and popular, including The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream and Health At Risk: America’s Ailing Health System and How to Heal It.
"Godfather of the public option...endorsed the Medicare buy-in compromise." That was the crucial opening line of a blog post Wednesday. It sounds pretty noteworthy: The guy who brought you the public option supports killing the public option.
Only he doesn't, and I should know, because "the guy" is me.
What I said (on PBS "Newshour") is that I like the idea of a Medicare buy-in for uninsured Americans aged 55 to 65, and I do. We don’t know the details of the buy-in--and the details matter a great deal for whether it is a workable idea for this age group and their families--but this could be a simple, popular way of providing affordable coverage. It’s also one, valuably, that could be made available almost immediately, not almost a half decade from now, like the rest of the Senate bill’s big steps.
I also said, however, that I think the hazy substitute for the public option that's apparently part of the proposed deal--having the Office of Personnel Management (OPM) contract with one or a few national private plans--is an "inadequate" substitute for the public option. It won't contain costs and won't provide the "choice and competition that President Obama spoke about." That's not an endorsement.
I didn't have time to elaborate on why the OPM idea is bad during the Newshour segment. But I'm happy to do so now.
To put it briefly, offering one or a few national plans under the auspices of the OPM won't provide what a public plan can--the choice of a broad, transparent, accountable, and affordable plan that doesn't deny needed care, restrains the growth of premiums over time, and serves as a benchmark for private plans. Indeed, because Blue Cross and Blue Shield (BCBS) is the most likely national non-profit to take advantage of this new opening, and because the Blues dominate most states, the plan perversely amounts to trying to increase competition and choice by encouraging Blue Cross and Blue Shield to compete against, you guessed it, Blue Cross and Blue Shield. That’s competition?
The public plan has been at the core of the health debate for a number of reasons: (1) it will significantly reduce costs; (2) it will provide broad, transparent coverage at an affordable price, setting a benchmark private insurers will be pressed to follow; (3) it won’t be in the business of denying or delaying needed care to people with costly conditions or shifting excessive costs onto them; and (4) it’s a vehicle for driving delivery and payment system reforms that private plans have proven unable and/or unwilling to do. Since we live in a democracy, it also seems relevant that (5) the public plan has been consistently popular with Americans (and doctors, according to a recent survey in the New England Journal of Medicine), despite the unrelenting false attacks on it.
We were reminded of (1) again last week. The CBO, which has been lowballing estimates of the potential savings of a public plan, told the Senate negotiators that if they dropped the public option, they would give up $25 billion in savings. That’s right: viewed through the CBO’s pessimistic lens, the Senate public option saves $25 billion, even though it not only requires that the Secretary of Health and Human Services negotiate rates directly with providers (rather than use rates based on Medicare’s, as I originally proposed), but also allows state political leaders to forgo offering the public option within their boundaries by passing a state law.
The OPM alternative, by contrast, isn’t going to be able to deliver serious savings. The Federal Employees Health Benefit Program (FEHBP) run by the OPM had premium increases almost exactly as large as the rest of the private insurance market between 1985 and 2002--and much larger than the growth rate of Medicare per capita. According to a just-released Congressional Research Service brief (not available online), premiums for enrollees increased almost 9 percent last year, and some plans had double-digit increases.
The most revealing statistics in the brief concern the Blue Cross and Blue Shield plans. These are the only national plans offered by FEHBP that are not affiliated with a federal employee organization. As such, a national BCBS plan would be the most likely--and perhaps only—OPM-sponsored plan to emerge under the proposed Senate deal. In 2010, BCBS will raise the premiums charged enrollees of its "standard" (more generous ) plan 15 percent for individuals and 12 percent for families, and it will raise the rate of its "basic" (no out-of-network coverage) plan 9 percent.
The regulations on private insurers in the current Senate bill are weak in many areas. Moreover, their implementation is left mostly to the states, many of which lack the wherewithal or will to regulate private plans effectively. So a dreamily hopeful vision of the OPM might see it as potentially providing much-needed national regulatory clout. But that's not a realistic vision. The OPM is already stretched thin. Even if a bunch of new resources could be found for it, it isn't in the business of creating a transparent, accountable plan; it is a manager and contractor and regulator of private plans, much like an exchange, only with even less regulatory power. OPM's former director, Linda Springer, says bluntly, "I flat-out think that OPM doesn't have the capacity to do this type of role...I don't think it would be a good call."
And without a transparent, accountable and competitive public plan, there is ultimately little prospect of creating countervailing power in consolidated insurance and provider markets. In 94 percent of metropolitan areas, insurance markets are considered “highly concentrated,” according to Department of Justice and Federal Trade Commission standards. And in some 88 percent of local markets, a single hospital or flagship hospital system dominates the market, too, leading to collusive relationships that drive up premiums. Having a national Blue Cross-Blue Shield plan will do nothing to address these interlocking problems. The Blues already hold a massive market share, and they are generally among the most costly plans. More important, they’ll just be competing with private plans a lot like them--and maybe even just with themselves, since the Blues absolutely dominate many state markets.
The stakes could not be higher. Without an imminent threat of real competition, a strong benchmark, and effective regulations to back them up, private insurers are likely to raise premiums in anticipation of the implementation of reform. (If anyone doubts that the insurance industry thinks a true public option will offer a competitive check, they should look at how much the industry is crowing right now, and how much its stock prices just went up. As I pointed out on Newshour, one industry insider responded to the proposed deal with a simple “We win.”) Under the OPM substitute, the big insurers that are eagerly awaiting the millions of new customers required to buy their products will be handed, well, millions of new customers required to buy their products.
Since I’m being called “the godfather,” let me put it this way: this phony public option is an offer I can refuse.