Health Care is Local

Former House Speaker Tip O’Neill famously noted that “all politics is local.” And he’s right. He was not talking about the rules of the political game. Those are established by a national constitution and subject to state laws as well as local ones. He meant that the political dynamics of each district are what determines the ideological shading of a district.

Some examples are obvious: compare the voting record of legislators from Massachusetts and Utah. Others are less so: Republican Senator Charles Grassley had been a reasonable voice on health care reform until he remembered he was up for reelection in 2010 and saw how conservative Iowans were responding to unfounded claims of “death panels” and the like; he is now embracing aspects of the silliness.

Health care is local, too. The medical delivery system in Los Angeles looks far different from the one in Cheyenne. Even what’s considered standard treatment varies from community to community. And as Dr. Atul Gawande demonstrated in his New Yorker article, the cost of care varies greatly among localities based on medical provider’s approach to health care.

How the local nature of politics and health care interact underscores the complexity of health care reform. Because health care is local, what’s broken in the current system varies from place-to-place. Because politics and is local, acceptable solutions vary depending on locale. It may just be a coincidence, but it is worth noting that the initial advocate for community-based health insurance co-operatives, Senator Kent Conrad, hails from North Dakota where rural electricity co-operatives are common while many of those claiming only a government-run health plan will do represent urban areas.

Recognizing this dynamic, the the House Energy and Commerce Committee has described HR 3200’s impact on each Congressional District. (My thanks to Dwight Mazzone for bringing these documents to my attention). Reading through these is a glimpse of the richness and variety of America.

For example, in Wyoming (which has one Representative for the entire state) up to 19,000 businesses would be eligible for tax credits to pay for health insurance, 7,400 seniors would benefit from reducing brand name drug costs, much of the $23 million in uncompensated care hospitals and health providers face would be eliminated, and the tax surcharge to pay for reform would impact 3,120 households.

Compare this to the Los Angeles area district represented by Henry Waxman, the Chair of the Energy and Commerce. In California’s 30th District up to 14,300 businesses would be eligible for the subsidy, 5,200 seniors would see lower prescription costs, hospitals and other providers would be relieved of much of the $85 million in uncompensated care they deal with today, while 22,100 households would pay the tax surcharge.

The statistics cited come from legitimate sources, but are presented in order to muster support for HR 3200. Were the same information to be presented by House Republicans it would no doubt have a different spin. Nonetheless, the information is a treasure trove of insight into the local politics and health care that drives the health care reform debate.

These statistics should also give lawmakers demanding a single, one-size-fits-all solution to health care reform pause. As I’ve argued before, state health care reform efforts usually fail. America’s health care system is too large, too interrelated and too complex to be reformed on a state-by-state basis. States lack the tools needed to make meaningful changes work; the national government has those tools. However, the reforms themselves could benefit from local implementation. For instance, instead of creating one, national government-run health plan to compete with private carriers, enabling the creation of local health insurance co-operatives to generate competition where it is needed is more appropriate.

Finding the balance between federal and local management of health care is critical to a well-functioning medical system. It is also good politics.

Health Insurance Brokers Aren’t Travel Agents

There was a time when most travel, whether a short hop or a complicated itinerary, was handled by travel agents. Then came the Internet and sites like Expedia, Travelocity and the rest. There are a lot fewer people making a living selling airline tickets now days.

While it’s not clear yet what kind of health insurance exchange will emerge from the current health care reform debate, that whatever legislation passes will include such an animal is a certainty. The concept of  “an Expedia for health insurance,” as some have described these Exchanges, has broad bi-partisan support.

Does this mean health insurance agents are likely to go the way of travel agents, relegated to only the most complex situations and, if compensated at all for more routine situations, paid barely enough to pay the phone bill let alone Errors & Omissions insurance premiums?

Some comments to my previous post seem to think so, but I say, “probably not.”

The legislative process is a lot like a jury trial: any outcome is possible. The likely outcome, however, is that brokers will continue to be part of whatever new health care system emerges. 

When I look a the impact of the Internet on distribution systems, a handful of factors seem to determine if the web will eliminate middle men. Let’s call this Katz’s Theory of Disintermediation.

The Theory holds that whether the Internet will eliminate distribution intermediaries depends on the interplay of six factors of the product or service being sold,  specifically how:

  1. complex the product or service is to consumers
  2. frequently the product or service is purchased
  3. personal and critical the product or service is to consumers
  4. expensive is the product or service
  5. much on-site service is required to install or use the product or service
  6. easily a description of the product or service can be digitized.

Here’s some examples of how the Theory works.

Books:  Books are pretty simple. Everyone knows what they are and how they work. Most people who buy books buy them on a regular basis. Books are rarely personal or critical (unless we’re talking about the final installment of Harry Potter) and they’re relatively inexpensive. Books aren’t “local,” but information about them is easily digitized. Given these factors one would expect online book sellers like Amazon to dominate the market and it does. The niche reserved for brick and mortar book sellers is where advice, impulse or convenience are involved (best provided locally).

Travel: Booking a direct trip from one city to another is pretty straightforward and most travelers are comfortable with their own expertise. Travel can be expensive and getting there can be important, but getting it wrong by, for example, overpaying, is rarely devastating from a financial perspective. And while the traveler pays more than she should she still gets where she’s going. Travel is not consumed or installed locally. So the Theory would expect routine travel to migrate online. Complex travel, however, is different. Multiple destination points or several hotels and rental cars to arrange and the incentive to work with an expert increases. When a family is planning it’s one big vacation the importance of getting it right increases. Not surprisingly, travel agents still are commonly  used for these complicated itineraries or critical travel events.

Health Insurance: Health insurance is extremely complicated. Just ask someone  to explain the meaning of “co-insurance” or “formulary.” People shop for coverage rarely — perhaps once a year or three times a decade. Health insurance is expensive and  it’s important to make the right decision. Your own health and financial security is at stake. If you’re an employer, you’re taking on the responsibility of making the right decision for your work force. At the same time, there’s no need to purchase health insurance locally and descriptions of rates and benefits are easily presented in a digital format. Given these factors one would expect consumers to seek expert advice — and they do. Yes, an increasing number of individual policies are being purchased online, but these buyers often consult a broker before making the final decision. And virtually all coverage purchased by small business owners is through a broker. Even if the Exchange presents information about policies in a standardized format, many if not most purchasers will seek guidance from a licensed and qualified counselor — in other words, from a broker. That’s what happened in California when the state created a purchasing pool. More than 65 percent of small business owners buying through the pool did so through brokers, even though it cost them more to do so.

Of course, there are some brokers who are simply sales mills, offering the same solution to every client. They add little value to the products they sell and offer no expertise. They can be, and should be, put out of business by the Internet.

This Theory of Disintermediation can’t predict what will happen to broker compensation. It may become fee based, it may be based on a per-capita fee, or it may stay premium based. But it does suggest that, unless lawmakers create artificial barriers, there will continue to be a role for brokers who deliver expertise to their clients.

Health Care Reform And Mirror-Colored Glasses

There’s nothing wrong with looking at health care reform through mirror-colored glasses. It’s very human and downright American to ask “what’s in it for me.” In this country we’re all entitled to seek our self-interest. The role of government is to balance those interests, to prevent the excesses this approach can create, to find common ground that benefits the many while protecting the rights of the few.

A few weeks ago I was interviewed by a reporter for Marketplace, the business program produced by American Public Media that airs on NPR.  The interview was far ranging, covering the latest developments in the  health care reform, it’s impact on brokers and others employed in the health insurance industry and the like. (It was “far ranging” in the sense. as regular readers of this blog know, that the reporter was kind enough to indulge my penchant for expressing opinions about health care reform).

The  reporter, Joel Rose, is a frequent contributor to Marketplace and other programs. He did his usual job of providing an interesting, fair and accurate report. He certainly presented my comment fairly (which was about the likelihood lawmakers would be unable to maintain fair competition between a government-run health plan and private carriers).

Even  given all we talked about, I admit to being a bit puzzled by the Marketplace report’s  focus. The story, at least on the web site, is entitled “Aetna workers fret about reform plans” and mostly concerns the possible job losses health care reform could cause in the insurance industry. It seemed to me, at first blush, to be an awfully parochial topic. Who cares what reform does to those in the insurance industry?

Then I started getting emails and calls from folks who heard the story. They cared — and had the mirror-colored glasses to prove it. Further it became clear that  Mr. Rose had raised a significant question. Should policy makers working on health care reform be concerned about the fate of the roughly 500,000 people ho work in the insurance industry?

Some of those who emailed pointed out the irony that the Obama Administration was, on one hand, spending billions of dollars to create jobs on one hand, while, with the other hand, it was planning on spending billions of dollars to eliminate jobs in the insurance industry. (As Mr. Rose noted in the story, however, there will be new jobs created in a post-reformed health insurance industry).

Still, the question is,  should it matter? Should health care reform be designed to save job categories?

My answer, at the risk of getting flamed, is that the only jobs health care reform should protect are those who add value to the system. If insurance company employees or health insurance brokers or anyone else cannot justify the cost of their services, the government has no responsibility to save their careers.  The Declaration of Independence calls for protecting life, liberty and the pursuit of happiness. There’s no constitutional right to a particular career path — just ask a buggy whip salesman if you can find one.

The reason I work so hard on behalf of preserving a role for brokers in America’s health care system is because I believe we do add value to the products we sell. Even after reforms, consumers will need the advice and advocacy licensed professionals provide.  Just ask the small business owners who bought health insurance through a state-run purchasing pool operated by the state of California in the 1990s. Roughly two-thirds of them paid a surcharge for the benefit of working with an independent broker instead of dealing directly with the state. 

Which is why I find proposals by some lawmakers to empower Department of Motor Vehicle clerks to sell health insurance so insulting and misguided. DMV employees are fine, bright people. But they’re not trained to understand health insurance or to help consumers battle health care coverage providers (private or public) when necessary. Consumers deserve better.

That lawmakers fail to perceive the value brokers provide is, perhaps, disappointing, but not surprising. Many, having always been insured through programs for government employees have never worked with an agent. That’s why the efforts of the members and staff at the National Association of Health Underwriters is so important. They are working tirelessly to educate legislators about the role of brokers while also providing the producers’ perspectives on various health care reform related issues.

I testified before several Congressional committees on behalf of NAHU during the debate over Clinton Administration’s health care reform plan. At one I was asked what the Clinton plan would mean to insurance producers. I said the Clinton plan “was both bad news and good news for health insurance agents. The bad news is we’d be out of a job. The good news is our health insurance would be free.”

It was a clever line that drove home what was at stake for the committee member’s constituents who sold health insurance. But what I said then I believe now: health care reform should not be about protecting brokers or any other profession.  The purpose of health care reform should be to create a health care system that will benefit the American people for the long term, a criteria it is difficult to argue the status quo will do.

The Clinton reforms failed because they were ill-conceived and ineptly handled. President Barack Obama’s reform efforts will be successful because the need for change is more obvious and he is wisely willing to accept what is, from his perspective, a partial loaf.

The coming reforms will change the way brokers work, but will not, and should not, eliminate them.  Brokers should survive not because we have a right to, we do not. We should survive because American consumers view health care reform through mirror-colored glasses, too.

Health Care Reform and the Euthanasia Hoax

Health care reform is complicated. Constraining the cost of medical care in the face of an aging population, new technologies, and increased health care expectations is hard. Providing health care coverage to the millions of Americans who cannot afford it or feel they don’t need it is challenging. And the list goes on.

Given this reality, one might hope the focus of the nation would be on the many legitimate public policy differences worthy of debate. Are current proposals for a public plan creating fair competition with private carriers or unfair competition? What is the appropriate role (if any) for an exchange? How can comparative effectiveness research restrain medical costs without shackling doctors to menu medicine?

Unfortunately attention is being diverted from these substantive issues to those which generate fear and conflict, but do nothing to illuminate or resolve tough issues.

Take euthanasia, or what former Governor Sarah Palin refers to as the “death panels.” Section 1233 of "America’s Affordable Health Choices Act" (HR 3200) is the source of this controversy. Section 1233 makes consultations between patients and doctors concerning end-of-life discussions a covered expense under Medicare. It does not require these discussions. Nor does it require patients to consult with a government panel nor is the patient obliged to take any action as a result of the discussion. All this section does is reimburse doctors for taking the time to talk about what services (such as palliative care and hospice) Medicare will cover and how powers of attorney, living wills, and the like work. That’s it. And it only covers these consultations once every five years, when there is “a significant change in the health condition of the individual,” or when the patient enters a skilled-nursing facility, nursing home or hospice. In other words: twice a decade or when the individual needs to talk about these matters.

Section 1233 is written in legislative language which is, admittedly, difficult to follow (but then, it is legislation). Take the time to read it, however (it starts on page 424), and it clearly does not encourage euthanasia. It takes a substantial twisting of common sense and logic to make it even seem so. Apparently it’s all about “context.” Here’s Governor Palin convoluted reasoning as presented on her Facebook page:

  1. President Barack Obama has said that one purpose of health care reform is to “bend the curve” on medical costs. Authorizing payments for end of life consultations is, consequently, a cost cutting move. Costs will be reduced not by informing patients of lower cost options (hospice versus nursing home versus hospital care versus home care), but by encouraging the patient to commit suicide.
  2. Because HR 3200 calls for paying doctors to have these consultations physicians will have an incentive to initiate these talks. Due to the fact that doctors are authority figures in white coats, unwilling seniors will be pressured to have them. In order to reduce overall medical care spending in the country, doctors will use their influence to coerce patients into “’formulation’ of a plug-pulling order right then and there. Apparently doctors are so greedy a fee for spending time with a patient is enough to turn Dr. Welby into Dr. Kevorkian. Yet they are so patriotic they will kill off their patients in order to reduce health care costs. They also must be dumb. Because if they initiate these discussions only to make a few bucks, you’d think they’d be smart and  greedy enough to figure out that dead patients pay no bills. If Governor Palin was being consistent, wouldn’t she assume the doctors would be encouraging people to hang in there and consume as much health care services as possible?
  3. Dr. Ezekiel Emanuel, an advisor to President Obama on health care and the brother of White House Chief of Staff Rahm Emanuel has written that medical spending needs to take into account the patients age, condition and chances of recovery. While I haven’t seen Dr Emanuel’s statements in context, what do they have to do with the legislation? The language of a bill is the language of a bill. What someone wants it to say does not trump what it does say. You’d think a governor might know that.
  4. So, as mentioned, it all comes down to context. Health care reform is about cutting medical costs, doctors are greedy, patriotic and stupid, and what a presidential advisor says trumps the clear meaning of the legislative language.  Given this context, Section 1233 can only be read as a cost cutting measure that will encourage doctors to talk their patients into committing suicide. (I still don’t see where the death panels come into this. They must be in the fine print only real Americans can see).

Maybe it’s me, but this doesn’t strike me as logic. But it does look like fear mongering. Or ignorance. Or maybe it’s just evidence of a world view that sees Democrats as elder-killers, doctors as untrustworthy, and older Americans as incapable of comprehending that that suicide is not only illegal, it’s optional.

Nah. It’s fear mongering.

There are plenty of reasons to oppose the health care reform put forward in Congress thus far and to fight for a better reform package. Let’s stick to the rational ones.

Health Care Reform 2009: Even More Required Reading

Welcome to the third edition of health care reform 2009’s required reading list. (The previous editions were Health Care Reform 2009: Required Reading and Health Care Reform 2009: More Required Reading). What I try to do in these cleverly titled posts is to pull together the articles and web sties offering meaningful insights into the current health care debate. I don’t always agree with the authors facts, reasoning or conclusion, but having them available can be a useful guide to what people are saying and thinking.

  1. If folks are going to argue over what’s in the House Energy and Commerce Committee’s legislation (the “America’s Affordable Health Choices Act“) we might as well all read the darn thing. And the various press releases, summaries and white papers associated with it. The Committee’s site has it all and more.
  2. When the Congressional Budget Office talks people listen. (To be precise, when the CBO writes, people read — especially lawmakers, public policy wonks, the media and the political groups seeking to sway the outcome of the health care reform debate). One of their most read pronouncements concerned the impact of a government-run health plan to compete with private carriers or through a health insurance exchange under the Energy and Commerce Committee’s bill. The CBO concluded enrollment in a public plan or exchanges would be relatively modest — by 2016 they project “nearly 3 million Americans who would be covered under an employment-based plan under current law … would choose instead to obtain coverage in the exchanges because the employer’s offer would be deemed unaffordable and they would therefore be eligible to receive subsidies via an exchange…”  When part-time workers are added in, the CBO estimates that the private carriers would lose approximately 9 million people to the exchange by 2016. Estimating that a public plan would offer premiums approximately 10 percent lower than typical private plans offered in the exchange,  the CBO concludes the public plan would have a “limited effect on the the proposal’s net budgetary impact,” implying enrollment would be modest. The CBOreport is a thorough analysis well worth an investment of time.
  3. When it comes to polling, trends often matter as much as the actual numbers. The Kaiser Family Foundation has been tracking the public’s attitude toward health care reform since March 2007.  Their July 29th Public Opinion on Health Care Issues finds a majority of Americans continue to believe “it is more important than ever to take on health care reform now.” While the percentage has declined since October 2008 from 62 percent to 56 percent, that’s still a striking result given the rhetoric surrounding the debate. Of course, it all depends on who you talk to: roughly 70 percent of Democrats believe this is the time for health care reform while approximately 60 percent of Republicans state “we cannot afford to take on healthcare reform right now.” Independents split 54 percent-to-42 percent in favor of moving forward with change now.
  4. Just because you see it on television doesn’t mean it’s true. Partisans on the left, right and middle have a tendency to misstate the facts. FactCheck.org, a project of the Annenberg Public Policy Center is an excellent source for the real scoop. They take on liberals and conservatives with equal fervor, for instance, debunking the euthanasia claims of the right and challenging President Barack Obama’s claim that health insurance companies are raking in “record profits.” 
  5. During the presidential campaign, one of Obama campaign’s most potent weapons was a site called “Fight the Smears.” It allowed the campaign to quickly respond to and debunk unfounded rumors. The White House is launching a similar site, called “Reality Check” to counter attacks on the president’s health care goals. The justifications are not surprisingly skewed to the Administration’s positions, but as a single source for President Obama’s positions on controversial issues it’s a great resource.
  6. Keeping the health plans straight without a program is nearly impossible. Even with a program it’s darn tough. The National Association of Health Underwriters offers a useful comparison between the Senate Health, Education, Labor and Pensions Committee legislation and the House of Representative’s legislation (HR 3200). In fact, NAHU has a wide range of useful legislative information of particular interest to health insurance brokers. (If you’re a broker and not a member of NAHU, now is the time to join. No other organization is as engaged or effective at representing the perspective of professional insurance brokers.) The Kaiser Family Foundation ahs a great tool for comparing various health care reform proposals as well.
  7. Health care reform is critical importance to state governments. They simply cannot afford the burden of increasing medical costs for programs like Medicaid (Medi-Cal in California). California Arnold Schwarzenegger made this point very clear in a letter to Congressional leaders urging them to pass health care reform, but warning against pushing the financial burden onto state governments. It’s an aspect of health care reform that is not receiving a great deal of attention, but is of critical importance. The letter does an excellent job of explaining the issue. 

Of course the most important document to read is the Senate Finance Committee’s compromise proposal. Unfortunately, it doesn’t exist yet, although there are plenty of stories on what it is likely to contain. Until it sees the light of day, however, reports on its provisions are merely conjecture, trial balloons or both. In the meantime, these sites and publications should provide some pleasant summer reading.

Health Care Reform: Fear and Loathing

Health care is personal, important, confusing and expensive. No wonder so many people are upset at attempts to reform America’s health care system. The status quo may be broken, but the devil known is more welcome than the devil coming to town.

It’s especially scary for conservatives who look at the folks doing the reforming and are terrified. When they see President Barack Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi they see liberals – actually they see LIBERALS. The kind their parents warned about. These aren’t fellow Americans with whom they happen to disagree, they’re “the others,” the socialists, the government building, boogie men of talk radio and a certain 24 hour news station. (And yes, this being America, there’s a 24 hour news station boosting fear of conservative boogie men, too).

It takes a giant leap to think that elected leaders in America are plotting to create a system with death panels that will impose euthanasia on seniors, make virtually every health care decision in the country, murder millions of children and much more. Yet those are the accusations made by former Governor Sarah Palin, Cal Thomas, Representative Virginia Foxx, and Representative John Shadegg. And many on the right take are predisposed to take these accusations seriously.

Then there are more legitimate controversies that health care reform impacts. For example, should health plans health plans be required to cover abortions? That’s a legitimate public policy issue although it’s often weighed down by political rhetoric that obscures the real issues.

All of this makes it easy for liberals to dismiss these concerns. They see the need for a public health insurance plan to increase competition, not drive private carriers out of business. Evaluating the cost and effectiveness of care makes common sense and sound economics. It has nothing to do with being intrusive. There’s nothing sinister about this approach, but conservatives view such claims with fear and loathing.

What we have here are two groups of people looking into the same room from different windows. What they see is colored by where they stand and the prejudices they bring to the view. Where one sees conspiracy and death panels the other sees common sense and prudent regulation.

This is more than just a fascinating glimpse into the human psyche and how it plays out in the public policy arena. It underscores the challenge facing those seeking change. They need to not just fashion a workable system, but they have to deal with the fears and suspicions of those who instinctively oppose them – fears and suspicions that are stoked for self-aggrandizement and profit by the Glenn Becks and Michael Moores of the world.

Then there’s the political element of this dynamic. Liberals can comfortably ignore the concerns of conservatives regarding health care reform. All they need to do is bring enough moderates along to build the majorities needed to pass their legislation.

But in American politics the pendulum swings. In 2001 the President was George W. Bush, the Senate Majority Leader was Trent Lott and the House Speaker was Dennis Hastert (just two years earlier it had been Newt Gingrich). Their view of how a public health plan should work – what it covers and who it benefits – varies considerably from the Obama/Reid/Pelosi view. Yet the greater the role liberals give the government over health care, the more control over issues like abortion conservatives like Bush/Lott/Hastert will have when they take power again – and eventually, they will.

Fear and suspicion, anger and foolishness knows no ideology. The left and right are equally susceptible to assuming and perceiving the worst in the actions and words of the other side. Both have paid cheerleaders to make stoke their worst predilections.

As lawmakers consider the impact of health care reform they should keep in mind the American political wheel turns. Eventually all of us watch our elected leaders with fear and loathing. And the greater the influence government has on health care the more vitriolic the suspicion, anger – and the danger.

Health Care Reform Disruptions Help Nothing

It’s a sad day when silencing opponents becomes a substitute for civil discourse, especially on issues as important and complicated as health care reform. Yet, that’s what’s happening as national organizations encourage local residents to disrupt Congressional town hall meetings being held around the country during the Congressional August recess.

That people have strong opinions on health care reform is a given. There are few issues that touch Americans as deeply as the health and well being of themselves and their families. They should care passionately about changes to the American health care system and they should communicate their questions and concerns to their representatives.

Bringing town hall meetings to a halt, however, is not debate, discourse or discussion. It’s political thuggery aimed at preventing the exchange of ideas, not promoting them. The anger generating this misbehavior may be genuine, but the tactics are orchestrated. The campaign organization RightPrinciples.com distributed a memo on how to hijack town hall meetings. To be fair, after calling on opponents of the Democratic reform package to pack the hall and shout-out questions and objections, the memo cautions “Don’t carry on and make a scene – just short intermittent shout outs.”

Needless to say, this advice has gone by the wayside as some of these demonstrations have turned violent, members of Congress have been hung in effigy and lawmakers have had their lives threatened all while the media’s attention has shifted from the value of a public health plan to the whether the outbursts are genuine or orchestrated. (I think we can all agree that it’s more exciting for the media to cover a fist fight than an explanation on how comparative effectiveness of medical services might lower health care costs).

And it’s not that the demonstrations have turned ugly. Some of the rhetoric and fear mongering has gotten downright silly. Some have accused Democrats of promoting the killing of seniors because the bill allows Medicare reimbursement for consultations concerning living wills and other end-of-life issues. C’mon people, really? Or my personal favorite: calls to “Keep your government hands off my Medicare.” Umm, for those paying attention, Medicare is a government health plan. 

It’s not just conservative organizers like the FreedomWorks that are to blame for this lack of civility. House Speaker Nancy Pelosi has taken to calling insurance carriers villains and immoral. That doesn’t help with the tone. And now liberal groups are organizing to confront the conservative groups disrupting the town hall meetings.

Nor, by the way, are these kinds of tactics new. In 1996, shortly before election day, I was moderating a panel discussion featuring four health insurance executives when demonstrators, trailed by television and radio reporters, burst in, chanted slogans and dumped buckets of beans on the stage. They were there in support of a single-payer initiative on the California ballot – an initiative that was handily defeated.

Trying to silence the opposition through intimidation and disruption is an old tactic shared by the right and the left. That doesn’t make it correct nor is it helpful. There are serious issues that need to be debated. And there is a legitimate need for changes to the status quo. It would be nice if we dealt with the substance of what’s at stake, but that’s hard to do in the midst of intentional chaos.

Of course, it’s easier to shout someone down than to persuade through ideas. Perhaps what these demonstrators fear is that, in a real dialogue, they would be able to express their ideas, but they’d have to listen as well. And that might lead to someone actually learning something.

Would that really be such a bad thing?

A Public Health Plan and Competition

The purpose of a public plan, according to its advocates, is to assure a competitive marketplace. The result will be lower costs, they argue, because a government-run health plan will keep private carriers honest.

Senator Charles Schumer, speaking at a rally sponsored by Health Care for America Now!, put it this way, “A public health insurance option is critical to ensure the greatest amount of choice possible for consumers. We believe that it is fully possible to create a public health insurance plan that delivers all the benefit of increased competition without relying on unfair, built in advantages.”

If  a public plan is to provide competition, the question is: what does a competitive market look like? Is it three carriers slugging it out? Six? Ten? A report by the folks at Health Care for America Now! says the “U.S. Justice Department considers a market ‘highly concentrated’ if one company holds more than a 42 percent share of that market.”  But “highly concentrated” does not automatically result in anti-trust objections by the federal government. It’s a factor, but it’s not a determinative factor.

Competition is lacking in some states. The Government Accountability Office has tried to determine the competitive landscape in the small group market (not an easy task given differing definitions and variations in reporting methodologies). In a letter to several Senators on the subject of “Private Health Insurance: 2008 Survey Results on Number and Market Share of Carriers in the Small Group Health Insurance Market” the GAO reported that while there were, on average, 27 licensed carriers in a state, the median market share of the largest carrier was about 47 percent. Further it found that the combined market share of the five largest carriers in a market was 75 percent or greater in at least 34 states and was over 90 percent in 23 of these states (only 39 states provide sufficient information to determine the market share of its top five plans, so the actual number of states in these categories could be higher). The lowest combined percentage of market share held by the five largest carriers was 56 percent in Wisconsin according to the GAO.

The disparity among the states was substantial. The GAO study found that in Arizona the largest carrier has a market share of about 21 percent; in Alabama the leading carrier controlled 96 percent of the small group market. Even the most ardent capitalist should admit that Alabama is not a competitive market

The American Medical Association does. They publish competitive information on the commercial health-insurance market. I was unable  to find a description of the methodology to use this determination, and the AMA study includes large businesses, unlike the GAO study that focused on small groups). The AMA study found a paucity of competition. As reported by Business Week, the AMA claims that “in 15 states one insurer has 50% or more of the entire market.”  In a somewhat confusing statement, Business Week, reports the AMA as claiming that “out of 314 metropolitan markets, 94% are controlled by one or two companies, or fewer.” (I’m not sure what’s fewer than “one or two companies” — what does a half company look like? )

The AMA concludes that this means there’s no competition among health carriers, a somewhat predictable determination given their relationship with the carrier community. “These findings, coupled with higher insurance premiums, higher profits, lower scope of benefits and high barriers to entry, leads to the conclusion that health insurers are exercising market power in many parts of the country.”

Thus, claim public plan proponents, arises the need for government-run health insurance plan. But will the mere presence of a public plan increase competition. In Alabama, the answer is no doubt “yes.” With one small group carrier enjoying 90 percent market share the entry of a new player would certainly bring greater competition. In Wisconsin, where five carriers split 56 of the market and the largest carrier has a 32 percent market share, a public plan would be just one more choice among many.

The problem with the “public plan ensures competition” argument, in my view, is that it applies a national solution to regional problems. In some states and regions more competition is needed. In others where four or five carriers are already slugging it out, the public plan — if it competes on a level-playing field as lawmakers promise — contributes little.

Some government-run medical plan advocates claim the difference will be that a public plan will lack the profit motive of existing carriers. But there are already non-profit competitors in the small group market. In California, two of the top four competitors are non-profits. The addition of another is unlikely to change much.

It is true that premiums have skyrocketed in recent years. The Business Week article notes that, according to the Kaiser Family Foundation has found that health insurance premiums have increased 120 percent in the past 10 years. General inflation increased by 44 percent during that period. The AMA concludes this is the result of anti-competitive actions taken by carriers.

Another likely reason, as pointed out in the article, is that hospitals and other health care providers have commensurate power. “A 2006 study found that one or two hospitals controlled the market in 88% of the nation’s large metropolitan areas.” It goes on to quote Karen Davis, president of the Commonwealth Fund, as saying “’You’ve got a dominant insurer up against a dominant health-care provider … That just doesn’t work out well for lowering costs.’”

What this suggests is the most effective way for a public plan to lower medical costs is to impose MediCare-type pricing on doctors and hospitals. This, however, would violate the pledge of lawmakers to maintain a level-playing field between the public plan and private carriers.

Why this matters is that MediCare pays less than the actual cost of many medical services. Hospitals and doctors shift this shortfall to commercial carriers. If the government-run health plan did the same the cost shift would be brutal, driving many of those carriers out of the market — not because they couldn’t compete on a level playing field, but because the playing field was not level.

The messy legislative process is moving toward a solution that addresses the competition issue without incurring the consequence of additional government coverage cost shifting. The consensus is Congress is moving toward the idea of regional health insurance co-operatives (albeit not without loud cries of anger from liberal and other supporters of a government plan). An advantage of co-ops is that they can more easily address disparities in competition across the country as opposed to a national health plan that would treat the country as a whole. Based on the GAO report, for example, one might expect co-ops to do well in Alabama, but have a much tougher time getting established in Wisconsin where the need for them appears to be less.

The debate over a public insurance plan would be more straightforward if it focused on the real issue: should the government offer coverage at lower prices resulting from imposing reimbursement fee schedules on doctors and hospitals. That’s unlikely to happen, however. When it comes to health care reform the public trusts doctors and hospitals and they don’t trust insurance companies. Consequently, ignoring the fact that a lack of competition among carriers is a local, not a national, problem is good politics. But it makes for an awkward public policy debate.