The belt-and-suspenders of the Kennedy-Dodd health care bill
11 June
There is much debate about whether a health care reform bill should include a government-run health insurance plan, a so-called “public option.” Advocates argue that such a plan can compete fairly with private health insurance, and that this competition would “keep insurers honest.” They also argue that more choices are a good thing.
I fall in the other camp. I think that government cannot compete on a level playing field with the private sector. Government always has advantages because of its sovereign power. I also think that in most markets there is a range of private health insurance plans competing for business, and so the addition of one more plan is not worth the downsides of government involvement. (I believe that competition is flawed because for most people their employer shops for health plans. I prefer a system in which individuals are shopping for health plans.)
The government cannot compete on a level playing field with private firms:
- Fannie Mae and Freddie Mac had competitive advantages relative to their purely private counterparts. They leveraged those advantages to the gain of their management and shareholders until they collapsed and jeopardized the entire financial system.
- Ford Motor Company was not bailed out. It is now disadvantaged relative to GM and Chrysler, which benefited from government oversight, funding, and effective rewriting of bankruptcy rules.
- Government-provided terrorism reinsurance is preventing private reinsurance from returning to the marketplace.
- Most physician- and hospital-reimbursement structures are based on the methodologies of the largest payor in the market, Medicare.
- Government-run direct student loans are now crowding out the guaranteed student loan program, in which private banks and financing firms offer loans. The government advantage comes from control over small details of the program that give direct loans a competitive advantage.
(I would appreciate further examples if commenters have any. Updates are in green.)
The ultimate fear of having a government-run “public” option is that it will crowd out private health insurance, and that ultimately most Americans will be getting their insurance from the government.
At the same time, I hope that opponents of Kennedy-Dodd and the developing House Democrats’ health care bills don’t miss a critical point. Even if the public option is successfully stricken from this legislation, the Kennedy-Dodd goals will be largely achieved by other parts of the bill.
Separate from the Kennedy-Dodd language that creates a new public option, other language in the bill:
- Gives a government-appointed Medical Advisory Council the ability to determine a standardized package of minimum benefits;
- Establishes three tiers of standardized copayments and deductibles, as well as the total dollar value of benefits included relative to an industry average;
- Mandate relative premiums for people with different risk profiles;
- Gives the Secretary of Health and Human Services authority to set a maximum percentage of administrative expenditures and profits for health plans;
- Requires plans to provide incentives for certain models of delivery of medical care; and
- Gives State “Gateways” authority to redistribute resources among health plans to account for the risk distribution of their beneficiaries.
If the government determines benefits, cost-sharing, relative premiums, expenses, and profits, and can take funds from one health plan and give them to another, then the insurance function is governmental.
The ultimate fear of a public option would be immediately implemented by other parts of the Kennedy-Dodd bill. Health plans would turn into a version of Fannie Mae and Freddie Mac: they would have (regulated) private profits but public purposes. (A friend points out that the Fannie/Freddie comparison doesn’t work well here. F/F are more about “private profit but public risk.”)
This is a smart tactical move by the authors of the bill. They have a belt (the public option) and suspenders (government control of private insurance). They achieve their policy goal even if they lose the public option.
Killing the public option is essential, but it isn’t enough to prevent government-run health care.
Related Posts
(best matches are listed first)- Ten more things about the official Kennedy-Dodd health care bill
- Understanding the Kennedy health care bill
- CBO scores the Kennedy-Dodd bill
- Understanding the House Democrats’ health care bill
- Parsing the President’s health care reform letter
- Understanding the GM bankruptcy
- Let’s not hide $1.4 trillion of IOU’s
Does anyone know of anyone who has an angioplasty in the past 10-15 years?
I’m sure it’s comforting to know that Windsor, Canada, was supposed to get 2 cardio surgeons to perform about 500 of them LAST YEAR.
——
David Malleau, with his wife Pat, in their Hamilton home, waited nearly a year after a car accident for surgery on his skull.
U might want to bone up on this man’s story w/Canadian health care…..
It’s at TheStar.com
May 22, 2007
There’s also the 3-5 year old articles on how if you were a cat or a dog you received an MRI faster or how the middle & upper classes were taking out HELOCs to get the care they needed sooner.
Just because one has health insurance, it doesn’t mean one will get the care needed when one needs it. And to let The King decide what treatment you get when, that is IF The King decides you get treatment at all…..goes against our history.
Also, the fact that we basically are Canada/Britain/France/Germay/Australia’s, etc. military must be factored in. They don’t have to spend as much because we do.
And there was that article about how cancer could bring down the NHS – because the new drugs will make it chronic and they can’t afford to pay for it.
—
Ehhh, they’ll just kill off we Boomers earlier.
And why should I by flood insurance (or in my case, living in SoCal, Earthquake insurance) if I know/expect FEMA to ride to the rescue in the event of a natural disaster?
Jharp, it is obvious that you have the best interest of the poor at heart, but I respectfully disagree that government overhaul of the health care system is in anyone’s best interest.
The poor are already provided with health care through Medicaid/Medicare, no? Why do we need to alter the health care system as a whole?
To save taxpayer money? That’s a different matter than ensuring that the poor have access to decent health care.
Health care in the U.S. is expensive because it is the best in the world. I’m willing to pay for it, and for those not fortunate enought to be able to pay on their own.
I’ve just seen too many government programs tank or get propped up at great cost to perpetuate illusion of functionality or suspend reality. Not to say a gov health plan will fail JUST like they did, but the outcome will be the same. Fmae, Fmac, medicare, social security, our broken government procurement systems, all further twisted by the political ambitions and manipulations of lobbyists, focus groups, activists (some of whom protested against banks to lower lending standards to riskier borrowers, contributing to that particular fiasco, contrary to what some are trying to say on this thread).
Its all about mandated dysfunction.
If a private company does it, hopefully you do your research and find out before you buy a policy from them. When I was young I asked around, got advice, considered reputations. Or if I didn’t like it? I SWITCHED.
The WAY the governments acted lately, they don’t have a good reputation. I don’t believe them. They block regulators, as evident in videos taken of hearings about the shaky standing and shady dealings of fmae and fmac with politicans shortly before the meltdown.
The government will spend what it needs, get emeshed in favoritism, contributions, lobbying, profit and accountability will be dead last, or just dead.
And if private insurers who DO have to make a profit, be accountable, answer to government meddling, start to leave, that settles the matter of “choice”.
I agree with hbramblet reply on June 11th, 2009 7:09pm, but there are a lot of concrete reasons given here to oppose shoddy government control.
I’m interested in reading Dutton’s analysis of the French system. I do not agree that student loans are driving cost issues. I’m a physician and my loans amount to almost $200,000. To pay this back and eventually have a comfortable lifestyle I do need a relatively high income. However, the fees that medicare and private insurance are willing to reimburse for my exams are not calculated based on a doctor’s higher education debt. The same applies to the costs of the tests we order and the equipment we use. Are you suggesting that government should be permitted to set healthcare fees across the board in exchange for subsidized medical school tuition? I’m suspicious of unionizing medicine as well. While this likely jibes well with the French disposition to strike on a whim, I believe most American physicians would balk at unionization. Unions have strangled our businesses big and small. The last thing we need is their expansion into medicine.
Let’s take this a step further. Housing is even more important than health care so let’s have the government provide housing for everyone.
* Let’s give a government-appointed Housing Advisory Council the ability to determine a standardized house;
* Establish three tiers of standardized prices, as well as the total dollar value of furnishings relative to a national average;
* Mandate relative prices for people with different incomes;
* Give the Secretary of Housing and Urban Development authority to set a maximum percentage of administrative expenditures and profits for construction companies;
* Require plans to provide incentives for certain styles of housing; and
* Give State “Gateways” authority to redistribute resources among contractors to account for the income distribution of their customers.
And food is even more important than either health care or housing so let’s give the Secretary of Agriculture authority to decide what kinds of food we are allowed to eat. And the Secretary of Transportation decide the mix of autos, bicycles, walking, buses, hitchhiking all around the country. And the Secretary of Energy decide how much propane, electricity, oil, natural gas, nuclear, windmill, solar, hydroelectric each individual and business can consume.
And finally we’ll have the Secretaries of Education and Labor tell all of us what we’ll be trained to do and where we’ll work. Of course, we’ll have to reestablish the draft to make people become doctors after the government makes health care such an unprofitable and bureaucrat-controlled profession that doctors leave the profession.
I have always love Senators Dodd and especially Senator Kennedy, may his brother rest in peace… I think that people such as this truly care for us and i think that their plan should be a mark to look upon by other, thank you for everything!
Emily B, Health and Fitness Specialist
Jharp you miss the point. The FEDS do not operate local police departments though they’d like to. Local governments NOT Federal are better suited to handling things like sewage, police and fire than private companies. Private universities generally limit enrollment and provide a much better education than public ones. Plus once again public schools are local not Federal. Public libraries and bookstores do not directly compete. Lame arguement there. There is plenty of competition in health insurance with 1,800 health insurance companies out there. The best solution is not your “god” of government but to allow citizens to buy their own insurance across state lines thus allowing more competition. The Federal gov’t runs nothing efficiently or effectively. The military comes the closest, but look the cost overruns there. Do you want some 25 year old political science major loser political hack telling you that you get to live or die cause the government deems something to expensive? Then move to Canada or Great Britian.
< redacted by kbh >
khb is right–the tone of this blog has become too derisive, which distracts from the actual issues. Brett’s anger management issues notwithstanding he raises some issues which should be addressed.
First, arguing whether it is a “political hack” making medical policy decisions or the government “setting a rate schedule” for approved treatments is splitting hairs. Both methods achieve the same end: dictating how doctors should treat patients. Stating that in Canada it is “the doctors themselves” that determine how and how many patients they treat is disingenuous. People respond to incentives. How do you think a physician would respond if he was reimbursed the same amount whether he saw 40 patients a day and did cataract surgery in 10min versus 20 patients a day and removed a cataract in 1hr? Surprise! he will limit the amount of patients he sees and the number of surgeries he does per year to be commensurate with what the government is willing to pay. This translates into long waits for specialists, advanced diagnostic tests (MRI,PET,cardiac cath) and elective/semi-elective procedures. All of which regularly occur in Canada. There are many flaws to the current system, but these are issues Americans currently do not have. That “bureaucrat” may not be directly, visibly between the doctor and patient but the manipulation of medical decisions is certainly there.
Second, the idea that deregulation of the insurance industry would push companies to compete “to the bottom, so that insurers can sell weak-ass plans that fall apart” in emergencies is confused logic. Our media has conditioned the public to panic at the mere mention of “deregulation.” If you’re interested in the “evils” of deregulation look where it got China and India in the past two decades. Competition DOES drive down costs and improve quality. And cost is the main issue here. Your reference to “similar outcomes” in Canada is debatable and I could contest it’s validity with other studies as well as flaws in the types of “indicators of health” used. More importantly, however, is the fact that Canada does spend very little. They have achieved this by restricting access to technology and specialists. Similar results can be obtained in the US using free markets.
To start, insurance companies need to be less restricted in order to allow true competition on a national scale. Second, plans need to be decoupled from employment; patients need to purchase their plans directly, not their employers. This can be facilitated with tax credits and/or the higher wages earned once employers reimburse employees their true pre-health insurance salaries. The final and most important step in reducing cost would be a transition to high deductible plans linked to health savings accounts. Individuals woud be responsible for the first $2500 and insurance would kick in over that. Once patients are more aware of where each of THEIR (not some third party) healthcare dollars goes, they will seek cost-efficient treatments, doctors, etc. This has already occurred in the field of cosmetic medicine-surgery. The cost of routine plastic surgeries, LASIK, and other cosmetic procedures has remained steady or declined over time. People are always more responsible with their own money then someone else’s (ie. a low deductible insurance plan). This would address the cost of insurance, total cost of healthcare and portability.
Jharp-
> > Why do I think they’d be crowded out?
Because the government will allow anti-competitive practices. Those may include, taxing private plans while not doing the same to public benefits; allowing the Public Plan to run at an operating loss that would put private companies out of business; enacting regulations that favor the Public Entity over private enterprises (e.g. “encouraging” all providers to take the public insurance while not extending the same incentives to private).
> > Are you admitting that most would prefer the public option?
There are many reasons why people might CHOOSE the public option. One might be that the government sponsorship allows the Public Entity to get cheaper capital or to run at an operating loss, which would allow the entity to charge less in the short term. The government might mandate a larger proportion of providers accept the new system. Or it might institute other regulations that make it impossible for private concerns to be competitive.
> > And why is this a bad thing?
The short term benefit to the Public Plan participants has to ultimately be paid by someone. Cheaper capital loans encourages riskier borrowing (c/f Fannie/Freddie) and a higher likelihood of default and government bailout. Tolerating operating loss means that the Public Entity is not obliged to become more efficient and those costs will ultimately have to be paid by someone else. And ultimately, if unfair competitive practices causes private entities to bail on the market, it leaves the Public Entity a monopolist which seems to give everyone the willies.
> > And if private insurance is so wonderful why are you
> > afraid of a little competition?
I am not afraid of competition. I am afraid of the government stacking the deck AGAINST competition by creating an environment where only Government Sponsored Entities supported by tax payers can survive.
As is typical for the average American critic of Canadian health care, you obviously know exactly nothing about it. If you had, you would have known that in Canada, the government simply sets a rate schedule for the treatments it covers, and then the doctors themselves determine the order in which they are going to treat patients. None of this “government bureaucrat coming between me and my doctor” bullshit – unlike if you get stuck on an HMO plan here in the US, where you get to haggle with the HMO bureaucrats if you go out-of-network, and have to go see the doctors they approve or get slapped with severe punishments (like 30% co-payments, for example).
Some good it has done – witness the similar outcomes for care between the US and Canada, for example, when the Canadian system costs less than half of the US system per capita (and doesn’t involve running the risk of bankruptcy, which is ever present for anyone who isn’t rich even when they have health insurance and incur a major medical cost).
You mean competing to the bottom without regulation, so that insurers can sell weak-ass plans that fall apart upon an actual medical emergency, forcing the patient to rely on the existent government health insurance programs out there? I’d rather not.
Read the study above again. I’ll take that any day over the current system.
Hahahahahahaha!
Here’s the crux of it, I guess – you think that if someone gets unlucky and gets skin cancer, and could only afford either pissant insurance that forces them into personal bankruptcy, or no insurance at all, why, that’s personal responsibility. Spoken like someone whose obviously never been hit with something like that.
Of course, this idea you have is a joke, since we already require a kind of universal catastrophic health care in the form of the laws requiring that emergency rooms treat any patients regardless of cost. Since I don’t see any conservatives arguing that poor people should be left to die in the streets for lack of care, I’ll take this point as hypocrisy.
Are you doing some very subtle sarcasm here? The point about USPS seems to say that (since FedEx and UPS can and do send quite a few letters), but then you go on to talk about Canada’s doctor shortage (“shortage” meaning “they don’t have the massive number of specialists earning gobs of money to the degree that the US has them”).
Nice mantra. Got any proof for it, especially in light of studies like the one I posted above?
We could do a whole lot worse than Canada – as I pointed out above, they get roughly similar outcomes to the US, with significantly less per capita spending on health care (and like the US, they’re starting from the political standpoint of a federalistic government, rather than France’s unitary state). Germany is better in terms of outcomes, but they’re a mix of a basic statutory health insurance plan that most of the population is part, plus heavily regulated private plans that “top off” the public plan.
> > If proving the existence of crowding out was your
> > argument’s only intent, I don’t know who you were
> > arguing with, since nobody here asserted crowding
> > out is impossible.
Come on now, Curious. The *first comment* to this thread was a quote that claims public entities 1) don’t eliminate private concerns and 2) encourage competition (which is antithetical to crowding out, as a competitive market will have multiple entities).
> > In other words, the dominance of local police forces
> > is due to legislative fiat, rather than some nebulous
> > economic advantages conferred by their status as
> > government entities.
Of course, this is exactly my point! No one has claimed “nebulous economic advantages.” Instead, I have claimed that the government bestows very distinct advantages on public entities that gives them a competitive advantage. Whether you think it appropriate or not, the Police are granted a competitive advantage (the ability to offer certain services that the private entities cannot). The same with public schools that get funding from everyone, rather than just the students.
And the same will likely be true of this new “Public Option”. It will be granted subsidies, get easier access to capital (as it is a GSE) and may even get protection by fiat (for instance, the government may mandate that all providers accept the public insurance or that everyone must pay a tax to the public entity).
> > I suggest you google the history of publically owned > > telecommunications and utilities in this company,
> > there is really too much ground to cover here.
I believe that I have responded in good faith to your arguments. I would ask that you do the same. You insist that there were examples of undesirable outcomes when public power/tellecom companies in California were made private. I don’t believe it is arguing in good faith to make an assertion and then be unwilling to back it up with facts that you know exist.
Jharp- this really seems to be a non-sequitir. Nobody is arguing that we should establish a private monopoly. But the legislation in question *is* trying to establish a public monopoly, if not in direct legislation then by results.
People like yourself insist that Health Insurers have a monopoly, but don’t provide any evidence. At my company, I can choose between a dozen plans and three different companies (Blue Cross, Aetna, Kaiser). Another post here noted around 1,000 insurers across the company. That is not a Monopoly.
And by the way, most market-oriented folk like KBH and Myself are calling for the elimination of employer-based health care, which would likely increase the number of competitors, as it would decrease the barriers to entry (people change plans far more often that companies).
The US is the leading medical and surgical innovator. Our pharmaceutical industry, surgical instrumentation, imaging technology, and advanced laboratory testing supply much of the world with scientific progress that would not otherwise exist. It is no coincidence that healthcare industries with heavy government presence do not offer the same access to the technologies we have in the US and fail to match our level of innovation. If you control prices, you eliminate profit. No profit means no incentive. Take away incentive and you fatally stifle productivity. What a shock! Your utopian system actually does have consequences.