CBO: Public option insurance premiums will be higher than private insurance premiums!

[Better Believe It]

CBO: Public option premiums higher than private plans
Politico
October 29, 2009

The public insurance option would typically charge higher premiums than private plans available in the exchange, according to the Congressional Budget Office analysis of the House bill.

That surprising conclusion raises doubts about Democratic promises that a government-run insurance plan would provide a lower-cost alternative to consumers. At the same time, it calls into question Republican charges that the plan amounts to government takeover of health insurance -- because only 6 million people would enroll in the plan, according to the CBO.

Here's the key passage from page 6:

Roughly one-fifth of the people purchasing coverage through the exchanges would enroll in the public plan, meaning that total enrollment in that plan would be about 6 million.

That estimate of enrollment reflects CBO’s assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)

http://www.politico.com/livepulse/1009/CBO_Public_option_premiums_higher_than_private_plans.html#

[Romulox]

1. What a tremendous swindle this is turning out to be... nt

[Garam_Masala]

35. Don't forget he is playing 3-Dimensional chess

getting the foot in the door so to speak.
Then he will expand it gradually to single payer.

[no_hypocrisy]

2. Then private insurance has nothing to bitch about if theirs will be bargains by comparison.

[Kurt_and_Hunter]

3. And that is why medicare+5 was so important

Ugh. I hate saying "was"...

A public plan is only cheaper if it either cherry-picks participants or is huge.

Since cherry-picking misses the whole point of the thing it has to be huge.

A PO that doesn't cover hardly anyone has no bargaining power.

The private insurers get the profitable healthy through mandates while the sick are sluffed onto a PO.

[geek tragedy]

4. It may not be dead, but in order for it to have any chance

there will have to be some revising of Medicare rates, which will cost money.

The real tricky question for a public option is: when should it deny coverage? In other words, it will need some mechanisms to prevent frivolous or uneconomical usage, but at the same time avoiding the practices of the insurance industry which denies good claims out of greed.

[Kurt_and_Hunter]

7. This is like Amtrak

The government takes over all the unprofitable rail-passages while leaving the many profitable ones alone.

Then it is "demonstrated" that the government cannot run anything because Amtrak is unprofitable.

Same thing with the post office... start with a mandate that people be able to send a letter anywhere in the US for 5-10% what FedEx would charge and then deride the post office for losing money every year.

[geek tragedy]

9. Are there profitable interstate train lines?

The only interstate passenger trains I'm familiar with are Amtrak and the NJ Transit/Metro North lines in the NYC area.

I think that opening the exchanges and by extension the public option to everyone is a no-brainer.

Unfortunately, the unions oppose that, which is a big problem.

[Kurt_and_Hunter]

14. Not passenger. brain-lock. You're quite right.

There may be some profitable private commuter lines somewhere but I should have said profitable uses, not lines.

I was thinking of freight versus passengers... if the government had taken over the railways entirely it wouldn't be a big loser because freight is still profitable.

But we only get the sectors that can't make money... and then their failure is attributed to government incompetence.

(Which it is, actually. Our government is incompetent at picking what to nationalize!)

[geek tragedy]

15. The question of course is when does nationalization

improve the service and value for the citizenry?

In the case of health care, it seems pretty clear that nationalization would be a vast improvement.

In the case of phone service, the verdict from places that have tried state telephone companies is that it's a bad idea

[Kurt_and_Hunter]

18. Agreed. And I am a fan of capitalism generally

But, as you note, health-care is not a normal industry.

Should, at very least, be a bunch of competing but regulated utilities.

[Better Believe It]

5. Will the public plan have higher premiums than private insurance?

Will the public plan have higher premiums than private insurance?

I've been saying that a public option with negotiated rates probably won't post much of a price advantage against private insurers. But according to the Congressional Budget Office, that's an overoptimistic take. The public option's premiums, they say, will actually be more expensive than private insurance:

To translate some of that back into English, the public plan will pay prices equivalent to those of private insurers and may save a bit of money on administrative efficiencies. But because the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more. The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else.

The nightmare scenario, then, is that private insurers cotton onto this and accelerate the process, implicitly or explicitly guiding bad risks to the public option. In theory, the exchanges are risk-adjusted, and the public option will be given more money if it ends up with bad risks, but it's hard to say how that will function in practice.

Insofar as the public option has been presented as a big part of the answer to our health-care woes, it's been in part because it won't do the things that make insurers unpopular (the saying "no"), and in part because it will control costs. But the only way to make both those things true at once is to give the public option pricing power along the lines of Medicare, which it doesn't have in either the House or Senate bills.

This, in sum, is why I'm pessimistic on the chances for the public option to substantially affect the insurance market. Pricing power was always the biggest piece, but when that was lost those many months ago, expectations for the public option never really changed. That was necessary for keeping people excited, but I worry it's going to leave folks disappointed with the policy, and thus skeptical of public insurance more generally, which would be unfounded.

That isn't to say that the public option can't still do some real good, as I argue here. But there's also a chance for it to become a real disaster. The most important factor here will be the strength of the risk adjustment in the exchanges, so keep an eye on that.

Read the complete article at:

http://voices.washingtonpost.com/ezra-klein/2009/10/wil_lthe_public_plan_have_high.html?hpid=topnews

[inna]

11. UNbelievable.

:banghead:

[Whisp]

6. i';m not much of a chess player because its difficult for me to see moves ahead...

but wouldn't the new anti-trust laws affect anything here?

if there were true competition the pricing from insurance companies Should lower, and if they are lower than the public option, its still savings...

too deep for me I guess. too many stories flooding from every direction.

[MarjorieG]

8. Saying srill deficit reducing, but premiums higher?

[quantass]

10. And that is why Stock Prices have been skyrocketing in the Health sector. nt

[joeycola]

12. Oh crap. More bad news.

[ej510]

13. This bill needs to be voted down.

[phleshdef]

16. The problem with this stupid assumption is it doesn't give a solid estimate on PO cost.

If the PO premium is lower than current premiums and private companies competing in the exchange end up charging less, then thats actually a good thing.

[ej510]

17. This public option is designed to fail.

[glitch]

28. Fail - unless the true ultimate goal is to privatize (eliminate via health ins vouchers) Medicare.

Why else hire its proponent (Zeke Emanuel) as a HCR adviser?

"Emanuel wants everyone in the US to be eligible for a voucher that could be exchanged for medical coverage, funded by the value-added tax. Insurers would be mandated to take all applicants, and people who wanted a more generous policy could pay extra.
Different Plan
There would be no need for Medicaid, the public plan for the poor, because everyone would get a voucher worth the same amount. Over time, Medicare, the federal health plan for the elderly and disabled, also would be phased out."

http://www.truthout.org/030509HA

[uponit7771]

19. CBO doesn't tell the PubOptions effect over time just in the initial phases because it'll take the..

...place of HRPs

[andym]

20. The key seems to be that the public option will provide more services

Here is the key phrase: "probably engage in less management of utilization by its enrollees"

That will attract people who want/need more medical services.
I certainly would be interested for myself. Who wants to be "managed" by their insurer? (In fact this is one of the great unsolved issues in health care today)

Since the costs will be subsidized for many, then the public option will become the most popular.
Eventually this will result in cost reduction. But it will need > 30-40 million to do that without the Medicare+5.

[NorthCarolina]

21. Scrap it for now, begin a purge of Blue Dogs and DLC, and replace them with True PROGRESSIVES

then come back and get a plan like HR 676. Maybe we can throw in term limits and campaign finance reforms to boot.

[andym]

22. Won't happen until we replace the blue dogs' constituents with progressive voters. nt.

[depakid]

23. "would probably engage in less management of utilization by its enrollees"

In other words- broader coverage with less hassle involved with approval for medical procedures ordered by physicians.

[vaberella]

31. Thanks for the info depakid. n/t

[janx]

36. It's so nice to see a translator on this thread!

I'll bet you've read "Politics and the English Language" by Orwell, no? :hi:

[mkultra]

48. and a broader range of payable procedures

[Phx_Dem]

24. Many employers pay a portion of their employees health care so

is stands to reason that anyone who wanted to switch from their employer-sponsored plan would end up paying more. I'm surprised anyone is surprised by this.

[kestrel91316]

25. Here's the bottom line for me: if I can't afford the premiums, I'm simply

not going to have insurance, no matter what name it goes by or who runs it. They'll have to throw my ass in jail or debtor's prison, because I'm NOT becoming homeless so I can have medical "insurance".

[Better Believe It]

26. You'll be fined!

[kestrel91316]

37. So, I'll be fined. And I STILL won't have access to medical care

without risking bankruptcy.

No money = no coverage.

[optimator]

27. LOL

I give up

[Hutzpa]

29. This is a BS story... period. n/t

[Better Believe It]

32. Once again you're 100% wrong. Read the CBO report.

[Better Believe It]

33. Duplicate Deleted

Deleted

[janx]

30. For whom?

I've read the quote posted by Carrie Budoff Brown, but it's not clear.

"probably be comparable"

"probably engage in less management of utilization"

"(The effects of that 'adverse selection' on the public plan’s premiums would be only partially offset by the 'risk adjustment' procedures that would apply to all plans operating in the exchanges.)"

Furthermore, these quotes don't come from the Congressional Budget Office. There's no source listed. Where do these quotes come from--the House Bill?

The extensive and unnecessary use of quotation marks, used for cynical purposes, only makes me question this more.

[Better Believe It]

34. It's clear. Perhaps you should read the CBO report if you distrust the article .

You wrote: "these quotes don't come from the Congressional Budget Office. There's no source listed. Where do these quotes come from--the House Bill?"

You're wrong on both counts!

The writer cited the CBO as the source and contrary to your claim the quotes do in fact come from the CBO.

Check out page 6 of the 27 page report which the writer quoted.

http://www.cbo.gov/ftpdocs/106xx/doc10688/hr3962Rangel.pdf

Now .... what were you saying???

[janx]

38. Sorry, but it was an excerpt, and there was no link from the blogger.

I appreciate your providing me with one so that I could read the excerpt in context, which outlines that the excerpt is referring to people who are already insured via their employers.

[johnaries]

39. I just read the full report, and there is a major flaw with that assumption.

The assumption is that it would "attract a less healthy pool of enrollees." However, the report also recognizes that " insurers would have to accept all applicants, could not limit coverage for preexisting medical conditions, and could not vary premiums to reflect differences in enrollees’ health." (page 4). If they have to accept all applicants, then there would be no reason for the PO to "attract a less healthy pool" since the "less healthy" can choose any plan they want - Public or private.

Now, it is possible that private companies will offer lower premiums than the PO simply out of competition. The only other option for competition is increasing coverage by lowering deductibles and co-pays.

Which is the whole reason for the PO in the first place. Increased competition to lower prices and/or increase coverage.

[bunnysoft]

40. We should email factcheck.org and ask them to fact-check Politico's statement

[e-mail]

[Better Believe It]

41. Sounds good to me. Sure you don't also want to "fact check" the CBO Report?

:)

[bunnysoft]

42. The CBO are the experts, not some Politico pundit

Factcheck.org relies on the words of independent sources in the form expert individuals and groups such as the CBO.

CBO either said that the public option will be more expensive than private insurance, or it didn't.

[Better Believe It]

44. So you don't question the CBO's claim that public health insurance premiums

could cost more than private health insurance premiums?

In case you didn't notice, that was the central point made in the Washington Post article.

You did read the Washington Post article .... isn't that right .... hello .... you did read the second article posted.

Didn't you?

Yes?

[bunnysoft]

45. Oh. Now "will" has transformed into "could"

Looks like asking for a fact-check is an even better idea than I thought. The title of this thread asserts that the public option will be costlier.

[Better Believe It]

47. It will be unless it's change and could be if the public option is made "robust".

And it won't be if it's a genuine public option open to all.

Too difficult to understand?

[johnaries]

46. Actually, the CBO report does say the PO would be more

expensive. It is the CBO analysis assumptions that I am questioning. Politco was actually right - this time!

edit to clarify: Politico was right about what the CBO actually said, but that does NOT mean that the competing private options in the exchange would not be cheaper than current premiums. Also, as I pointed out earlier, the assumption that the PO would "attract less healthy people" is contradicted by the report itself since no one can be turned down for the private plans and because of other restrictions placed on participating suppliers. In fact, the only reasonable assumption that the PO would be more expensive is that the private companies would use competitive pricing - which is the whole purpose of the PO in the exchange.

Also, Politico selectively left out some very important aspects - such as that eligibility for Medicaid will be greatly expanded.

Overall, the CBO report was very positive.

[madamesilverspurs]

43. Politico. Take with giant grain of salt.

[mayya]

49. Big Insurance actually wants health insurance "reform"

Why does UnitedHealthcare (#21 in the Fortune 500) support the insurance "reform" plans coming out of Congress? Obviously, there is something wrong with thhis scenario. It is all about a corporate power grab.