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Tuesday, August 18, 2009


In defense of incrementalism on healthcare, Kevin Drum points out the decades-long long timeline required for the French system to get where it is. One very knowledgeable commenter to this entry – he identifies himself as “Bruce Webb,” who, if it is the same person as the person of that name who runs his own policy website, is someone who really understands and can articulate the issues in the Social Security “debate” -- explains why the “public option,” while important and worth continuing the fight for, is not theoretically necessary to avoid the doomsday price-collusion scenarios many on the left, including even Krugman, are predicting if the public option is not adopted now. Everyone with an interest in this particular issue – in making sure we are focusing on substance more than the symbolism of victory -- should understand what Section 116 of the House bill means.

Incrementalism and Triggers

Submitted by Bruce Webb (not verified) on August 18, 2009 - 12:38pm.

I don't think people are fully aware of the profit controls built into the House version of the bill particularly in Sec 116. And they are pretty easily enforced, you take one readily obtainable number of premiums collected, divide it by the amount of dollars actually spent on medical care, and you get your 'medical loss ratio'. If it falls below a percentage set by the Health Choices Commissioner companies have to rebate the difference. So to that extent the Obama people (who I suspect have actually read and understand the bill) are right and many of the doom-sayers are wrong, you don't need the PO to contain premium increases. Which is not to say that the Public Option is not critically important, without it you have the constant danger of agency capture and some future Commissioner bending over backwards to lower the acceptable medical loss ratio and so boost profits for the privates. That is the point where the PO provides a backstop in the form of comparable cost, if the Commissioner gets gamed by the privates the PO just grabs the customer based on premium savings as the privates price themselves out of the market. Ultimately the PO helps avoid Bush-style crony capitalism.

But over the short run the controls established in Secs 111-116 prevent most of the doomsday scenarios being pushed in the left blogosphere that have 50 million helpless Americans delivered into the maw of the insurance companies because of the mandate. So the world would not come to an end if we had a bill without a public mandate, and it might make it easier to get to single-payer by incrementally expanding Medicaid to higher percentages of the poverty level and Medicare to lower age cohorts.

The real reason we need the PO now is because Republicans are right, the House bill takes all the fun out of being a private health insurer. Instead of paying for your lobster and private jet by devising ever more elaborate ways to screw over people by denying them care, you actually have to supply value per dollar of premium. It is not that private companies won't be able to compete, it is just that investors will flee for greener pastures with better (meaning more predatory) margins. As private companies abandon markets (as they did as the HMO model faded) the PO provides a landing place.

But starting from the principle of universal access and a single risk pool is not a terrible place to be for the first couple of years.

It's also worth pointing out to the doomsayers who threaten to pick up their marbles and go home if the new system is not "single payer," that the French, German and Swiss systems, all of which are significantly less costly than ours and are generaly believed to work very well, depend heavily on private insurance. As with the essence of the Obama plan, the main elements are a universality mandate, regulation of policies (e.g., no denial or price discrimination for pre-existing conditions) and assistance for those who need it to get coverage.

I added the following comment to Drum's post:

Almost everyone continues to underestimate grossly the cost-control effect of universal insurance: of doctors and hospitals knowing when the patient shows up at the door that they will be paid, by whom and when, and of insurance companies no longer looking for pre-existing conditions. A massive part of the thing we cavalierly call "administrative waste" is the machinery needed to collect payment -- as evidenced by the reports of the Duke University Medical Center needing 800 billing administrators for an 800-bed hospital. The waste in digging for and fighting over alleged pre-existing conditions is a gigantic waste, too.

If we can split off the public option with an immediate bill passed by the Dingell-Waxman committee in order to get universal insurance without any effect from pre-existing conditions, we could then galvanize public opinion on the need not to let insurance companies have free pricing rein.

If the Democratic leadership can force a commitment from the Blue Dogs not to assist the Republicans in preventing a majority vote on the bill itself, there are enough votes to pass a bill with the public option. If we can get that -- and it will be a popular feature once it is in place and the majority of Americans finally understand what it is -- by all means we should. But I am in the "trust Obama" mode. We were all afraid he was getting too wimpy in the face of right-wing irrationality before the election, and we know how that turned out. We are seeing the best punches they can throw at it, and in the long-run, because they are so ridiculous, they will not stand up. Sarah Palin had 59% approval a year ago. Now she's down to the hardcore 37%. It does happen.


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