The American Medical Association has announced
its opposition to a public-sector health plan that would compete with private
insurers. Why? Because the AMA fears that Medicare E (for everyone) might not
pay some specialists as handsomely as private insurers do now. 

Why do private
insurers pay more? Because they can pass the cost along to you and I in the
form of higher premiums.  Medicare E has
no one to pass costs on to—except taxpayers. And taxpayers will already be helping
 to subsidize those who cannot afford
insurance.

Everyone agrees that
primary care physicians are underpaid. Democrats in both the House and the
Senate propose raising their fees, as does the Medicare Payment Advisory
Commission (MedPac)—the group that might take over setting fees for Medicare. 
Moreover, the House, the Senate,
President Obama and MedPac have made it clear that they do not favor the
across-the-board-cuts called for under the sustainable growth rate (SGR)
formula. Congress has consistently refused to make those cuts and President
Obama did not include them in the 2010 budget that he originally sent to
Congress.  On that score, the AMA has nothing
to worry about.  

Protecting
Excessive Fees for Some Specialists’ Services                        

So what does the AMA
fear? That either MedPac or Medicare will trim fees for certain specialists’
services.  Keep in mind that Medicare’s fee schedule has traditionally been set
–and adjusted on a regular basis, by the RUC– a committee dominated by
specialists.( Private insurers then follow that fee schedule, usually
paying somewhat more for each service.)  I have described this group in the past:  
They meet behind closed doors. No
minutes are kept of their meetings. They rarely suggest lowering fees—even
though as technology advances, some services become easier to perform. MedPac
has pointed out that a less biased group should be involved in determining fees—perhaps
physicians who work on salary, and are not affected by Medicare’s fee schedule.

There is good reason
to suspect that the RUC has over-rated the value of some services.. MedPac has
suggested taking a look at particularly lucrative tests or treatments that are
being done in large volume. Often, this may mean that patients who don’t need the
service are receiving it;  if the procedure isn’t necessary, then, by
definition, they are being exposed to risks without benefits.  And in fact, experience shows that when high fees
are trimmed, volume falls, suggesting that rich fees were, in fact, driving overtreatment.

In testimony before
the House Ways and Means Committee in April, Dr. Robert Berenson, a senior
fellow at the Urban Institute and a member of the MedPac panel offers an
example: 

“One of the more
successful cost-containing initiatives Medicare has used in recent years was
the 2005 Deficit Reduction Act which said that “fees for imaging services could
 not exceed the prices used for
reimbursement to outpatient hospitals” when the services were provided in other
places (i.e. doctors’ offices).  In the
first year under the new pricing structure, the U.S. Government Accountability
Office reported that overall costs were reduced by 13 percent.  But,
importantly, the decreased costs resulted not only from the price reductions
themselves but from moderation in the volume of imaging services paid for;
per-beneficiary utilization of imaging services, which has been rising about 6
percent per year from 2000 to 2006, continued to rise in 2007,  but at about half
the rate.”

The fact volume was
rising by 6% a year suggests overtreatment: it is hard to believe that patient
need for imaging was actually climbing at that rate. At the same time, volume
did continue to rise after fees were cut. If volume had fallen, one might worry
that  because of the fee cut doctors were
deciding it wasn’t worth their time to provide the service—and patients were
being denied a test that they needed. 
But the use of imaging services continued to rise by 3%.

Would
Medicare E Go Too Far in Trying to Contain Costs?

 In his testimony, Berenson went on to address
private insurers’ fears that a public plan would have the clout to effectively
overuse its potential market position to drive down prices to win the
competition. “This concern ignores the reality that the public plan in
competition with private plans has built-in restraints that limit action to
push down prices too low,” Berenson observed. “The Medicare experience is
instructive in this regard. As in Medicare, the public plan would have to
balance spending-growth restraint with the duty to preserve access to needed
care and the quality of that care. If
the public plan would aggressively move too strongly on the cost containment
side, individuals would be able to select from among the private plan options.
Ultimately, having a public plan competing with private plans would promote
useful competition. Private plans that offer better services and greater access
to providers, even at somewhat higher costs, would likely survive in this
competition.”

 Why A Public Sector Plan Would be More
Affordable

The
Commonwealth Fund’s Karen Davis estimates that a “Medicare-like public plan
would cost a family $8,424” (in 2008 dollars) “compared to $12,106 for a
typical employer-based  private plan.
This 30 percent reduction in premiums would go a long way toward making
coverage more affordable for small businesses and individuals,” Davis adds.

Why
would Medicare E cost so much less? In part, because it’s likely that while
raising fees for primary care physicians, it would follow MedPac’s
recommendations and trim fees for some specialists’ services. The partial draft of a plan
for health care reform released by Democrats on the Senate Health, Education,
Labor and Pensions Committee proposes that Medicare do just that, and probably
Medicare E would follow Medicare’s example. Medicare also plans to refuse to
pay hospitals for avoidable readmissions in hopes of encouraging hospitals to
do a better job of reducing hospital-acquired infections, and making sure that
patients understand their medications and have a follow-up appointment with a
doctor before they leave the hospitals. This is another example of how MedPac's
recommendations for cutting costs focus on protecting patients, and lifting the
quality of care. Again, Medicare E would 
be likely to follow suit. (For an excellent discussion of readmissions
see Wachter’s World  (Bob Wachter is Chief of the Division of Hospital Medicine  and Chief of the Medical Service at UCSF
Medical Center.) 

But not all of Medicare E’s savings would come
from refusing to pay for unnecessary or poor quality care–not by a long shot.
Lower administrative costs also would make Medicare E less costly. The public sector plan would not have to
generate profits for investors, invest large sums in lobbying and marketing, or
pay executives enormous salaries.

Without a Public Sector Option, Subsidies Won’t
Be Sufficient

Today,
an employer -based family plan costs the employee and employer an average of
$13,000.  Under universal coverage,
families who do not have employer-based insurance would be required to buy
insurance out of pocket. (Senate Democrats propose allowing for “hardship”
exceptions, but it is safe to assume that they would be few and far between.)

Some families would receive help in the
form of a subsidy from the government. The Senate
Democrats rough draft for reform says that the government would pitch in to
help pay the premium if a family’s joint gross income is less  than five times the federal
poverty level—about $110,000 for a family of four.  Under the House
proposal, a person would be eligible
for a subsidy only if he or she earned less
than four times the poverty level –for an individual that’s
$43,320 a year. A family of four earning up to $88,200, would qualify for a
subsidy. A family of three would receive
help only if joint income was less than roughly $73,000; for a couple the limit
would be $58,000. All subsidies would be on a sliding scale; if you earned only
$5,000 less than the limit, the subsidy would be relatively small.

In the end, the less generous House plan
providing subsidies on incomes up to four times the federal poverty limit is
likely to carry the day.

Massachusetts offers subsidies up to only three times the federal poverty level,
and that wealthy state is having a difficult time trying to cover all of its
citizens.

So assume, for a moment, that the House
formula becomes law. A family of three living on a joint income of $75,000
would be on their own. Meanwhile, the average private sector plan would cost
them  $13,000 —roughly 17% of
their  income, before scraping together
the dollars to pay a deductible and co-pays.

A family of three earning $65,000 would
receive a subsidy, but keep in mind, subsidies would  be set on a sliding scale. Let’s say that
family received a subsidy of $3,000—it still would have to come up with $10,000
in premiums.

Of course $13,000 is the “average” cost
for a family plan. A family could choose a less expensive private sector
plan—which means it would have less coverage than the average American who has
a employer-based insurance. How much less? It’s hard to say. The private plans
offered under the Federal Employees Health Benefit vary widely—there’s a “plan
for every pocketbook,” as they say. Some
high-deductible plans carry a deductible of $10,000.  But according to Consumer Reports, steep deductible
cause middle-class and low-income families to defer going for necessary
treatment. This isn’t what most people have in mind when they talk about “universal
coverage.”

If a public sector family plan were  available, carrying a price tag of roughly $8,500,
that family of three earning $75,000 would be spending a little over 11% of its
income on insurance– making a comprehensive plan with a reasonable deductible much
more affordable. (In Massachusetts, households are expected to spend 10% of their gross income on
healthcare before receiving help from the state.)

As these numbers suggest, universal
coverage will not be cheap. But Democrats propose providing subsidies not only
for low-income households, but for the statistical middle-class (those on the
third rung of the nation’s five-rung income ladder.) Some families who are,
statistically speaking, upper-middle class (on the second rung from the top)
also will receive help. But unless we have a public-sector option, those
subsidies will quickly become too rich for taxpayers.

Why? Because we can assume that the cost
of private-sector insurance will continue to climb faster than wages–unless
the government tells private insurers that they cannot raise premiums without
permission from the government (which seems unlikely). The only way to be
certain of an affordable option is to  have a government plan that is focused on
removing the waste from our healthcare system. No one would be forced to sign
up for Medicare E, but without it, many middle-class Americans just won’t be
able to afford decent coverage.