The Parlous Public Option

by Megan McArdle
The Atlantic
27 Oct 2009

…The only way the public option saves money is by using fiat to slash reimbursement rates to some variation on Medicare reimbursements: Medicare +5%, +10%, or whatever rate they finally settle on. Otherwise, it’s unlikely that the thing will even compete on an even basis with private insurers, who have a lot more experience managing billing, claims experience, and negotiations with providers.

The problem is, Medicare doesn’t pay the average cost of providing services in many cases–in some cases, it doesn’t even pay the marginal cost of providing services. . . . But moral calumny aside, the thing about patients whose insurance doesn’t cover the average cost of treating them is that they cannot be 100% of your patient pool. Someone has to cover the cost of that MRI machine. If the public option does manage to crowd out other insurance–as it might well do, with the ability to dictate price controls–then suddenly, the public option won’t be cheap any more. Hello, fiscal crisis.

That’s the financial problem. Here’s the political problem: if you insert a strong public option, the providers will revolt.

You’ve already lost the insurers. Try to reimburse hospitals and doctors at Medicare + 5% for any large segment of the market, and you’ll lose them too. Health care reform is likely to survive the defection of the much-hated health insurance industry. I doubt there is any way at all that it survives negative ads from coalitions of doctors, hospitals, and other assorted healthcare workers. I don’t see Obama having much success getting on the radio one Saturday morning to complain that doctors are all a bunch of lying obstructionists…

The entire article is here.

Comments are closed.