You may have heard some opponents of ObamaCare discuss how a government-run public option health insurance plan will drive private insurers out of business. On the other hand, the same folks tend to argue that government generally offers services inferior to and less efficient than those offered by the public sector.
The two claims, taken at face value, appear to be contradictory. But a look at what goes into the health care bill offers some needed context. In fact, there are more than a dozen specific factors that might allow the government-run plan to price itself artificially below market.
Here are four of them:
(1) Reimbursement of Providers
Section 223 of the House Democrats’ health care bill directs the public option plan to pay Medicare rates for its first three years of operation. (Providers that accept Medicare, would receive Medicare rates plus five percent.) For most services, Medicare pays providers at rates are well below market rates, and sometimes below cost. Denis Cortese, national CEO of the Mayo Clinic, and Jeffrey Korsmo, executive director of Mayo’s Health Policy Center, wrote in a July op-ed that
[W]e consistently suffer huge financial losses due to the government price-controlled Medicare payment system, which financially punishes providers who offer higher quality care at a lower cost. Last year alone, Mayo Clinic lost hundreds of millions of dollars caring for Medicare beneficiaries…Because of this shortfall, our other patients pay more to make up the difference.
In other words, when government pays an artificially low price for services, as with Medicare, providers must gouge private insurance customers in order to make up the difference. The public option, to the extent that it is used and accepted, will expand this practice, making private insurance less and less competitive through cost-shifting.
Take President Obama’s erroneous comparison of the health care situation with the Postal Service and FedEx. He said that the Postal Service keeps private deliverers honest with their prices. Instead, imagine that the Postal service, by charging less, could somehow force FedEx to charge more.
(2) A start-up infusion of cash
Most start-up businesses, including insurers, need to obtain pricey loans. They pay high interest rates, put up collateral, and pay up-front administrative fees.
The public option, under the House Democrats’ bill, simply gets $2 billion from the Treasury. That money is repayable on an amortization schedule of ten years, but that doesn’t necessarily mean they will pay a market interest rate — or any interest rate at all.
(3) State Premium Taxes
The public option is specifically exempt from state taxes on insurance premiums, which private insurers are required to pay. The House Democrats’ bill treats the public option’s receipts the same way it exempts Medicare Part C premiums (Section 1854(g) of the Social Security Act).
(4) Coverage Requirements
Although the language of the House bill could just be poorly drafted, it does not appear to require the public option plan to live up to the same standards set for private insurers with qualified plans in terms of coverage — benefits, premiums, deductibles, etc. In fact, the language can be read as providing it a unique and specific exception. Here is how the Galen Institute’s John Hoff describes the language in a Heritage Foundation paper published today:
Section 100 states that the HHS Secretary, in connection with the government plan, “shall be treated as” offering an exchange-participating health benefits plan, and that “the term ‘qualified health benefits plan’ means a health benefits plan that meets the requirements for such a plan under title I and includes the public health insurance option.”
This language could be read as requiring private plans to meet certain requirements under Title I but not requiring the government to do so. Because “treated as” and “includes” are used to describe the government plan’s status, it might be argued that the government plan is not required to meet those requirements
In other words, the language appears, at least, to require that private plans qualify by merit while the public option qualifies automatically by statute.
