Monday, August 3, 2009

A Public Plan Worst Case Scenario

President Obama has "steadfastly" favored a public plan because it’s supposed to keep “the insurance companies honest.” The Disease Management Care Blog needs to better understand what our Chief Executive means by ‘honest.’ It suspects he means not gouging unsuspecting consumers with low quality and high premiums.

Quality? Years back, the DMCB recalls dealing with a large employer group that ended up buying a competing plan. The difference was that my company pitched a plan with first dollar coverage of colon cancer screening with some other preventive care benefits, while the competition offered a more stripped down insurance plan without any meaningful coverage for cancer screening.

We lost out over price. The cheaper plan won out over a few dollars per member per month.

That’s why the DMCB thinks amount of the monthly premium level is the first, the second and the third most important factors used by consumers when it comes to buying health insurance. So, whether the President knows it or not, the competition between the proposed public plan option and the private insurers is very likely to hinge on price.

Which may be what he and the other proponents of the public plan want all along. After all, a public plan will be able to dictate terms to providers, carry far less administrative overhead and not have to worry about additional cost shifting to the private insurers.

A worse case scenario? Competing private insurers will retrench by:

a) looking for other complex regulatory loopholes and cozy relationships that permit continuing bad behavior: even stricter interpretation of the medical benefit (denials), tougher contracting with providers (low ball fee schedules) and more aggressive underwriting whenever they can get away with it. Think the arms race, gamesmanship and bombast between the politicians and private insurers will cease with the passage of an HR 3200? Think again.

b) additional consolidation by health insurers into polyglot multi-state behemoths that have the kind of huge surpluses, investment income and other lines of business that generate the cash flow necessary to fight back against a low cost public insurer. Many small not-for-profit regional insurance plans will be assimilated by the too-big-to-fail insurance Borg.

c) offering a benefit package that is similar to the public plan. Private insurers won’t be able to get away with offering a poorer benefit (no one will buy it if the public plan offers more coverage) or offering a richer benefit (because it will be more expensive and priced out of contention). Health insurance consumers will have a choice of any benefit plan they want, so long as it’s patterned after the vanilla public plan.

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