Bait and switch: How the "public option" was sold
by Kip SullivanPosted by Andrew Coates, MD on Monday, Jul 20, 2009
http://www.pnhp.org/blog/2009/07/20/bait-and-switch-how-the-%E2%80%9Cpublic-option%E2%80%9D-was-sold/
The people who brought us the "public option" began
their campaign promising one thing but now promote
something entirely different. To make matters worse,
they have not told the public they have backpedalled.
The campaign for the "public option" resembles the
classic bait-and-switch scam: tell your customers
you've got one thing for sale when in fact you're
selling something very different.
When the "public option" campaign began, its leaders
promoted a huge "Medicare-like" program that would
enroll about 130 million people. Such a program would
dwarf even Medicare, which, with its 45 million
enrollees, is the nation's largest health insurer,
public or private. But today "public option" advocates
sing the praises of tiny "public options" contained in
congressional legislation sponsored by leading
Democrats that bear no resemblance to the original
model.
According to the Congressional Budget Office, the
"public options" described in the Democrats'
legislation might enroll 10 million people and will
have virtually no effect on health care costs, which
means the "public options" cannot, by themselves, have
any effect on the number of uninsured. But the leaders
of the "public option" movement haven't told the public
they have abandoned their original vision. It's high
time they did.
The bait
"Public option" refers to a proposal, as Timothy Noah
put it, "dreamed up" by Jacob Hacker when Hacker was
still a graduate student working on a degree in
political science. In two papers, one published in 2001
and the second in 2007, Hacker, now a professor of
political science at Berkeley, proposed that Congress
create an enormous "Medicare-like" program that would
sell health insurance to the non-elderly in competition
with the 1,000 to 1,500 health insurance companies that
sell insurance today.
Hacker claimed the program, which he called "Medicare
Plus" in 2001 and "Health Care for America Plan" in
2007, would enjoy the advantages that make Medicare so
efficient - large size, low provider payment rates and
low overhead. (Medicare is the nation's largest health
insurance program, public or private. It pays doctors
and hospitals about 20 percent less than the insurance
industry does, and its administrative costs account for
only 2 percent of its expenditures compared with 20
percent for the insurance industry.)
Hacker predicted that his proposed public program would
so closely resemble Medicare that it would be able to
set its premiums far below those of other insurance
companies and enroll at least half the non-elderly
population. These predictions were confirmed by the
Lewin Group, a very mainstream consulting firm. In its
report on Hacker's 2001 paper, Lewin concluded Hacker's
"Medicare Plus" program would enroll 113 million people
(46 percent of the non-elderly) and cut the number of
uninsured to 5 million. In its report on Hacker's 2007
paper, Lewin concluded Hacker's "Health Care for
America Plan" would enroll 129 million people (50
percent of the nonelderly population) and cut the
uninsured to 2 million.
Until last year, Hacker and his allies were not the
least bit shy about highlighting the enormous size of
Hacker's proposed public program. For example, in his
2001 paper Hacker stated:
[A]pproximately 50 to 70 percent of the non-elderly
population would be enrolled in Medicare Plus.... Put
more simply, the plan would be very large.... [C]ritics
will resurface whatever the size of the public plan.
But this is an area where an intuitive and widely held
notion - that displacement of employment-based coverage
should be avoided at all costs - is fundamentally at
odds with good public policy. A large public plan
should be embraced, not avoided. It is, in fact, key to
fulfilling the goals of this proposal. (page 17)
In his 2007 paper, Hacker stated:
For millions of Americans who are now uninsured or lack
... affordable work place coverage, the Health Care for
America Plan would be an extremely attractive option.
Through it, roughly half of non-elderly Americans would
have access to a good public insurance plan.... A single
national insurance pool covering nearly half the
population would create huge administrative
efficiencies. (page 5)
Hacker's papers and the Lewin Group's analyses of them
have been cited by numerous "public option" advocates.
For example, when Hacker released his 2007 paper,
Campaign for America's Future (CAF) published a press
release praising it and drawing attention to the large
size of Hacker's proposed public program. The release,
entitled "Activists and experts hail Health Care for
America plan," stated:
Detailed micro-simulation estimates suggest that
roughly half of non-elderly Americans would remain in
workplace health insurance, with the other half
enrolled in Health Care for America.... A single national
insurance pool covering nearly half the population
would create huge administrative efficiencies.... Because
Medicare and Health Care for America would bargain
jointly for lower prices ..., they would have enormous
combined leverage to hold down costs.
When the Lewin Group released its 2008 analysis of
Hacker's 2007 paper, CAF's Roger Hickey wrote in the
Huffington Post, "efficiencies achievable ... through
Hacker's public health insurance program" would save so
much money that the US could "cover everyone" for no
more than we spend now.
The switch
Now let's compare the "single national health insurance
pool covering nearly half the population" that Hacker
and other "public option" advocates enthusiastically
championed with the "public option" proposed by
Democrats in Congress, and then let's inquire what
Hacker and company said about it.
As readers of this blog no doubt know, the Senate
Health, Education, Labor, and Pensions (HELP)
Committee, and three House committee chairman working
jointly, published draft health care "reform" bills in
June. (The third committee with bill-writing authority,
the Senate Finance Committee, has yet to produce a
bill.) According to the Congressional Budget Office,
the "public option" proposed in the House
"tri-committee" bill might insure 10 million people and
would leave 16 to 17 million people uninsured. The
"public option" proposed by the Senate HELP committee,
again according to the Congressional Budget Office, is
unlikely to insure anyone and would hence leave 33 to
34 million uninsured. The CBO said its estimate of 10
million for the House bill was highly uncertain, which
is not surprising given how vaguely the House
legislation describes the "public option."
Here is what the CBO had to say about the HELP
committee bill:
The new draft also includes provisions regarding a
"public plan," but those provisions did not have a
substantial effect on the cost or enrollment
projections, largely because the public plan would pay
providers of health care at rates comparable to
privately negotiated rates - and thus was not projected
to have premiums lower than those charged by private
insurance plans. (page 3)
Obviously the "public option" in the Senate HELP
committee bill (zero enrollees; 17 million people left
uninsured) and the "public option" in the House bill
(10 million enrollees (maybe!); 34 million people left
uninsured) are a far cry from the "public option"
originally proposed by Professor Hacker (129 million
enrollees; 2 million people left uninsured). Have we
heard the Democrats in Congress who drafted these
provisions utter a word about how different their
"public options" are from the large Medicare-like
program that Hacker proposed and his allies publicized?
What have Professor Hacker and his allies had to say?
In public comments about the Democrats' "public option"
provisions, the leading lights of the "public option"
movement imply that Hacker's model is what Congress is
debating. Sometimes they come right out and praise the
Democrats' version as "robust" and "strong." But I
cannot find a single example of a a statement by a
"public option" advocate warning the public of the vast
difference between Hacker's original elephantine,
"Medicare-like" program and the Democrats' mouse
version.
For example, on June 23, Hacker testified before the
House Education and Labor Committee that "the draft
legislation prepared by [the] special tri-committee
promises enormous progress." He went on to enumerate
all the benefits of a "public option." Yet the House
tri-committee proposal bore no resemblance to the
public plan he described in his papers and that the
Lewin Group analyzed. Later, when Kaiser Health News
asked Hacker in a July 6 interview why "your signature
idea - a public plan - has become central to the health
care reform debate," Hacker again praised his "public
plan" proposal and offered no hint that the "public
option" so "central to the debate" was very different
from the one he originally proposed.
Ditto for Hacker's allies. Representatives of Health
Care for America Now (HCAN), the organization most
responsible for popularizing the "public option,"
repeatedly describe the House and Senate HELP committee
bills as "strong" or "robust," always without any
justification for this claim, and have repeatedly
failed to warn the public that the "public options"
they promote today are mere shadows of the "public
options" they endorsed in the past. On July 15, the day
the HELP committee passed its bill, Jason Rosenbaum
blogged for HCAN:
The Senate HELP Committee has just referred a bill to
the floor of the Senate with a strong public option.
Searching the websites of the organizations that serve
on HCAN's steering committee - AFSCME, Democracy for
America, Moveon.org and SEIU, for example - one will
find not a shred of information that would help the
reader comprehend how small and ineffective the "public
options" proposed in the Democrats' bills are, nor how
different these are from the one Hacker originally
proposed. Yet these groups continue to urge their
members and the public to "tell Congress to support a
public option."
Hacker's original model compared with the Democrats'
mouse model
It has become fashionable among advocates of a "public
option" to trash the expertise and the motives of the
Congressional Budget Office. But the CBO's
characterization of the "public option" proposed in the
Democrats' legislation is entirely reasonable. This
becomes apparent the moment we compare Hacker's
blueprint for his original "Medicare Plus" and "Health
Care for America" programs with the "blueprints" (if
tabula rasas can be called "blueprints") contained in
the Senate HELP Committee and House bills.
Hacker's papers laid out these five criteria that he
and the Lewin Group said were critical to the success
of the "public option":
* The PO had to be pre-populated with tens of millions
of people, that is, it had to begin like Medicare did
representing a large pool of people the day it
commenced operations (Hacker proposed shifting all or
most uninsured people as well as Medicaid and SCHIP
enrollees into his public program); * Subsidies to
individuals to buy insurance would be substantial, and
only PO enrollees could get subsidies (people who chose
to buy insurance from insurance companies could not get
subsidies); * The PO and its subsidies had to be
available to all nonelderly Americans (not just the
uninsured and employees of small employers); * The PO
had to be given authority to use Medicare's provider
reimbursement rates; and * The insurance industry had
to be required to offer the same minimum level of
benefits the PO had to offer.
Hacker predicted, and both of the Lewin Group reports
concluded, that if these specifications were met
Hacker's plan would enjoy all three of Medicare's
advantages - it would be huge, it would have low
overhead costs, and it would pay providers less than
the insurance industry did. As a result, the "public
option" would be able to set its premiums below those
of the insurance industry and seize nearly half the
non-elderly market from the insurance industry.
According to the Lewin Group's 2008 report, Hacker's
version of the "public option" would, as of 2007:
* Enroll 129 million enrollees (or 50 percent of the
non-elderly); * Have overhead costs equal to 3 percent
of expenditures; * Pay hospitals 26 percent less and
doctors 17 percent less than the insurance industry
(but these discounts would be offset to some degree by
increases in payments to providers treating former
Medicaid enrollees); and, * Set its premiums 23 below
those of the average insurance company.
I question some of Hacker's and the Lewin Group's
assumptions, including their assumption that any public
program that has to sell health insurance in
competition with insurance companies could keep its
overhead costs anywhere near those of Medicare
(Medicare is a single-payer program that has no
competition), especially during the early years when
the public program will be scrambling to sign up
enrollees. A public program will have to hire a sales
force and advertise. It will have to open offices. It
will have to negotiate rates, and perhaps contracts,
with thousands of hospitals and hundreds of thousands
of clinics, chemical treatment facilities, rehab units,
home health agencies, etc. Or it will have to contract
with someone to do all that. But I have little doubt
that if a public program were to open with a large
enough customer base, and it had the advantage of a law
requiring that only its customers receive substantial
subsidies, it could do what the Lewin Group said it
could do.
Now let us compare Hacker's original model with the
mousey "public options" proposed by the Senate HELP
Committee and the House. Of Hacker's five criteria,
only one is met by these bills! Both proposals require
the insurance industry to cover the same benefits the
"public option" must cover. None of the other four
criteria are met. The "public option" is not
pre-populated, the subsidies to employers and to
individuals go to the "public option" and the insurance
industry, employees of large employers cannot buy
insurance from the "public option" in the first few
years after the plan opens for business and maybe never
(that decision will be made by whoever is President
around 2015), and the "public option" is not authorized
to use Medicare's provider payment rates. (The House
bill comes the closest to authorizing use of Medicare's
rates; it authorizes Medicare's rates plus 5 percent).
Is it any wonder the CBO concluded the Democrats'
"public option" will be a tiny little creature
incapable of doing much of anything? More curious is
that CBO gave the House "public option" any credit at
all (you will recall CBO said it would enroll maybe 10
million people). The CBO should have asked, Can the
"public option" - as presented in either bill -
survive?
Put yourself in the "public option" director's shoes
To see why the "public option" proposed by
congressional Democrats remains at great risk of
stillbirth, let's engage in a frustrating thought
experiment. Let's imagine Congress has enacted the
House version (it is not quite as weak as the HELP
Committee model and thus gives us the greatest
opportunity in our thought experiment to imagine a
scenario in which the "public option" actually survives
its start-up phase). Let us imagine furthermore that
you have been foolish enough to apply for the job of
executive director of the new "public option," and the
Secretary of the Department of Health and Human
Services (the federal agency within which the program
will be housed) decided to hire you. It's your first
day on the job.
You know the House bill did not create a ready-made
pool of enrollees for you to work with the way the 1965
Medicare law created a ready-made pool of seniors prior
to the day Medicare commenced operations. You realize,
in other words, that you represent not a single soul,
much less tens of millions of enrollees. You will have
to build a pool of enrollees from scratch. You also
know the House bill authorized some start-up money for
you, so you'll be able to hire some staff, including
sales people if you choose. You can also open offices
around the country, and advertise if you think it
necessary. But you know you can't pay out too much
money getting the "public option" started because the
House bill requires that you pay back whatever start-up
costs you incur within ten years. In other words, you
may hire enough people and open enough offices and buy
enough advertising to create a critical mass of
enrollees nationwide, but you must do it quickly so
that your start-up costs don't sink the "public option"
during its first decade.
The only other feature in the House bill that appears
to give you any advantage over the insurance industry
is the provision requiring you to use Medicare's rates
plus 5 percent, which essentially means you are
authorized to pay providers 15 percent less than the
insurance industry pays on average. But the House bill
also says providers are free to refuse to participate
in the plan you run.
So what do you do? Let's say you open offices in dozens
or hundreds of cities, you hire a sales force to fan
out across the country to sign up customers, you
advertise on radio and TV to get potential customers
(employers and individuals) to call your new sales
force to inquire about the new "public option"
insurance policy. What happens when potential customers
ask your salespeople two obvious questions: what will
the premium be and which doctors they can see? What do
your employees say? They can't say anything. They
haven't talked to any clinics or hospitals about
participating at the 15-percent-below-industry-average
payment rate, so they have no idea which providers if
any will agree to participate. They also have no idea
what the "public option" premium will be because they
don't know whether providers will accept the low rates
the plan is authorized to pay. And they have no idea
about several other factors that will affect the
premiums, including how much overhead the "public
option" will rack up before it reaches a state of
viability, or who the "public option" will be insuring
- healthy people, sick people, or people of average
health status.
So, let's say you redeploy your sales force. Now
instead of talking to potential customers, you direct
them to focus on providers first. But when your
salespeople call on doctors and hospital administrators
and ask them if they'll agree to take enrollees at
below-average payment rates, providers ask how many
people the "public option" will enroll in their area.
Providers explain to your salespeople that they are
already giving huge discounts, some as high as 30 to 40
percent off their customary charge, to the largest
insurers in their area and they are not eager to do
that for the "public option" unless the plan will have
such a large share of the market in their area that it
will deliver many patients to them. If the "public
option" cannot do that, providers tell your
salespeople, they will not agree to accept
below-average payment rates.
In other words, you find that the "public option" is at
the mercy of the private insurance market, not the
other way around.
This thought experiment illustrates for you the
mind-numbing chicken-and-egg problem created by any
"public option" project that does not meet Hacker's
criteria, most notably, the criterion requiring
pre-population of the "public option." If the
pre-population criterion isn't met, the poor chump who
has to create the "public option" is essentially being
asked to solve a problem that is as difficult as
describing the sound of one hand clapping. You need
both hands to clap.
How did the mouse replace the elephant?
How did the "Medicare Plus" proposal of 2001 (when
Hacker first proposed it) get transformed into the tiny
"public options" contained in the Democrats' 2009
legislation? The answer is that somewhere along the
line it became obvious that the Hacker model was too
difficult to enact and had to be stripped down to
something more mouse-like in order to pass. Did the
leading "public option" advocates realize this early in
the campaign? Or midway through the campaign when the
insurance industry began to attack the "public option"?
Or late in the campaign when they found it difficult to
persuade members of Congress to support Hacker's
original model? Whatever the answer, will they find it
in their hearts to tell their followers their original
strategy was wrong?
I suspect the answer is different for different actors
within the "public option" movement. Hacker surely knew
what was in his original proposal and surely knows now
that the Democrats' bills don't reflect his original
proposal. Hacker and others familiar with his original
proposal were probably betrayed by the process. As the
"public option" concept became famous and edged its way
toward the centers of power, they couldn't find the
courage to resist the transformation of the original
proposal into the mouse model.
For other actors within the "public option" movement,
ignorance of Hacker's original proposal and of health
policy in general may have led them to rely on more
knowledgeable leaders in the movement. Their error, in
other words, was to trust the wrong people and, as the
"public option" came under attack, to cave in to group
think. This error was facilitated by the "public
option" movement's decision to avoid mentioning any
details of the "public option" whenever possible.
What next?
Those of us in the American single-payer movement must
continue to educate Congress and the public on the need
for a single-payer system. We must also convince
advocates of the "public option" that they have made
two serious mistakes and, if they learn quickly from
these mistakes, that real reform is still possible.
The first mistake was to think that a "public option"
that merely took over a large chunk of the non-elderly
market (as opposed to one that took over the entire
market) could substantially reduce health care costs
and thereby make universal coverage politically
feasible. Any proposal that leaves in place a
multiple-payer system -- even a multiple-payer system
with a large government-run program in the middle of it
-- is going to save very little money. Even if Hacker's
original Health Care for America Plan had taken over
half the non-elderly market and then reached
homeostasis (something Hacker swore up and down it
would do), the savings would have been relatively
small. The reason for that is twofold. First, any
insurance program, public or private, that has to
compete with other insurers is going to have overhead
costs substantially higher than Medicare's. (It is
precisely because Medicare is a single-payer program
that its overhead costs are low.) Second, the
multiple-payer system Hacker would leave in place would
continue to impose unnecessarily large overhead costs
on providers.
The second mistake the "public option" movement made
was to think the insurance industry and the right wing
would treat a "public option" more gently than a
single-payer. Conservatives have a long history of
treating small incremental proposals such as
"comparative effectiveness research" as the equivalent
of "a government takeover of the health care system."
It should have been no surprise to anyone that
conservatives would shriek "socialism!" at the sight of
the "public option," even the mouse model proposed by
the Democrats.
The bait-and-switch strategy adopted by the "public
option" movement has put the Democrats in a terrible
quandary. Seduced by the false advertising about the
potency of the "public option" to lower costs,
Democrats have raised public expectations for reform to
unprecedented levels. Failing to meet those
expectations during the 2009 session of Congress, which
is inevitable if the Democrats continue to promote
legislation like the bills released in June, is going
to have unpleasant consequences. Is there no way out of
this quandary?
Conventional wisdom holds that if the Democrats don't
pass a health care reform bill by December, they will
have to wait till 2013 to try again. But if the "public
option" movement were to join forces with the
single-payer movement, the two movements could prove
the conventional wisdom wrong. This won't happen,
obviously, if the "public option" movement fails to
perceive the reasons it failed.
It is conceivable the "public option" movement could
decide the bait-and-switch strategy was wrong and that
their only error was not to stick with Hacker's
original model. It should be obvious now that that
would also be a tactical blunder. We have plenty of
evidence now that conservatives will react to the
mousey version of the "public option" as if it were "a
stalking horse for single-payer." We can predict with
complete certainty they will treat Hacker's original
version as something even closer to single-payer. If a
proposal is going to be abused as if it were
single-payer, why not actually propose a single-payer?
At least then, when a particular session of Congress
comes and goes and we haven't enacted a single-payer
system, we will have educated the public about the
benefits of a single-payer and have further
strengthened the single-payer movement.
To sum up, "public option" advocates must choose
between continuing to promote the "public option" and
seeing their hopes for cost containment and universal
coverage go up in smoke for another four years, and
throwing their considerable influence behind
single-payer legislation. At this late date in the 2009
session, it is unlikely that a single-payer bill could
be passed even if unity within the universal coverage
movement could be achieved. But if the "public option"
wing and the single-payer wing join together to demand
that Congress enact a single-payer system, December
2009 need not constitute a deadline.
Kip Sullivan belongs to the steering committee of the
Minnesota chapter of Physicians for a National Health
Program.
