Two weeks ago in Straight Talk, I gave you the background of the Individual health insurance marketplace. As you recall, it began in the United States in 2013 when the federal government introduced Healthcare.gov
, also known as the health insurance exchange. (As an aside, the ACA just marked 11 years in existence – more on that history here.)
This week, let’s talk about what is on the table today for the individual marketplace.
Part 2: Changes Being Proposed
The Biden Administration has taken office and Congress has approved another borrowing package to the tune of $1.9 trillion. This package is labeled for COVID relief, although only roughly 45% of the spending could be generously attributed to actual COVID relief.
Buoyed by this success, Democrats in the House of Representatives immediately re-introduced their “Medicare-for-All/Public Option” package. All indications are they are pushing a government-funded insurance package to compete directly with private insurance companies. This new plan would be modeled on a version of Medicare but sold to people younger than 65. It could perhaps be sold to employers for their employees as well. The plan is specifically designed to compete with, and ultimately replace, all the private carriers already on board at Healthcare.gov and potentially in the employer market, too.
There are a variety of problems with this proposal, some of which are very scary to discuss. But here at Straight Talk, we have a no-fear attitude about such things. Achieving universal coverage – where every person in the U.S. has health insurance – is a goal we share, but there are different ways to achieve it. I’m going to talk about this new proposal in in some detail in terms of what it will do to the individual and ultimately the group insurance marketplaces. This will be a tad more technical than the average Straight Talk piece, but the impact could be vast and bad for healthcare nationwide, so I think we need to just wade on through the data. Ready?
What’s Does Public Option/Medicare-For-All Look Like?
The proposed health insurance product will have the following characteristics, as far as we know today:
- Modeled on Medicare coverage
- Will reimburse providers at Medicare rates
- Any provider in the U.S. who accepts Medicare patients will be REQUIRED to accept this new insurance
- Will compete directly against private insurance companies that cannot use Medicare rates to reimburse their network providers
- Will presumably be in all 50 states, starting in counties where only a single carrier remains in the marketplaces
- Will be VERY heavily subsidized by the federal government
- Will require the federal government to outsource almost all functionality
It’s important to understand that when a law is passed requiring federal agencies to create such a plan, they will have a significant amount of discretion in how they carry that out. If there are people in those agencies who are ardent single-payer/government-payer advocates (and there are lots now), they will likely not be upset if they crowd out private insurance or even make it disappear.
I want to reiterate that we all want universal coverage for everyone in our nation. But, to me, there are clearly less disruptive and better ways to achieve this than this proposal. So, let’s talk about why in a bit more detail.
Taking a Drive Through the Pitfalls
Imagine you own a car dealership, “Josephine’s Primera.” Your best-selling car is the Primera Model S, a new and very fancy car that you buy for $30,000 from the Primera factory and sell it to your customers for about $35,000. At these prices, your customers are buying them as fast as you can get them in. Primera’s factory can build the car for $25,000, so they are making a little profit as well. There are several similar cars on the market being sold for similar prices and margins, each with their own strengths and weaknesses that consumers really appreciate. People car shopping in this situation have lots of choices, and manufacturers have a ton of incentive to continually improve their products to compete with each other. Safety and features increase every single year.
Now, imagine the federal Department of Transportation orders Primera to sell the Model S to them for $20,000 (which is below the factory’s cost to build the car) and they open a chain of “DOT Primera” dealerships, selling the Primera Model S to any customer who comes by for just $25,000. This spawns some important questions:
- How long will your dealership stay in business?
- How long will the Primera factory still be in business?
- What incentives do the other manufacturers have to improve a car’s safety or quality?
It’s clear that since the government has “stomped” the free market in our example, your dealership is doomed. Not only that, but competing models are also doomed. As the government orders grow (and they will, since everybody can buy Primeras at the DOT Dealerships MUCH cheaper than anywhere else), the other dealerships will fold. IN addition, competitors can’t sell their product below cost for very long. Eventually, the Primera S will be the ONLY car you can buy, it’s not getting any safer or adding any new features, and the factory that builds them is shedding employees, production capacity and quality. Once the government steps in and dictates prices, essentially “stomping” a market, there is no room for anyone else. Consumer choice and incentives to improve vanish.
Mike, what’s your point?
The scenario I just described is EXACTLY what the proposed “public option/Medicare-For-All” plans will do to healthcare and health insurance in general if it gets big and popular enough. Forcing doctors to accept Medicare rates (below wholesale) and allowing a government-owned competitor to come in and compete with private insurance companies using artificial prices dictated by federal authority will collapse the market and drive them all out. Private companies do not have the authority or leverage to dictate to doctors and hospitals that they must lose money when treating their patients. Only the government can do this. This means companies that sell health insurance will disappear, replaced with only ONE government-run plan.
In other words, a public option that pays Medicare rates, coupled with a federal order to all doctors and hospitals that they MUST accept this below-wholesale-cost reimbursement, will rapidly erase all competition from Healthcare.gov. If the so-called “public option/Medicare-For-All” is allowed to be created in the form being considered today, it will rapidly become the ONLY option for health insurance. But that’s just the beginning…
More next time on how this government intervention will change the healthcare world in the United States as we know it.
While I do not support medicare for all, this will happen under the present administration.
If my memory serves me, BCBS halted all campaign contributions to pretty much all of the the GOP candidates and not to the DNC candidates. So it sounds like those that voted and supported present administration and socialism in our country will get what they voted for.
Thanks so much for your comments, and reading Straight Talk! I agree with you that we have a long and busy road ahead of us to educate the public on the damage to our healthcare system that could result from taking 40% of hospital reimbursements away, which is the central feature of the Medicare-For-All/Public Option proposals being considered right now. I know we can count on you to spread the word.
You can also rest easy (as I do) in the knowledge that Blue Cross and Blue Shield of Louisiana has a proud history of working with both state and federal legislators to help advance policy and legislation that helps our company fulfill our mission of improving the health and lives of Louisianans. We plan to continue to do that and will engage with both incumbents and candidates of all parties who are willing to work with us to advance that mission.
Thanks so much for reading!
Mike, another excellent piece as usual. The problem is going to be how to educate the population into understanding what they are actually going to end up losing. To overcome the power of the media is going to be very difficult.
A world under a single payor, Medicare based system is frightening. Let alone the decline of healthcare and the decrease in innovation that results from the loss of intelligent providers.
Keep up the good work. An educated agent base can continue to educate the members.
Thanks so much for reading Straight Talk! I know I can count on you, and people like you to help us spread the word of the damage a “Single Payer/Public Option/Medicare-For-All” payment scheme could do to our healthcare system in the US. You can count on me and BCBSLA to continue to provide rational, cogent arguments to that effect like these Straight Talk pieces, which you should feel free to share with everyone you would like.
And stand fast for Part 3! It’s a doozy, should be online next week!
(1) I have not heard, prior to this article, anything about taking over the employer based – group health system. Is it real or is this fear mongering?
(2) One of the debate issues last year was an alternative, ‘Medicare for all else.’ Targeted to the uninsured. What do you know about that?
And thanks for an reasonable discussion.
Thanks so much for reading Straight Talk.
One of the things that the ACA did, that we don’t talk about as much nowadays, is that it cleanly (if a bit arbitrarily) divided the employer group world into two buckets: Small Groups (who have the option of not providing coverage) and Large Groups (who are penalized heavily if they fail to offer Qualified Health Plans to their employees). The Individual Market, and the Small Group market have a lot in common in federal law with two large exceptions: Small Groups can claim their health insurance premiums as a business expense, and Individual Market customers may shop on Healthcare.gov (or their state’s equivalent website) for coverage while accessing large tax credits.
But what if a plan offering health insurance coverage that was very comprehensive appeared on the market and was 40% less than individual or small group coverage because it pays docs and hospitals Medicare rates? And what if those Docs/Hospitals were FORCED to accept that insurance as payment in full, no balance billing allowed? How would existing Individual/Small Group carriers compete with that?
I consider this a real threat, based on the House Bill just introduced. It has no boundaries that say a company can’t stop offering coverage and send employees to this new plan, if the company is a Small Group. So we have to consider that a threat and educate ourselves.
2) Any public plan that pays providers so much less and comes with much cheaper premiums will be impossible to contain, in my opinion. Once you stomp the private market with federally-imposed price controls, and then deny those lower prices to private carriers, the number of plan options will quickly go down to 1.
With the attitudes of our current Tri-Agencies Heads (Labor, Treasury, HHS) it will be a small step from legislation to market. This is the right time to be vigilant about such things, in my opinion. So I will be.
Thanks for hanging out with us!
My company has had coverage through BCBS LA since 2011. I have seen our rates increase over 100% in the subsequent years. At the same time, coverages have been cut and exclusions increased. Also along the way plans have been terminated and we’ve had to choose new plans. We sold our company recently and now I have to choose an individual plan. It is not a pretty picture. My new plan will now cost 20-30% more per month with a much higher deductible and less coverage. I have long been a strong opponent of any type of Medicare for all plan, but market choices in LA have winnowed and options are few for individual health plan choices. The choices are down to “terrible” and downright “awful”. I don’t know the answer but something needs to change. Let us know what you believe to be viable alternatives to MFA. You’ve got great ideas!!
Thanks so much for your comments on this problem. First of all I want to tell you that in your individual product shopping, make SURE you go back online on 4/1 either yourself, or through your agent, and re-shop your coverage. You will be amazed at the price differences starting on 4/1. Thanks to the ARPA21 borrowing package just passed by the Feds ($1.9T) for the next two years Healthcare.gov policies will be massively discounted at almost every income level, even adding in discounts above 400% of the federal poverty line, where no discounts existed before. IT’s a very sweet deal, at least for two years, and I would encourage anyone not getting coverage from the employer to go back and enroll on healthcare.gov starting on 4/1!
Second, what your company went through is sadly quite common in Louisiana for a couple of reasons. The Feds “took over” the individual and small group markets via the ACA back in 2013 and beyond, controlling benefits, deductibles, co-insurance, and rate structure. Since that time, the intervention has driven rates up roughly 250% in the individual market (thus necessitating the current round of very large tax credits to bring people back to the market) and doubled small group (under 50 employee) rates. This “preview” of federally-managed health insurance is not encouraging.
Finally, the clearest alternative to our current system is to give health insurance companies the freedom and support to pay for QUALITY of care, instead of QUANTITY of care. Since around 85% of all the premiums paid in over the last 10 years have bought NOTHING but healthcare and another 3-4% paid taxes and fees associated with the ACA, how we pay Docs, Hospitals, and Drug Companies are the drivers of what you have witnessed. But your INSURANCE is higher because HEALTHCARE costs are higher, particularly prescription drug and hospital costs. Getting those under control, without political influence, is the key to getting rates to stabilize.
Thanks so much! And don’t forget to jump in on 4/1 and re-shop your plan ON HEALTHCARE.GOV either through your agent or yourself.
Mike, from what you see, how long would it take for these changes to take place? In other words, how much longer would private health insurance companies and agents be in business?
Thanks for the information!
Thanks so much for your comments and for reading Straight Talk! AS far as timing goes, if 5 competitors are selling a product on a national marketplace that are similar in quality, and one day one of them gets a 50% discount in his costs that the other competitors have no way of accessing, how long will the other companies who didn’t get the discount have customers? That’s the crux to predicting an answer to your question. It will start in the Individual Market, but how long before companies clamor for the same access to discounted prices so they too can buy healthcare below wholesale the same way government agencies do today?
Probably not too long, I’m thinking.
When talking to people who think “Medicare for All” is a great concept, I tell them it should be called “MEDICAID for All”. They see the light quickly. The majority of citizens LOVE Medicare, and the majority of them HATE Medicaid.
What’s your guess on how “Medicare for All” would be funded? It’s probable that it would be an additional payroll tax. Based on how standard Part B Medicare premiums are priced my guess would be that it will be the more you make the more you pay. Everyone receives the same product, but with a big difference in cost. Currently (2021) Part B cost varies from $148.50 if your income is less that $88,000, and up to $504.90 if you make $500,000 and above (filing individual tax return)(340%).
Remember, Part B has no “trust fund” like Part A does, the government heavily subsidizes Part B out of the general fund each year and the amount spent is very unpredictable. That’s why they love Medicare Advantage so much, because they pay a fixed amount X # of enrollees to carriers and then the government is OUT. Very easy to predict.
That $148.50 premium has nothing to do with the real cost of Medicare Part B. It would be many times that much across the board if they wanted everyone on Medicare for All or some equivalent. Big Taxes, Big Spending and they would have to get it all from businesses.
The article mentions eroding the incentive to innovate. Is there evidence of that from countries that have public health care?
Thanks so much for weighing in.
What you will see in much, much public literature is that the % of money raised for investment in new medical technologies, in the venture capital arena and others, is dominated by the US healthcare system because our “over-spending” offers rates of return that encourage higher risk. I hesitate to think where we would be on Covid-19 drugs and vaccination progress at this time if the US was on a “commanding heights”-type top-down budgeted healthcare system. Pfizer’s vaccine might never have happened because no matter where invention/innovation happens in medicine on the planet, only in the US do the resources exist to prove new treatments are safe, effective, and manufactured and distributed at scale.
Here’s an interesting link that illustrates America’s position in medical innovation, this one specifically concerning pharmaceuticals.
Thanks for playing!