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.