Thoughts on Affordability and the Public Plan Option
Affordability must encompass the short and long term, and must include both premiums and anticipated out-of-pocket spending. While I favor a public plan option, I favor a very different model than may be considered in Congress, which has been discussing an option for any individual under the age of 65 to opt for Medicare. I think we have some excellent local public health plans in California, such as San Francisco Health Plan and Health Plan of San Mateo, which I think represent a better model for extending coverage to the uninsured, and they are far more affordable for those who select them.
The proponents of the public plan are, for the most part, putting forward a Medicare model. Medicare has the following attractions: a rate structure well above Medi-Cal and uninsured reimbursements, low administrative costs and a broad, open panel of doctors and hospitals who accept Medicare patients. Medicare has sizeable deductibles, co-pays and coverage limits, which forces many seniors to buy supplemental private insurance coverage. Medicare also provides little coverage of long term care, like nursing home stays. To qualify for long term care, seniors must be poor enough to qualify for Medi-Cal (Medicaid). When it comes to prescription drugs, Medicare prescription drug coverage includes the infamous doughnut hole, which leaves seniors with thousands of dollars of non-reimbursed drug costs.
For most hospitals and clinics seeing a large volume of California’s seven million uninsured, Medicare levels of reimbursement would be a large payment upgrade. This would put pressure on Medi-Cal, which currently covers more than 6.5 million Californians, to follow suit. This would represent a very large increase in revenues for those providers caring for 13.5 million Californians – about one third of all patients.
According to recent Congressional Budget Office analyses, right now, commercial insurers may be paying providers about 20%, sometimes 30%, above their costs. Medicare may be paying above or below cost, depending on whether you are a high or low cost provider. Medi-Cal pays well below cost, let’s say 20% below cost or maybe more (this does not apply to some community clinics and public hospitals that get actual cost-based reimbursement in California). Payments for California’s uninsured are highly variable – from nothing (as the costs of care are charity care or a bad debt write-off) to three times hospital costs (for a few people who pay hospital “charges”), from a percentage of Medi-Cal or Medicare rates in some counties, to the actual cost of hospital and clinic services in others.
In economic theory, commercial rates should come down substantially when we cover the uninsured and if we increase Medi-Cal rates substantially. But in the Alice in Wonderland world of health care, they most likely will not; what goes up does not come down unless some strong countervailing pressures are applied. Thus, it is argued that giving any individuals who prefer the Medicare option the right to enroll would serve as the countervailing pressure on private insurance prices and premiums so that the private ratepayer gets the break from increasing Medi-Cal rates, and providers are reimbursed for their care to the uninsured. This too is a good but untested and unproven theory. The objections of commercial plans to the Medicare model seem to me to miss the point; they should be able to be far more nimble, cost effective and deliver superior quality services at lower costs than Medicare, which has far fewer controls on unnecessary utilization and is hampered by an outdated payment and benefits structure that needs repair.
While Medicare has advantages, I would suggest that Medicare is not the best reimbursement and delivery model for several reasons. First, it is fee-for-service, yet half of all privately insured Californians are in HMOs that are less costly than fee for service by up to 15%. Second, it is an open panel model, while most Californians are in closed panel models; closed panels can better control costs and improve quality. Third, it is not integrated at all; it is the obverse of the successful Kaiser Permanente and Group Health Plan models, which I think should be the model for the public plan. Fourth, it is slow moving; it took forty years to add prescription drugs, while Medi-Cal (Medicaid) and private insurers added this and other important benefits far more quickly. Lastly, it does not create the important reforms of delivery structures to improve quality of care, and is not particularly well suited to do so. This is not to denigrate the good work in developing Medicare’s DRG (Diagnosis Related Grouping) reimbursement for hospitals and RBRVS (Resource Based Relative Value System) for doctors, but we simply need far faster and nimbler evolution and stronger incentives for greater efficiency and quality.
I think the better model of public plan is home grown: California’s local County Organized Health Systems and Local Initiatives. They connect more readily to the uninsured than do the commercial plans, as their delivery structures are in the communities where the uninsured reside. They can and do create reforms in the delivery system, which is what we urgently need to control costs and improve quality. They have the linguistic and cultural connections and capacities to care for the diverse populations of our state. They compete effectively head-to-head with the private sector plans in the Healthy Families and Medi-Cal markets. They have low administrative and other non-benefit costs. They have affordable co-pays for lower income Californians, unlike much of commercial insurance and Medicare. They include the safety net clinics and hospitals, and the doctors from low-income neighborhoods who typically have a hard time finding a welcome mat from the large commercial insurers. They innovate, creating new programs for uninsured home care workers, cab drivers, children and low wage uninsured workers, just as Santa Clara, San Francisco and others have done. Health care is local, and these plans are far more able to adjust to local conditions than a large multi-state insurer or Medicare can.
They do need to consolidate more broadly, forming regional plans, rather than plans constricted to county boundaries as we have now – eventually evolving into one for the Central Valley, for example, one for the Bay Area, one for the rural North, and one for Orange and San Diego. There are several plans that are already regional in scope serving the Inland Empire, Solano-Napa-Sonoma and Central Coast regions. Meanwhile, the Los Angeles Care Health Plan will need to evolve from the umbrella plan that now exists to a fully integrated plan, as best exemplified by Kaiser and the innovative and highly competitive local health plans in San Francisco, Contra Costa, Santa Clara and San Mateo.
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