[R-G] Bait and switch: How the "public option" was sold

[Sid Shniad]

http://www.truthout.org/072309E 

http://www.pnhp.org/blog/2009/07/20/bait-and-switch-how-the-"public-option"-was-sold/ 

Bait and switch: How the "public option" was sold 

Posted by Andrew Coates, MD on Monday, Jul 20, 2009 
by Kip Sullivan 

Kip Sullivan belongs to the steering committee of the Minnesota chapter of 
Physicians for a National Health Program. 

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.