Playing a Stronger Hand to Lower Healthcare Costs in the USA

For US health insurance, the elephant in the living room is the cost of its privatized components.  As years go by, it becomes increasingly difficult to prop up political support for how healthcare is financed.  Patients will become more aware of how much more they pay for services that are similar to what they would obtain at a far lower cost in other countries.  To better tackle costs, a stronger public hand is proposed using various methods.  The boundaries between these proposals and their definitions are easily muddled.  They include Medicare For All (M4A) and a “public option”.  It may be exceedingly difficult to accomplish changes on a federal level.  The next wave of solutions are emanating from a handful of states.  Each state is an experimental laboratory for potential remedies.

These state-level solutions don’t extend Medicare, as that of course, is a federal program.  Embracing Medicare may spell doom anyhow.  It is notoriously piecemeal and cumbersome. Newer components, particularly Parts C (Medicare Advantage) and Part D (drug benefits) were designed as federally-subsidized income streams for private companies.  Once deductibles and other expenses are tallied, these aren’t necessarily saving patients money in comparison to traditional Medicare.  Supplemental coverage doesn’t figure in emerging solutions either.  Those programs were designed by the healthcare industry and therefore do more to enhance revenue streams than to alleviate cost burdens for patients.  If Medicare eligibility was only expanded down to age 60, or even 55 or 50, it might improve affordabilty (see estimates).  But the money saved by patients would be lost by hospitals.  They operate on the higher revenue that they enjoy from privately-insured customers- and can be expected to oppose having more patients that produce the less generous Medicare reimbursements.  These are the kinds of impediments that perennially stymie improved health coverage in the US.  It may simply be too complicated to work within the existing Medicare structure.  On the other hand, can states begin with a clean sheet of paper, and design better solutions?  

Colorado, Connecticut, Nevada and Washington have recently attempted to develop government-sponsored alternatives.  What has happened there is worth watching closely.  Thus far, it appears the same immutable forces are impeding the creation of alternative financing methods.  Providers (broadly defined to include hospitals, physicians and more) are becoming more overt in their efforts to defend their incomes.  The overall picture is a bit like pulling an addict off of a drug; the controversy over letting Medicare negotiate pharmaceutical prices is merely a prelude for other pricing battles that lie ahead.

Washington was the first of these states to formally establish a public option.  Private insurers are still in the picture as administrators. That makes these attempts only quasi-public. (More details can be found in this review by the Center on Health Insurance Reforms).  In general terms, it seems a bit like the state government functions as a self-insured (“ASO” or administrative services only) customer- a business model that private insurers already know well.  The Washington approach was designed to rely on Medicare rates, but establishing payments in relation to that reimbursement schedule has become particularly contentious.  If the Cascade Select plans are more expensive than private options, they become unattractive to enrollees.  The so-called public option sits in the window but can’t compete.  Over time, successive modifications to the public option may result in higher enrollments.

Cognizant of the resistance that Washington faced, Nevada tried defining a more forceful role for the state.  In their version, insurers that currently offer Medicaid must also submit “good faith” proposals to participate in the public option. The requirements for insurers to participate are more rigorous in Colorado, where providers need to achieve cost reduction targets or else rates will be set for them.  This is a particularly interesting twist, as it may foretell further price controls in successive public option iterations. 

A public option is up and running, on a limited basis in Washington now.  The Colorado plan is slated to be available in 2023, but not until 2026 in Nevada.  In a fourth state, Connecticut, there has been less progress. Insurer opposition has been notably effective in this state. In particular, UnitedHealth Group mobilized its employees to fight against the Connecticut public option proposals. This formula will be repeated elsewhere.  The Partnership for America’s Health Care Future (PAHCF) is a syndicate of profiteers that is raising lots of money (Tenet gave $2.9M to PAHCF over 2018-2020) and can be expected to fight public limits on insurance expenses.  Other constituencies are also surfacing as significant opponents.  Some are more plainly venal, such as the Koch-funded Taxpayers Protection Alliance.  But even unions, like SEIU, have fought public influence over funding, as many members are employed within healthcare settings.

According to a study by Pacific Business Group on Health and Kaiser Family Foundation, large employers welcome government intervention if it controls prices, but not necessarily to reduce privatization of healthcare.  In theory however, 65% of corporate leaders support a public option. The major opposition emanates from hospitals and private insurance companies.   

The true measure of success from these state-level experiments may be how close to Medicare rates these public options will be allowed to reimburse.  In Colorado, after a series of complex trade-offs, it seems like a ‘sword of Damocles’ approach is being taken.  If insurers can’t attract providers for their networks, the state is empowered to set reimbursement rates.  This begins to tiptoe around the inevitable boogeyman of price regulation.   

In Canada, the establishment of publicly-financed healthcare in Canada was incrementally led by individual provinces.  Tommy Douglas, as Premier of Saskatchewan, set up the first successful version there.  Over time, each province followed, in their own unique ways.  To this day, they still retain their individual programs.  The federal government defines parameters for funding and the scope of care.  In the USA, the problem of costly healthcare may also have to be solved largely by individual states.

The common pathway appears to be for states to become more involved with rate setting.  Rather than getting a discrete, independent publicly-financed choice, it appears that the existing payors will be squeezed instead.  As a consequence, there will ultimately be more pressure on providers to accept lower reimbursement. If this trend continues, the abolition of privatized health insurance, which is the goal of many, becomes farther out of reach.  Even then, quasi-public solutions might begin exerting some control over the costs of healthcare.  

-published August 5, 2021