President Obama has said that his proposed public health insurance plan (let’s call it the “insurance GSE” for a government sponsored enterprise) will be competitive with private insurers because it will “negotiate” “fair” reimbursement rates with America’s doctors and hospitals. The presumption is that these rates will be lower than what private insurers pay.
Why do the President’s advisors believe a government negotiator can jawbone a significantly better deal than the hard-charging commercial insurers backed by the clout of their tens of millions of members? Without something extra on the government’s side, it’s just not a credible argument (remember the $800 toilet seats?).
The widespread fear is that the “something extra” will be health care reform legislation that allows the insurance GSE to cram down rates on providers—perhaps even the same rates Medicare underpays. As an added incentive, it could require doctors to participate in the GSE or lose the ability to treat Medicare patients.
That could backfire. An increasing number of doctors are already limiting the number of Medicare patients they treat because of Medicare’s notoriously stingy payments—some are even refusing to see them at all. The GSE may tip more of them over the edge, denying care altogether to millions of Medicare, Medicaid, and GSE beneficiaries. Most hospitals will likely participate in any event, because it’s easier for these local monopolies to shift their unreimbursed costs to private insurers.
Medicare and Medicaid underpayments already dump the biggest cost-shifting burdens onto private insurers, despite what you hear about the uninsured being the biggest problem. The uninsured do inflate private premiums by an estimated 7.7%, but Medicare alone inflates them by 10-13% and Medicaid pushes them even higher. Allowing the insurance GSE to tag along with Medicare rates will make cost-shifting much worse. But such cost-shifting will make the insurance GSE quite competitive, since it artificially lowers its own costs while raising those of competing insurers. It would be like GM being able to shift its costs to Ford—no wait, they’re doing that now, aren’t they?
But what about the President’s pledge that the insurance GSE will be subject to the same rules as private insurers? Does that mean that the GSE will indeed have to negotiate arms-length deals with America’s providers, just as the private payers do? Or that the private insurers will have access to the same cram-down reimbursement rates as the GSE? Will the GSE be regulated by every state in which it operates, no two of which use the same rules? Will the GSE have to offer the same absurd levels of mandated benefits the states require, such as wigs and in vitro fertilization? Will it have to meet the burdensome state reserve requirements and rate-setting limitations?
Will the GSE have to account for its administrative costs based on all government agency costs that support it? Will its premiums have to reflect any inability to control fraudulent claims? If the GSE’s losses eat up its capital and its ability to pay its bills, will it be forced into bankruptcy instead of a government bailout?
The answer to all these questions is certainly “no,” because if it is “yes,” the insurance GSE will collapse under its own bureaucratic weight, joining the ranks of other GSE notables like Fannie, Freddie, GM, Chrysler, and AIG. It is fair to say that Congress will not allow that, especially because so much of the GSE’s true costs will be so easy to hide.
The problem with manipulating the competitiveness of the GSE is that it will necessarily destroy the private for-profit and not-for-profit insurers that have to play by a different, far tougher set of rules. As Cato’s Michael Cannon has said, there can be no level playing field when one of the players is also the referee.