The Public Plan--Mutual Assured Destruction?

I typically don’t talk about my travels on this blog but something happened this week that bears reporting.

Whether the federal government should or should not offer a public health plan alternative to compete with private insurers in the under-age-65 market is a hot topic in Washington and in the market.

I recently posted on it in detail: The Public Plan Option for the Under-Age-65 Market—The Biggest Health Care Controversy on the Hill

This past week I met separately with two health insurance CEOs—both well-known leaders in the business and both from highly regarded not-for-profit plans.

They read the Lewin Group analysis of the proposal for a public health plan. They both concluded the Lewin analysis made sense. Lewin projects the public plan would gain two-thirds market share in what is now the private health insurance market because it would pay Medicare-like provider reimbursement levels that are 20% to 30% lower than they pay. Simply, if one player has “raw material costs” 20% to 30% lower than everyone else that’s a game changer—that player will win.

They both see having to go up against such long odds and compete with a public plan as a life and death issue for their organizations.

They both believe the provider community does not understand what this would mean—much lower reimbursement in what is now the under-age-65 market and nowhere to shift Medicare and Medicaid costs to.

The both believe the only way for their health plans to survive in this scenario is to just unilaterally whack the providers with the same payment cuts that the government would impose—chop existing reimbursement 20% to 30%. In short, get their “raw material” costs down to the same level so they can compete on a level playing field.

The providers won’t like it. They will threaten to refuse to provide care under those terms. So what? It’s life and death for these health plans. “Them or us.” If someone is going to have to get clobbered it won’t be them. Just what would a health plan have to lose?

And these guys are the not-for-profit fellows.

It would be billion dollar corporations desperate to survive up against doctors and hospitals and all the other providers.

During the past 10 years (post the "patients'/provider rights rebellion") there has been a truce of sorts between providers and payers. There is a tension and neither is ever very happy—but there is equilibrium between them because everyone understands the other has to survive and make a decent living.

A public plan would end it.

I am not going to predict which side would win. But I will tell you it would be one bloody mess way past anything we have ever seen.