Tuesday, June 9, 2009

Public Plan Option: Sustainable Growth Rate Formula On Steroids?

Everyone in the health care debate seems to agree that the biggest problem is costs and that the best way to control costs is to get at the waste in the system. To raise the money needed to cover everyone and to make the system sustainable, goes the argument, we need to convert the upwards of 30% in excess costs now in the system to savings.

I think that’s right.

Many of my friends in the health care debate say the way to do that is with a robust public-plan option. The reasoning goes that a Medicare-like public plan that can drive down reimbursement rates for providers will create strong competition for the traditional insurers and health maintenance organizations (HMOs) so they finally have to tackle the problem of costs and waste.

I agree with their premise that we need to have unambiguous incentives for the stakeholders to get the job done and finally drive the waste out of the system.

But I question whether a Medicare-like public plan option can do it by creating a new competitive landscape based upon provider underpayment: today most private health plans pay doctors about 20% more than Medicare and pay hospitals about 30% more.

Read the rest of this post at Health Affairs.

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