The “Public Option” Flash Point

With nearly 50% of Americans covered by some sort of government plan already (Medicare, Medicaid, VA, Government employees) it’s admitted difficult to fully understand the arguments of something that already works for half the people already. 

Red Dog Democrats (Liberal) argued during the last week of July that they would not support health care reform without a public option where the public plan members get Medicare reimbursement rates from providers.   Liberal Democrats claim that this is the most important way to reduce health care costs and make health care affordable to those on the public option.   They aren’t wrong.   It will reduce the insurance costs for those participants.  It just doesn’t fit into a sound byte as to why it’s a bad option.    

Currently Medicare and Medicaid reimburse providers at a dictated fee.  If a provider wants to participate and treat ANY Medicare or Medicaid provider they must accept that fee schedule.    In browsing Medical organization group websites, virtually all of them indicate that Medicare reimbursements do not cover the actual cost to provide the service.   If that’s the case, why would the provider continue to do business with Medicare recipients at all?   Businesses know that some customers are more profitable than others.   Businessmen also know that if you have a larger market to spread out your fixed costs, you can become a lower cost provider.  By accepting Medicare patients, you spread out your fixed costs and make up additional profit on your private insurance customers.  

According to EMSResponder.com, a media organization serving the needs of the emergency medical industry,    in 2007, the average cost to provide an ambulance ride to a patient was $415.  Medicare reimbursed providers $390.   What is not factored in the true cost to provide the service is the uncollectible portion of the patient portion.   Even conservative accounting would dictate that it would cost another $20 to collect the 20% balance from the patient.  Let’s use this EMS industry as a microcosm exam of how the public option would work.   For this example, I am going to use EMSR data and assume a 5% profit margin for the provider to illustrate and prove the Red Dog Democrats point in advocating a public option. (Or am I?)  

Example:  As a provider, you give 1000 ambulance rides throughout the year with an average cost of $415 per ride to provide the service, your collection costs are 5% with a 5% profit margin.    50% of your clients are under Medicare reimbursement rates.   What do you charge the Private sector riders?

Under the current system, with 50% getting Medicare reimbursement rates, the private sector would need to pay 32% ($523 v. $395) more for the provider to remain in business.  

In this example, if you were under a Public option with mandated Medicare reimbursement rates, that insurance would be able to charge you 25% less premium to cover the same service as private insurers.    So what’s the problem?    I like the idea of paying 25% less.   Doesn’t everyone?

Even if you are fundamentally opposed to Government Health care, you can assume, and most agree that the public option would be attractive enough to add 40% of those currently insured privately into the government health plan.  With that in mind, let’s revisit our Ambulance Company with now 70% of their riders in the Medicare Rate tier.

To be as fair as possible; let’s assume that this ambulance company did not have to pay any additional taxes (which isn’t reasonable) to insure the uninsured.  Many will argue that the taxes will be offset by the government insurance option, so let’s give them the benefit of the doubt.  

Since the Medicare reimbursement rate has taken 40% of profitable clients into a loss position, additional money must be made from those paying privately.   As a result, the 32% difference from Public to Private has now jumped to 54% difference. ($611 v $395)    Our theoretical insurance public insurance company now charges 36% less than private insurance to cover the same services. 

Over a few a years, with escalating differences for private insurers to cover the same services, it’s reasonable to assume that all reasonable businesses and people would choose the government health plan.   This once and for all PROVES that the government run health plan would be better.  Right?   Wrong!  Getting someone else to pay your share doesn’t make it cheaper.  This example proves that the Public Option would allow people to insure themselves for 36% less than private insurance, yet the provider received no less revenue.  

The same EMSResponder.com shows that while the average cost to provide the service is $415, the range of cost varies from $100 to $1200 depending on provider.   Under the government reimbursement rates, higher cost providers would most likely close.  (Let me just state for the record that this coming conclusion sounds like fear mongering, but I have no other reasonable conclusion.)  

The fixed cost to provide ambulance service and staff are the most important factors in looking at the variations of providers.   If your ambulance is equipped with the latest technology and you have a low volume of needs, your cost will be the highest.    If you are in a high density area, you must be prepared with services that allow for twice the normal high load period that might also be 10 x the capacity for low load times.    In rural areas, you would most likely either have to wait much longer for an ambulance to come or not be able to keep the latest technology in your area.   In an urban area, your resources would be stretched much thinner in a small crisis mode.    This example can be extrapolated throughout the entire medical system, from Hospitals and Cardiologist, to Radiologist and Ambulances.  Experiments in State insurance reform in Kentucky, Massachusetts and New York expose the flaws in the assumptions of a true public option. 

The public option with Medicare reimbursement rates will save money and allow for more affordable health care options.   It will come with significant costs in other areas.  Without specifically rationing health care, it’s a virtual certainty that capacity will be reduced and care will be rationed.   With Medicare reimbursement rates schedules to be cut 20% in 2010 and then from 4-6% each year thereafter, the public option is push is a desperate attempt to cover the tracks of governmental mismanagement by delaying disaster a few more years and dragging more American’s into the morass.  

There is a better option.  

Source:

 http://www.emsresponder.com/print/EMS-Magazine/Medicare-Margins/1$6001

http://www.advocatesforems.org/_resourceContent/House_Govt_Reform_Hearing_Testimony__3_.pdf

http://www.saljournal.com/Print/editorial093007

http://cardiologycaa.com/pdfdocs/2008_Medicare_flyer_SEPT.pdf