TOPICS > Health

The Case Against the Public Insurance Option

September 2, 2009 at 12:00 AM EDT
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In the latest in a series of conversations with key players in the health care debate, Jeffrey Brown speaks with Robert Laszewski, president of the consulting firm Health Policy and Strategy Associates and opponent of a public insurance option.

JIM LEHRER: Next: that health reform battle. White House officials announced today President Obama will speak to Congress next Wednesday night. One of the issues being closely watched, of course, will the president call for including a public plan option?

That debate over the public plan is where our conversation series picks up tonight. Last night, we spoke to an advocate — tonight, an opponent.

Jeffrey Brown has that.

JEFFREY BROWN: And that view comes from Robert Laszewski. He’s a former insurance executive, now president of the consulting firm Health Policy and Strategy Associates.

Welcome to you.


JEFFREY BROWN: One criticism of the public option is that it — it will not just compete with private — the private sector…


JEFFREY BROWN: … but crowd it out.


JEFFREY BROWN: Explain that. Explain the fear. How would that work?

ROBERT LASZEWSKI: Well, one of the things that the president has said about the public option competing with insurance companies is, why are insurance companies worried? After all, UPS and FedEx don’t have a lot of trouble competing with the post office.

The difference here is that Medicare, unilaterally, sets the prices it pays for the services that compose Medicare. So, if Medicare sets unilaterally the price it pays a doctor, it pays a hospital, it pays a drug company, that would be like the post office unilaterally telling its labor unions that it’s going to pay 20 percent less than prevailing market rates, that it’s going to pay 20 percent less for its leases on its post offices; it’s going to pay 20 percent less for the electricity and the heat and the lights.

If FedEx and UPS had to compete with a government entity that was paying 20 percent to 30 percent less, they couldn’t possibly compete. And that’s the fundamental problem.

JEFFREY BROWN: Well, we had — Jacob Hacker was on, as you know.


JEFFREY BROWN: Yesterday, I talked to him. And he was saying that these are resourceful companies. They have 170 million customers. They have brand-name loyalty, market — in many markets, not even all that competitive.


JEFFREY BROWN: So, they start with such an advantage. He was worried — instead of worrying about them — whether a government plan could even find its way in.

Private insurance could not compete

ROBERT LASZEWSKI: Well, do you think UPS and FedEx could compete with the post office if it could purchase space on airplanes for air express at a government-mandated price that was 20 percent to 30 percent less than what the market pays?

So, that's the fundamental problem, is that government in Medicare right now unilaterally tells doctors and hospitals what they will pay for their services. And how can anyone compete with that kind of situation in any business?

JEFFREY BROWN: And so, what's the fear? What's the -- draw us a picture of what would happen under a public option plan. What would the system look like?

ROBERT LASZEWSKI: I think there are two kinds of fears.

One is, is that I talk to people who run health insurance companies, even not-for-profit health insurance companies. They tell me that, if Medicare comes into the marketplace, and cuts what it pays doctors by 20 percent, and cuts what they pay hospitals by 30 percent -- which is about what Medicare does in the private market now -- then the insurance company will have no choice if it's going to survive, but to go to the doctor and hospital and demand the same prices.

And that would create wholesale problems in terms of the relationship between doctors and hospitals. The other problem is, if the government public option did in fact get much lower prices from doctors and hospitals, it would have much lower prices in the marketplace.

And, so, people who were poor, who couldn't afford the most expensive health insurance, employers who couldn't afford to buy the most expensive health insurance for their workers might very well end up being in that plan. We could very easily have a two-tiered health care system in this country.

You know, there's choice in Britain today. Today, you can be in the government plan. You can be in the public health insurance plans. Twenty percent of the population of the United Kingdom is in private health insurance.

JEFFREY BROWN: All right, but let -- a couple of things. A two-tiered system -- some people would say that's what we have now. We have people who can afford good plans...


JEFFREY BROWN: ... and many people who can't and are left out of the system.

ROBERT LASZEWSKI: And they would be right.

But, today, the middle class is in the top tier, and that's the difference. If you had a two-tiered system today where some people don't have insurance and they're are in Medicaid and the rest of us are in good private insurance, that's a two-tiered system. But what if you had a system where 80 percent of the people were in government health insurance and 20 percent were in private?

That would be a two-tiered system, too. And -- and I'm not suggesting the system we have got today is the best one, but I don't think I want to move to the other kind of two-tiered system.

Cutting insurance prices

JEFFREY BROWN: Now, I want to you explain a little bit more about the fear of the cuts, because, in principle, the idea of a public plan for everybody is to cut costs in the system, right?

ROBERT LASZEWSKI: Right. Right. Right.

JEFFREY BROWN: And that's the idea.


JEFFREY BROWN: You want -- so, you want to bring -- you want to bring ...

ROBERT LASZEWSKI: You want to cut prices.

JEFFREY BROWN: You want to cut prices.


JEFFREY BROWN: So, why is that a problem?

ROBERT LASZEWSKI: Well, because the biggest problem in the American health care system is not prices. Most experts will tell you that the reason the American health care system costs so much is because of excess treatments, procedures at the time they're done, or administrative costs.

The biggest problem we have in the American health care system is, upwards of 30 percent of it is wasteful. And there's one study after another that brings us to that conclusion. And I think people on both sides of the aisle would agree to that.

So, what we need to be able to do with the American health care system is preserve the 70 percent of the system that is very efficient and very effective and high in quality, and try to get rid of as much of the 30 percent of the system that's waste as possible. We're never going to get rid of all of it, but that's what we have to focus on.

The problem is that, if you just drive prices down, if you negotiate much lower prices with doctors and hospitals, you're going to go to the Mayo Clinic and you're going to go to the Cleveland Clinic, two of the better health care providers in the country. You're going to tell them that their reimbursement just got cut 20 percent or 30 percent.

Then you're going to go to the doctor that -- or hospital that's inefficient, and you're going to cut their reimbursement 20 percent or 30 percent. What good does it do to cut the really good health care providers 20 percent or 30 percent?

What we need to do is to change the incentives in the system, the perverse incentives we have got now in the way people are paid, so we're focused on keeping the 70 percent that's quality and the 30 percent that's waste. Cutting everybody's prices isn't going to get that job done.

JEFFREY BROWN: But what you're talking about would -- would in effect push private insurers to cut costs, because the question is -- and I asked this to Jacob Hacker -- without a public option, what pushes them to act? Because the system...


JEFFREY BROWN: ... right now, most people...


JEFFREY BROWN: ... would say, they are not cutting costs or covering enough people.

Democrats not containing cost


One of the things I'm really gratified about with liberals and progressives who think that the public option is very important is, I hear them saying, if we don't have something in health care reform to change the cost and quality outcome, if we don't have something in there that pushes and makes this change, we really don't have health care reform.

That's exactly right. Right now, none of the Democratic bills have any real decent cost containment in them.

JEFFREY BROWN: You're agreeing with them there, but not on their prescription?

ROBERT LASZEWSKI: But I think the public option people are barking up the wrong tree. They're going after price cuts, when the problem is utilization and -- and wasteful versus effective utilization.

JEFFREY BROWN: Now, I have to ask you -- come back to Medicare, because you brought that up a few times.


JEFFREY BROWN: It's very. Jacob Hacker yesterday explicitly talked modeled -- about that as a model.

Now, but to you, it's a bad model. To him, it was a good model.


JEFFREY BROWN: I mean, he's saying it's a -- it provides a broad choice of doctors and hospitals for people. It's helped...


JEFFREY BROWN: It's a benchmark on keeping prices down. It's a system that has covered millions of people.

ROBERT LASZEWSKI: Medicare is a good system.

But, when we look at Medicare, what we find is, for example, the studies that have been done about whether we're wasting dollars or not, where's the most waste in the system? The most significant study was done by the Dartmouth Medical School. It's called the Dartmouth Atlas. You may have read about it in a couple of the newspapers.

But, at any rate, they took a hard look at how much waste we had in the system. They found enormous differences between the way people were treated in one part of the country and another, between efficient and inefficient health care. One hundred percent of the data used in that study was Medicare data.

Medicare's got serious, serious problems. It's not sustainable. It's going bankrupt. There are lots of good things about Medicare, but it's not sustainable. It's just as wasteful. And gee, golly, whiz, if Medicare is the solution, if making the rest of the health care system look like Medicare is the solution, well, why is Medicare going bankrupt and why is it unsustainable all by itself?

I don't think the question is Medicare or private sector. We have problems throughout this system in terms of waste and inefficiency that we have got to get at in order to make it affordable.

Politics of health care

JEFFREY BROWN: All right, just in our last minute, let me end where I ended with him, the -- the poli -- I know you're not a politician, but here we are today.


JEFFREY BROWN: The president, as Jim just said, is going to come back next week. There don't seem to be the votes for a public plan.

ROBERT LASZEWSKI: That's correct.

JEFFREY BROWN: And the people on Jacob Hacker's side saying, well, then maybe this is -- we're not going to get effective health -- health reform at pull.

Your argument is, we can strip that out and still have some effective reform?

ROBERT LASZEWSKI: No. I think, with or without the public plan, what we're on our way to doing is expanding the health care entitlement by $1 trillion, cutting $500 billion from doctors and hospitals and insurance companies, which is about 1 percent of what they're going to get over the next 10 years.

We're cutting them -- it's chicken feed, what we're cutting them. And then we're raising taxes $500 billion to pay for the rest. And we're doing nothing to control costs.

JEFFREY BROWN: Raising taxes in some of the plans, in...

ROBERT LASZEWSKI: All -- all of the health care plans, all of the Democratic plans on the table would raise taxes, one way or another, about a half-a-billion dollars to pay for the costs.

The president has said, we're going to pay for this half by savings to the Medicare and Medicaid system, and half by new revenue, which is taxes. So, it's half and half, no matter which plan you look at. So...

JEFFREY BROWN: Although he hasn't said -- I mean, he has said it will only be on certain...

ROBERT LASZEWSKI: Well, the House bill has a $550 billion millionaires tax in it, to be specific.

I think one of the things the president's got to answer is, the president says, we need to be deficit-neutral in what we do for health care reform. Why? We have got a health care system that's 17 percent of GDP today, going to 22 percent of GDP, $2.5 trillion of costs today going to $4.5 trillion of costs in 10 years.

Why would you want deficit-neutral health care reform? That means it isn't going to cost any more, but it's not going to cost any less. And if you -- if you -- if you have health care bills in the system cost no less, how is that reform?

JEFFREY BROWN: All right, Robert Laszewski, thank you very much.

ROBERT LASZEWSKI: You're welcome.