Can a public health insurance option hold down spending, or will it lead to medicine by committee? : Joseph Hight

Can a public health insurance option hold down health care spending?

In a previous column I asked, "So if it is new and better medical treatments ... and expanding health insurance coverage that increases overall spending on health care, how are we going to get this spending under control?"

Indeed, that is the $ trillion question.

One way that has been proposed to hold down health care spending is through a public health insurance option: a government run health insurance plan to compete with private health insurers. It would aim only to cover its costs. The theory is that a government plan could restrain health care costs through its bargaining power with health care providers. Using this bargaining power, it will set prices it will pay for certain procedures just as Medicaid and Medicare now do.

Paul Krugman, Nobel Prize winning economist and New York Times syndicated columnist argued the case this way, "And that's why the public plan is an important part of reform: It would help keep costs down through a combination of low overhead and bargaining power. That's not an abstract hypothesis, it's a conclusion based on solid experience. Currently, Medicare has much lower administrative costs than private insurance companies, while federal health-care programs other than Medicare (which isn't allowed to bargain over drug prices) pay much less for prescription drugs than nonfederal buyers. There's every reason to believe that a public option could achieve similar savings."

Democrats are putting faith in a public health insurance option that would compete with private insurance plans. Three congressional committees with jurisdiction over health care legislation have offered a reform package that includes a new public health insurance option.

But will it really work? If the major cause of rising health care spending is new and better and more costly treatments, bargaining power alone will not do the trick. In Krugman's own words, written in 2005, he seems to recognize this fact. He said then, "Consider what happens when a new drug or other therapy becomes available. Let's assume that the new therapy is more effective in some cases than existing therapies - that is, it isn't just a me-too drug that duplicates what we already have - but that the advantage isn't overwhelming. On the other hand, it's a lot more expensive than current treatments. Who decides whether patients receive the new therapy? ... Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care - including the decision about what treatment is provided - is a public responsibility."

We could cite many cases about what is the appropriate medical treatment to be given in individual cases. Who's to say that the 55 year old male with hip soreness and pain should receive that hip transplant, or whether physical therapy, massage and anti-inflammatory drug treatment will suffice? Or whether the 50 year old with chest pains while mowing the lawn really needs those stints implanted into his arteries, rather than more traditional, less costly treatment. Or whether pain in the balls of my feet after playing tennis really mean I need repeated trips to the podiatrist for injections as opposed to some simple soaking of the feet after playing?

In the presence of private health insurance most of these decisions are made by the patient and his doctor, and in most cases the most expensive treatment is the one chosen.

By making the decision about treatment, in Krugman's words, "a public responsibility" we take the decision about treatment out of the hands of the patient and doctor. In many cases medical decisions on treatment will be decided by some kind of committee. To be fair, I suppose the more expensive treatment would be available if a patient were willing and able to pay for it out of pocket. That could work in the case of the trips to the podiatrist, but it effectively prices out hip transplants or stints for most patients.

That is what scares most people about a public health insurance option. Not that it will drive private insurers out of the market entirely, but that it will force private insurers to mimic what goes on in a public plan, to cover only those treatments decided by committee to be appropriate.

There are probably other kinds of reform of our health care system that could help restrain costs, for example, a system in which health insurance was only for catastrophic health care costs, and that health insurance benefits were taxable as income so as to remove the tax subsidy to health care spending. These might do a lot to contain spending. But these changes are too fundamental to be politically feasible.

So the Krugman of 2005 may be right. If we wish to continue with the basic structure of the way we provide health care through third party payment (subsidized health insurance that covers almost everything for everyone), the only feasible way to contain our health care spending may be to make health care treatment decisions by committee.

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