The strangest part of the “private option” is that the plan grew out of pressure from local Republican lawmakers, the very same folks who had the loudest concerns about costs of the original Medicaid expansion. That’s strange because the new “private option” is going to cost more (not necessarily for the state — see here and here — but almost certainly for the feds).
It’s going to cost a lot more. This sort of thing has been studied. There are a number of reasons that offering coverage via private insurance is costlier than offering it via Medicaid but the main one ain’t rocket science: private insurers reimburse at higher rates. Even conservatives that like the “private option” better agree that it will cost more.
Well here’s the thing. Despite a broad consensus about cost, Republicans at the forefront of advocating for a “private option” as a possible alternative to Medicaid expansion do not agree. They think that the “private option” might not be any more expensive for the feds, and could even cost less.
Rep. John Burris and Sen. David Sanders have been key players in the negotiations that have brought us the “private option.” I've had lengthy discussions with Burris and Sanders both individually and as a pair.
"We don't want to do anything that will lead to higher [federal] budget deficits," Burris said. “We want better healthcare and better outcomes in a more cost-efficient way."
Burris conceded that "if you look at as a simple equation it would be easy to say reimbursement rates are higher, therefore it costs more." But they don't think it's that simple. Both Burris and Sanders have lots of wide-ranging ideas about healthcare policy and I don’t pretend to capture of all that here. But based on those discussions, I think that I can broadly articulate three reasons that they believe that the “private option” will not necessarily cost more than Medicaid expansion. Read on after the jump.
***I’ll say this again at the end, but I want to be clear: I think there are a lot of problems with the arguments articulated below and I don’t agree with their conclusions large or small. But the point of this post is simply to try to explain the thinking of key Republicans on the “private option.” If you absolutely can't wait to hear counter-arguments, you can read this.
1. They think that private insurance will produce better health outcomes and this will drive down costs.
You get what you pay for. You can look at study after study that shows re-admissions, cost of care, lower quality of care for Medicaid patients. You ask yourself, how much does that drive up the price tag long term when people aren’t getting the quality of care to actually make them healthy?
You can quantify that in real dollars. That’s not just wishful thinking, it’s a very real aspect of this that now people are actually going to have access to quality care under a private plan. That has to result in long-term savings.
2. They believe that increasing competition on the exchange will have a long-term downward effect on price.
You have to take a look at potential market forces.
Under this policy framework the exchange in Arkansas will be dramatically cheaper. One, the transaction changes. The basic rub in the transaction on the exchange wasn’t getting people to sign up. It was the churning effect where you’ve got people moving up and down the income ladder…It’s going to be fundamentally cheaper because you don’t have that churn effect, therefore you don’t have the same need for the elaborate systems.
This policy framework expands the pool for private coverage. We think it’s going to give us a more competitive environment — not only for those people on the exchange in terms of the products that they're going to have to pick from, but also the private payers because companies who come in to compete [on] the exchange, they're also going to compete on the private pay side.
Right now we don’t have a hugely competitive private pay market. We don't have competition on the carrier side and that's a problem.
When you add this number of people into the pool, the pool expands. The natural outflow is more companies competing.
I don’t want to oversell here. But what we're saying is there will be new competitive cost pressures in the market.
The point about carriers is partially an Arkansas-specific argument because the state has so little carrier competition on the private market right now, but their point is that if there was a downward impact on premiums because of more companies coming to Arkansas, that would save the feds money. More broadly, Sanders and Burris think that the "private option" will produce a more market-based environment that they believe will in the long run control costs better than a public program because of competition.
3. They think that moving away from a public program and toward a model that makes use of private markets will lead to a more cost-effective reform effort overall, in all sorts of ways.
This one is the most abstract and probably gets to the "philosophical" difference that Gov. Mike Beebe has referred to. But part of their argument is that it's unfair for someone like me to simply look at the likely cost of coverage via Medicaid and coverage via private insurance in a vacuum without considering the bigger picture. They think I'm missing the forest for the trees. This seems to be at the core of Sanders’s thinking, and it’s frankly a bit hard to succinctly explain all of his ideas because of his manic enthusiasm for basically every big-picture healthcare idea from every conservative policy thinker ever. Don't mean that in a snide way — he's well engaged on these issues, but he thinks in very sweeping, very long-range, very ambitious terms ("we are just getting started in a brave new world of policy in the United States").
For Sanders, this whole process is about "getting Arkansas into a framework that best prepares us to deal with the challenges of healthcare in the future. How are we providing the best possible care at the lowest possible price? Working through the private insurance markets are a good place to go."
At the root of this is massive distrust and distaste for Medicaid. Both Burris and Sanders asserted numerous times that it would only make things worse "to throw a bunch of people into a broken system." They believe that the Medicaid program is inherently ineffective and costly.
Here's Sanders: "What do we have to look at? We have history, the increased costs of Medicaid, just in terms of the size of our budget and what has happened. I think the private market is a more nimble environment — I think administratively, I think from every aspect."
Sanders believes that private insurance companies will be more effective at positively influencing patient behavior, finding efficiencies, and employing reforms and innovation. It is an article of faith for him that private markets are simply better at all those things than a public program, so for Sanders, in the long term, a "private option" approach will be, relative to Medicaid, more cost efficient than anyone is predicting.
They also believe that reform ideas will function more effectively in private insurance. For example, they think that focusing more resources on outliers — the most sick and most costly patients — will both lead to better outcomes and save a lot of money. Because they believe private companies are more "nimble," they think it will be easier to implement an approach like that under the "private option."
"We’re seeing in real time what is happening in private insurance markets," Sanders said. "We’re seeing the cost savings that can be brought to bear and we’ve seen what happens in terms of the quality of care."
More from Sanders:
This new path, “private option,” is really opening the door for some innovative things. And that is where health care is moving. Health care is by nature innovative. It has to be, if you’re not, you’re not doing your job. This opens the door to more innovation.
One major flaw of the ACA is that it did nothing to really address a lot of the underlying problems in healthcare reform, it just basically said get everybody under the tent, however we can do it, and then we’ll get to all that other stuff down the road — patient behavior, provider behavior. This approach is much more about doing all stuff now in concert. Let’s address all these issues together at once. Whereas Medicaid expansion was really just status quo — everybody knows there’s problems on the provider’s side; on the private insurance side, there’s not enough competition; Medicaid reimbursement rates are too low and people don’t have access to care. All those problems still existed with simple Medicaid expansion but I think the route we’re taking (hopefully, if we can get there) approaches every prong of the problem. And I think when we look up in ten years — probably less than that — we’ll have a healthcare system that hopefully would be the model for patients, for the state in terms of dollars spent, but also the federal government.
The other piece of this is that they are hopeful that this approach will allow them to make reforms to the existing Medicaid system in ways that will save money long term (liberals can gulp now). They also hope for more flexibility with the expansion pool, though coverage for the folks below 100 FPL will be governed by the same ACA rules as traditional Medicaid while coverage for the 100-138 group will be operating under the ACA constraints of that group on the exchange.
Summing up, they believe that the "private option" has advantages on the cost side in multiple areas within a system with lots of moving parts. Sanders referred to a big-picture "cost of doing business," with the expansion pool just one piece of a larger puzzle. The other REALLY big-picture factor is that Sanders believes that "Obamacare was built to break and what would emerge in its place might be some sort of a single payer healthcare system." Lots of folks believe that single payer would mean lower costs and better outcomes! But Sanders, of course, thinks it would be a super-costly disaster. This is the irony at the heart of this: subsidized exchanges were a conservative idea way back when, meant as an alternative to something like single-payer.
So...I think Burris and Sanders are incorrect and that in fact offering coverage via private insurance is going to cost more. I think that 50 percent more is probably a reasonable guess from the CBO (though the raw number of $3,000 is not applicable and folks should stop using it). Maybe that 50 percent rate — which comes from a thorough, nonpartisan, well-respected source — is too high, but the “how much more” number will be substantial.
There will be plenty of time to pick holes in the arguments above, but for now I’ll just say that I think that it’s worth trying to understand where Burris and Sanders are coming from. While I think they’re dead wrong, I also think they’re sincere. It’s been a bit maddening for observers of this process to see the folks supposedly worried about cost negotiating the price tag up — but it’s important to understand that, for better or worse, they don’t see it that way.
*caveat as always: no Republican lawmaker has endorsed anything yet