Hypothetical Mean

What if the CBO was more than $90 billion off its cost estimate for HR3962 (blog entry here)?  I think it may be, and it is easy to explain why.

Yesterday, I pointed out that the projected non-group enrollments outside of the Exchange were highly implausible.  Specifically, since individual new-sales outside of the Exchange would be made illegal, it seems illogical to project a static or increasing population of individual policy holders outside of the Exchange.

In today’s marketplace, people tend to cycle through individual coverage; as many as 35%-40% of policies terminate before they reach their first anniversary.  We could take all of the CBO assumptions, but simply assume that only 25% of individual policies lapse annually.  The result would be more than $90b in additional costs between 2015-2019, as illustrated in the table below.

The first three lines in the following table are straight from the various CBO reports.  The fourth line simply assumes that 25% of the policies that existed in 2015 lapse in 2016, and so forth through 2019.  I then assumed that those who lapse join the exchange at an average cost equivalent to those already on the Exchange.  The result is a whopping $91 billion difference.

This illustrates two things.  First, we have very little idea what is really going on inside the CBO models, and results this bizarre suggest that more peer review is warranted.  Second, even if the initial CBO model is perfectly fine, tiny tweaks in assumptions can result in massive swings in cost for this sort of program.  I would argue that this program design is inherently risky; the only way to keep the costs even remotely under control is to build a series of firewalls between employer-based coverage and individual coverage (less than 20% of people are even eligible for the Exchanges let alone the subsidies).  If any of these firewalls leak or if any of these assumptions are slightly wrong, we could be in serious fiscal difficulty.

Compare and contrast Table 2 from the CBO analysis of HR3962, the new House healthcare bill.  Specifically note that non-group /other net enrollment increases from 24 million to 30 million between 2015 and 2019.  Now compare this to the bill itself, Title II, Section 202, Page 94:

Individual health insurance coverage that is not grandfathered health insurance coverage under subsection (a) may only be offered on or after the first day of Y1 as an Exchange-participating health benefits plan.

How can enrollment go up if new enrollment is disallowed outside the Exchange?

The problem is further exacerbated when you realize the new dependents born after “Y1″ (A-1-B, page 91) are not allowed onto their parents’ plans and that individual business generally has a 30-40% lapse rate annually.  Granted, people may not be willing to part with the relatively cheaper grandfathered plans, so the lapse rate is likely to fall.  But it can’t go negative.

Perhaps the circle is squared by the ephemeral “other” category in the analysis.  But I doubt it.  Compare the HR3962 score with the Baucus bill score, which separated “other” from “non-group”.  In that score, those two categories moved in tandem under “current” law, and it seems reasonable to presume that the “other” category is mostly unaffected by reform (I presume it is Medicare disability, etc.).

There are many such examples like this, where you just want to shake the CBO and ask “What are you smoking?  And … Can I have some of that?”  I think I’ll need it.

Tom Maguire at “JustOneMinute” came up with that catchy phrase — Once Covered, Always Covered — to discuss the main component of my desired healthcare reform approach that I began to outline last year. With a catchy phrase in hand and with no hope of having any impact on the current healthcare deform bills being discussed today, here’s a talking-point listing of some of the components of my reform ideas.

PORTABILITY:

Portability of one’s insurance is the most easily addressed component of reform.  That’s where the Once Covered, Always Covered approach kicks in.  By law, everyone who is currently covered could switch coverage if they move, if they leave their job, or whatever.

All plans would be assigned an “actuarial value” and you could seamlessly turn in a group coverage plan for an individual-market plan as long as the newer plan was at the same actuarial value or lower.  Currently, the transition from group coverage to individual coverage is non-standard across states.  The transition to group coverage is covered by HIPAA, but has some holes.  Lastly, a Once Covered, Always Covered approach would eliminate administratively costly COBRA provisions.

All reform proposals carry with them tradeoffs; any pretention otherwise is dishonest.  The downside of this approach is higher “new business” individual rates.  State insurance departments would have to be vigilant to prevent carriers from capriciously entering a market, buying business, exiting the market, and then raising rates rapidly.  I have solutions in mind to minimize these problems, but they would get technical and wouldn’t entirely solve the problem.  But this is a tradeoff that I think many would willingly make.

UNINSURED:

If people are denied coverage today, they have guaranteed-access to state-run high risk pool insurance.  I would build on this in one of two ways.  First, we could federally subsidize the pools and streamline access.  Alternatively, we could work through the private insurance system entirely and have the federal government reinsure/subsidize high risk individuals.  Expected costs for initially sick individuals lower over time just as expected costs for initially healthy individuals rise over time.  I would taper the subsidies to mirror this reverse “underwriting curve”.  In either case, the federal subsidy should not fully pay for the increased cost of these individuals; there has to be some penalty for remaining outside the system until you become sick.  The penalty in today’s world is the administrative hassle to get into a high risk pool as well as the relatively high premiums in them.

COST:

No one has a good idea how to rein in cost in the current system.  Therefore, the only way we can be certain to lower costs is to reduce what is covered.  I would divide claims into four categories.  1) Claims that would be continued to be paid under private insurance, 2) claims that are not socializable and therefore will not be allowed to be paid under private insurance, 3) claims that fulfill a well-defined public objective, 4) non-essential medical services.  Examples of the latter two cases are as follows.  Examples of “non-socializable” claims are those that aren’t clinically more effective than cheaper and available alternatives, drugs advertised direct to consumer, claims that carry a disproportionate personal benefit and therefore don’t need to be socialized, like Chantix for smokers (Chantix is cheaper than cigarettes).  Examples of claims that fulfill a public objective include vaccinations, preventive health measures, etc.  I would also argue that maternity claims (which aren’t “insurable”) should fit into the category, including the extremely high cost and ethically electric issues of premature baby costs.  Tax revenue would have to raised to pay for this last category of benefits.  Non-essential medical services would include chiropractic services, mental health benefits, etc.  These services could be included in healthcare plans, but plans without these services must be sold to make sure coverage for essential services is affordable.

By focusing private insurance on just those sorts of claims that are medically necessary and that can be insured and socialized across individuals, we can significantly reduce the cost of coverage.  We need to begin a wave of “reverse insurance mandates” because we need to make truly necessary care affordable.  And if you want to tack federal subsidies onto these leaner.

I could go on, but what are the odds that anyone is actually reading this, let alone someone who could make this healthcare deform movement make some sense?

I hate to say it, but I think the excellent bloggers/economists Andrew Samwick and Donald Marron are entirely wrong when they say that “The problems of adverse selection and moral hazard in insurance markets are well known — they are what stands in the way of extending the benefits of competition to health care.  Addressing them should be the central features of the reform, with a risk-adjustment mechanism to address the former and high-deductible plans to address the latter.”

Adverse selection does not exist when the insurance company knows more about your expected costs than you do.  Here’s a quick question to illustrate:

You’ve had a simple fracture in the past three years.  What is your additional expected healthcare cost next year?  Do you know?  I do.  Change the question to a “wait-and-see” diagnosis for a pre-cancerous lesion and I’d still say I know more about that expected cost than you do.  We’ll rate for that expected cost, load for profit, and sign the contract.  Cool?

Insurance companies can issue surcharges for significant extra risk.  Profits don’t come from only insuring the healthy.  Insurance companies actually earn more profit insuring the <i>identifiably</i> sick <i>who also choose to be covered</i>.  Those contracts have more risk and more associated profit, almost always (if nothing else, profits are generally priced as a percent of premium, and the sick will be charged more premium because insurance companies are able to identify them with reasonable accuracy).

The problem is that there comes a cost level where the expected cost plus needed risk charges will exceed the person’s willingness / ability to pay.  And/or the needed price will be so high that it will make a demure health insurance company blush, making them worry about PR.  And rates are also frequently capped by regulatory limits on surcharges (I’m not arguing against those regs, I am simply pointing out that their existence leads people to be denied coverage).

This leads naturally into a second error I believe that Andrew and Donald are making when they trumpet potentially imperfect and administratively costly risk-adjustment mechanisms (actuaries are a top 3 profession and someone has to pay us for something).  Risk adjusters aren’t really a solution for adverse selection; risk-adjusters are really a way to transfer resources between individuals.  Again, an illustration:

A 20 year old male with a risk-score of 0.5 walks into a bar that sells insurance (yeah, yeah).  The bartender says “what’ll you have?”  The male says a $1,000 deductible plan.  The bartender says that he used to be able to sell that for $100 … but now he has to compensate for the 20-year old’s low risk score, so that he has to charge $300.

A 55 year old woman walks into that same bar.  She has a risk score of 1.5 because she had a zit on her nose when she was a teenager.  Yadda, yadda, yadda, and instead of being charged $600, the bartender can sell a policy to her for $400.  The bartender can (has to) do that because he has $200 shifted from the 20-year old.

Has any adverse selection problem been solved here?  Nope.  Either could have gotten the service for the initial price (and notice that the initial prices are independent of the quantity of competitors since they are simply a function of their true cost, which insurance companies can guess at better than you).  The difference is that after risk-adjustment, the healthier pay more and the sick pay less.

In fact, risk-adjustment may <i>cause</i> adverse selection, because, suddenly, the bartender can’t charge the 20-year old the low rate his health deserves.  The 20-year may just tell him to kiss off.  In which case everyone except the actuary will lose since you’ll have to pay the actuarial salaries to offer the exact same contract to the 55 year old that you would have without risk-adjustment.  Because even risk-adjusted markets can cause adverse selection, actuaries are (misguidedly) demanding that an insurance coverage mandate accompany this push to deform healthcare.

One of the fundamental questions of healthcare reform is “Who has the right to benefit from or pay for your health?”  If you answer that you do, then you don’t support risk-adjusters.  That has very little, if anything, to do with adverse selection.  Conversely, if you answer that no single person should benefit from or pay for their health, then by all means, risk-adjust away. They are great make-work for actuaries with tons of cool intellectual problems I’d like to try to be clever and solve.  And if that isn’t enough of a reason to support them, they can also be very successful at redistributing the financial gains and losses that would otherwise be caused by your health.

Just don’t pretend that you did it to solve a perceived adverse selection problem.  You did it to solve a perceived maldistribution of resources.

Part II: The Math of Individual Coverage

The benefit plan defined in the House healthcare reform bill is designed to limit a family of four’s annual healthcare expenditures to under $20,000 in 2013, assuming they are at 400% of Federal Povery Level (FPL) or lower.  Here’s how they do it.

First, the direct premium subsidies in the bill will limit the premium paid by a family of four to just over $800 per month, or $9,680 per year (see Section 243; assuming 400% of FPL and no increase in salaries between today and 2013).

The plan that can be purchased for that price, or lower, is the “basic plan” that will be designed to cover 70% of your allowable medical costs.  For a typical plan that might have $10,000 in expected allowed costs, this means that the family of four will expect to have $3,000 in additional copayments and coinsurance amounts.  The total expected outlay would therefore be less than $12,680 in after-tax dollars.  Impressed yet?  If not, there’s more.

This plan separately caps the household’s potential out of pocket cost.  For that same family in 2013, the House bill promises that you will not owe more than $10,000 per year.  The total annual out of pocket outlay would therefore be capped at $19,680 for that family.  This out of pocket maximum is much higher than the expected outlay in 2013.  In later years, the expected outlay will increase faster than the out of pocket maximum, pushing those values closer together.  I’m not sure why they chose to do that.

This maximum $19,680 will have to come from after-tax income.  Most families at 400% of FPL are in a 15% tax bracket and perhaps a 5% state bracket.  That means that $24,825 in pre-tax earnings will cover the maximum outlay designed by the basic plan in the House.

For the same family of four earning 200% of poverty, things look much better.  Their maximum premium is $2,200, with (potentially) the same out of pocket maximum.  Their total maximum out of pocket cost would then be $12,200.  On average, they would expect to pay “only” $3,700 in cost in after-tax dollars, however, because they will enjoy another feature of the bill: lower copayments for poorer families.  This after-tax difference of about $9,000 represents a sizeable implicit penalty that this plan will levy against those who get wage increases, take on second jobs, etc.  When making forecasts, the CBO assumes that this implicit penalty does not signficantly affect the labor market.

For those earning more than 400% of FPL, there is no cap on premiums, but the $10,000 cap on out of pocket medical expenses remains in the base plan.

Expect the Senate Finance Committee to be much stingier with subsidies, thereby raising these annual cost levels.  Also expect the Blue Dogs to fight to reduce these subsidies, also increasing these annual costs.  Lastly, this bill is planned to increase the size of all deficits in 2013 and beyond.  This increased budget pressure in the second half of this decade will force budget cuts, also decreasing these subsidies.

Therefore, I suspect that the $20,000 annual cap on costs is a best-case scenario.  We do need healthcare reform.  I’m concerned that the focus on federal deficits and budgets has obscured the fact that this bill does little to solve the average family’s problems.  If anything, it could make it worse.  Sad.

The first part of this series was posted here.

Part I: Individual Coverage Purchased after 2013

The House healthcare reform bill will significantly change the way you buy individual coverage.  Here’s a summary of the more striking provisions, and possible ramifications:

• Beginning in 2013, all individual insurance must be purchased through the government’s Exchange.  No more ehealthinsurance.com, although I wouldn’t be surprised if they aren’t a bidder for the government contracts to build the Exchange.
• Premiums on young men must be at least 50% of the premiums charged men age 64; the impact of this will differ around the country.  In states like New York where full community rating is already in place, this may lower premiums for young men; in most of the country, this will significantly increase premiums for young men.
• Premiums cannot reflect the cost differences between men and women; since women utilize care more intensely than men, at least through most of the age spectrum, this means that women will enjoy better value from plans offered after 2013.
• You will have up to 4 possible plans to choose from, three of which will basically be the same but with slimmer copays, with the fourth potentially adding dental and vision benefits.  These plans will focus on the use of copayments, avoiding coinsurance whenever possible.  Plan design will be governed at the national level through the Benefits Advisory Committee.
• Member copayments will increase faster than medical cost inflation which in turn will almost certainly continue to increase faster than the Consumer Price Index; the reason for the rapid rise in copayments is technical, and I’ll reserve for another post.  This is also little different than what is going on in the market today; the important distinction is that the Exchange plans will be tightly constrained by this law in how they deal with this mathematical problem whereas in today’s market, consumers decide how they want to spread this cost around.
• Over time, the basic plan will converge into something that will look like a $5000 deductible, 100% coinsurance major medical plan; the other plans will likely follow suit unless Congress intervenes.
• For members with incomes less than 400% of the Federal Poverty Limit, payments will be made by the Commissioner to the offering healthplans to help offset lowered copayments.  Healthplans, in turn, are to require lowered copayments, consistent with subsidized actuarial values.  How this consistency is determined is quite complex theoretically, and the proposed law is silent on measurement and enforcement, other than that the Commissioner’s actuarial models are to be used to establish the size of the payments from the Commissioner to the healthplans.
• For healthy members, the basic plan will almost certainly be the best value.
• For poor members, the basic plan will almost certainly be the best value, since the plan will be enhanced, for free, through government subsidies.
• You will need to annually file evidence of coverage.  Healthplans will send you information on what months you had qualifying coverage.  You will owe 2.5% of gross income in taxes if you did not have qualifying coverage for yourself or your dependents.  This is prorated if you let coverage lapse for any portion of the year.
• You will need to notify the commissioner when your income or family status changes.  This way your subsidies and plan design can be reconfigured by the Benefits Advisory Committee.  Failure to do so may result in penalties, especially if your benefits or subsidies should have been reduced because of an increase in income.
• If you don’t like the commissioner’s reconfiguration (i.e., change in copayments), you will be allowed to change plans during your annual election period.

Some other items (either more obvious or related to features that exist today):

• Individual plans purchased on the market today are “guaranteed renewable”, meaning that the healthplan cannot drop your insurance if you get sick.  Other laws prevent them from raising your premiums because of your health status, after you have insurance.  Plans under the Exchange will most likely NOT be guaranteed renewable; this isn’t a problem, for the most part, since you will have guaranteed issue rights to a new policy from the same or different carrier.  Your premiums still won’t increase because of your health status; in addition, they won’t be able to increase your initial premiums based upon your health status.
• The policies won’t have pre-ex periods or exclusion riders.
• The first few years are likely to see volatile premiums; after that, however, rate increases should be more stable than what you see in the individual market today.  That’s because rate increases due to aging will be limited (you will pay a much, much higher premium when young, but the flip side of that is that your premiums won’t increase as much as you age), rate increases due to “duration wear-off” won’t exist because initial underwriting won’t exist; and you will be part of a larger risk pool.
• The larger risk pool likely means you will be included in a higher average cost risk pool, but administrative expenses may be somewhat lower because of reduced underwriting costs.  This improvement in administration costs may be offset by behind-the-scenes reporting requirements for risk-adjusters, monthly copayment recalculations, plan coordination, and increased bureaucratic oversight.  The CBO has net yet modeled these administrative costs.

For CNN’s perspective on what healthcare reform means to you, see this piece by Sahadi.  Obviously, I think CNN’s discussion focuses more on the talking points than the likely result of the specifics of the legislation.  Lastly, these plans are in flux and so any of the aforementioned opinions or predictions may be obsolete at the time of this writing.  I also wrote these while reading the legalese of the House bill while playing with my oldest son.  Caveat emptor.  But I feel confident that these predictions are reasonable enough that they should be contravened carefully before being dismissed.  The devil is truly in the details.

Part II of this series details the House’s $20,000 annual household cap on medical costs.

Democrats like to complain about insurers denying claims to boost profits.  I debunked that linkage in my immediately prior post.  But what I have found truly amazing is that neither the House nor Senate HELP bills propose a mechanism for changing insurer claim denial practices.  What’s worse, people think that they have.  Here’s ABC News:

The House bill includes a proposal for a so-called health benefit advisory committee, which would include 25 people appointed by the president and the surgeon general to determine benefit eligibility.

“The decisions, right now, are being made by insurance companies. And I think a whole lot of people out there are having bad experiences because they know that recommendations are coming from people who have a profit motive,” the president said in an interview with ABC News’ Dr. Tim Johnson Wednesday. “If I’ve got a panel of doctors and experts whose only motivation is making sure that we get the most bang for the buck in our health care, I think that’s a situation that most Americans would feel pretty good about.”

Notice that this committee, described in Section 123 of the House draft says nothing about approval of specific claims.  Instead, what it does is work on benefit design.  For the uninitiated, what that means is that the Benefit Advisory Committee will determine whether chiropractic therapy has to be included as part of the basic benefit or whether that is an ancillary coverage insurance companies could voluntarily provide.  They will also determine maximum allowable copayments and coinsurance provisions, weighing the impact on “public health” and the ability to reduce “health disparities”, whatever the heck that that means.

What Obama’s channeling about public dissatisfaction has nothing to do with benefit design, however.  There will always be those grey areas, however, where a particular person is asking for an advanced treatment or an experimental approach, or a desperate hail-mary treatment.  The House bill is silent on those issues, yet those issues proved electric in the recently concluded campaign.

Currently, profit-driven insurers sell what people will pay money for.  If they want their lifestyle drugs covered, they will get them.  If you don’t like one insurer’s attempt to steer you to generics, you can pick a different copay structure or dump that insurer.  To date, state legislatures have borne the burden of requiring coverages when they saw the need.  The House’s Benefits Advisory Committee will be the federal voice for mandated benefits.  With very big teeth.

I think what we will find is that this committee will become politicized and will do a very poor job of mandating truly public health services, especially relative to the status quo where most of this is already covered somewhere.  Instead, I predict that this Committee will become a lobbying target of choice for various practices and require significant attention from insurance carriers, distracting them from the preferred goal of designing benefits that people will value highly as evidenced by voluntary purchase.

The bottom line: there is something called benefit design and there’s something called claims approval.  Those are two different functions and the House and Obama seem focused on the first, while the latter is what, I believe, has soured people’s perceptions of insurers.

(for this post I chose to ignore a potential alternative interpretation of Obama’s quote, which is that he believes that people are currently dissatisfied with their insurance because it covers too many things and therefore doesn’t provide sufficient bang for the buck; in this interpretation, they would trust the government to trim their benefits but not private insurers.  Possible, but I just don’t see it.)

Update:  Section 132 of HR3200 does provide for an additional layer of claim denial review.  It’s just three paragraphs long, and I’m not clear at all what it will accomplish that the current insurance department / judicial review process does not.  Therefore, I stand by my assertions above, but I thought I’d mention this section, in case people want to dig that out.

The public and journalism seems to be very confused on the linkage between claim denials and insurer profits. They also seem to ignore the role of the actuary as the middle-man in that linkage.

There is the common misperception that if a company denies a transplant, say, then the reduced claim costs flows to the company’s bottom line as profit. This linkage is tenuous, at best.

1) Many people aren’t actually insured by insurance companies; they are instead insured by their employer and a reinsurer. The “insurance” company in such situations has been hired to perform claims administration and to make their medical staff available as an arbiter for benefit disputes. This is the situation Cigna was in back in 2007 in the now infamous Sarkisyan transplant denial, made famous by John Edwards (recently resurfacing in this CNN article).

2) To price fully insured groups, large insurers develop “manual” rates, calibrated to the company’s claims experience.  As such, the actuaries involved either implicitly or explicitly consider the company’s past business practices, as dictated in Actuarial Standard of Practice #5 (Section 3.2).  What this means is that companies that are stingy with benefit determinations tend to have lower claims experience and therefore have lower manual claims and lower premium rates. This means that the “benefit” of the denied claims flows not to the insurer’s bottom line, but to the subsequently insured members.

3) More directly, denied claims don’t fall to the employer’s renewal in those situations where there is an experience rating.  This means that the future premiums for the employer are lower because of the denial.  This stream of lower future premiums may help retain the group business and therefore be a profitable venture for the insurer.  However, it is predicated upon the group’s continued satisfaction with the benefit plan itself and is not the direct linkage frequently suggested.

Now, it is true that actuaries can be tricked.  Companies can also change their business practices suddenly, resulting in a one-time windfall.  More often, however, healthcare works the opposite way, with new procedures and processes being put into place all the time, resulting in higher future claim costs and higher future premiums.  Actuaries account for this in an opposite way of claims denials: by “trending” their observations of the past.

I am fully aware of the fact that the bullet points mentioned above are generalities and there are exceptions.  I also am aware that I am greatly simplifying the work of actuaries.  However, I believe that the general truth is as stated: claim denials tend to be reflected in premium levels more than profit levels.

Policy Implication

This has an important policy implication that I personally like.  Specifically, people who eschew heroic medicine can tend to find insurers that don’t allow heroic medicine.  People who want heroic medicine, in contrast, can commit a priori to plans that approve heroic medicine.

The reality of today’s marketplace is that legal liability and the involvement of employer choice in the insurance decision water down the ability of people to select in the type of claims approval regimes that they would ideally prefer.  But as we consider reform options, I think it is important to evaluate whether the reforms will push us closer to allowing voluntary selection into relatively generous plans or not.

Logical fallacies abound in the current healthcare reform debate.  A small example of this is in Cohn’s piece, “At What Cost?”

the very act of expanding insurance coverage should help make the system more efficient and, as such, relatively less expensive. This may seem paradoxical, since that requires spending more government money. But it makes perfect sense if you understand the dynamics of the health insurance market and health economics.If there’s one thing we know about medical care, it’s that consistency and stability lead to better, more effective treatments. The reason places like the Cleveland Clinic or Group Health of Puget Sound can offer such good care for so much less money is that they see the same patients year after year–and that the patients, in turn, are part of one system in which medical providers communicate with each other and share information.

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But continuity is the exception today in American health care, not the rule. With no guarantees of coverage and no uniformity of what coverage looks like, people are constantly switching insurance plans and, in many cases, losing insurance altogether.

This employs the common trick of confusing health care financing and health care.  You can switch between large PPO networks today and frequently maintain full access to the exact same physicians and facilities.  Many states’ “Any Willing Provider” laws have almost guaranteed this.  Therefore, changes in insurance carriers may have absolutely nothing to do with whether you change doctors.

In contract, integrated and hailed organizations that link the financing and care, like Kaiser, run the risk of interrupting care if the individual or their employer seek an alternative insurance vehicle.

Adding irony, I don’t see any evidence that the Cleveland Clinic limits itself to a particular insurance company.  In other words, Cohn’s examples may have absolutely nothing to do with his main point.

Lastly, we should have a national debate on where “continuity of care” electronic records properly reside.  Physician offices?  Insurance plans?  A 3rd party?  There’s a lot of griping about the continuity of care, but there’s little discussion at the level necessary to effect meaningful improvements.

The Senate HELP committee is apparently changing their proposed mechanics for the public plan’s contracting:

In an important distinction, the Senate HELP committee’s plan would not use Medicare payment rates.

Instead it would set fees to doctors and hospitals using an average of what private insurers pay in each local area, according to the summary. That seemingly technical difference could help neutralize opposition from medical providers, who are wary that a public plan will translate into a significant pay cut for them. The health panel’s plan also stipulates that hospitals and doctors would be free to opt in or out.

1) I await with anticipation the large payments from the public plans to private plans to compensate the private plans for the expense of negotating and maintaining their voluntary networks;

2) This can only be calculated on a lag basis; will the reimbursement always be a couple of years behind?

3) What do you do in a geographic area where there are only a limited number of significant private players?

4) The public plans will have a significant actuarial advantage.  Presumably this will be structured by taking an average of last year’s fees and applying them to the next calendar year.  That means next year’s entire fee structure will be known in advance.  That’s a luxury few private plan actuaries have in the commercial market today.  Either we’ll have to get better, or the timing of all private payer contracts will be adjusted to neutralize this advantage.  That means hospitals who find themselves getting into a pickle will just have to wait.

It’s odd that those who believe so strongly in the efficiencies of the public plan have to keep finding ways to cook in advantages for them.

(Incidentally, I’m still waiting to see what sort of interest rates these plans will have to pay on their government start-up loans; smacks of “return to capital” i.e., profit to me)