Health Care Torpedo

June 25th, 2009 - No Comments

In a letter to U.S. senators released this week, the heads of America’s Health Insurance Plans and the Blue Cross Blue Shield Association argue that a government-run health insurance plan, like the “public option” promoted by President Obama, would spell the end for employer-based coverage while greatly increasing insurance costs for those who retain private insurance.

Smeal’s Keith Crocker, Elliott Chaired Professor of Insurance and Risk Management, explains the economics behind the insurance industry claims:

On the surface, President Obama’s “public option” health insurance plan sounds innocuous and perhaps desirable, and I think his goals are laudable. The question that has caused a lot of the opposition is, “How will this public insurer work in practice?”

Private insurers are forced to, at a minimum, break even. They can’t afford to lose money promiscuously. A public insurance company, on the other hand, faces no such constraints. Look at Medicare, which is hemorrhaging money in terms of its future liabilities. In an attempt to reduce these future liabilities, Medicare is reducing the reimbursements rates that it pays to hospitals and doctors for providing services.

The problem with this approach is that a big chunck of health care expenses are fixed costs, and if Medicare, or this new public insurance option, chisels down what it’s going to pay doctors, somebody else has to pay those costs. They end up getting pushed onto private insurance companies, which will see their rates have to go up as a consequence, making them eventually unable to compete with the public option.

In a nutshell, forced under-reimbursements from the public option will cause health care providers to look for remuneration elsewhere, forcing them to charge higher rates to private insurance companies, and ultimately driving these private insurers out of the market. That’s the fear, and given what’s happened with Medicare reimbursements over the last decade or so, it is a legitimate one. If there’s a government plan that doesn’t have to break even, it’s going to ultimately torpedo private insurance coverage.

Tags: Crocker, Health Care, Politics

This entry was posted on Thursday, June 25th, 2009 at 11:28 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.