The Wonk Room

Rockefeller’s Public Plan Outline Relies On Medicare Plus Rates

Sen. John Rockefeller (D-WV) — who is a member of the Senate Finance Committee — is circulating draft legislation for a new public health care plan. Rockefeller’s Consumer Choice Health Plan would compete on a level playing field with private insurers:

The Consumer Choice Health Plan [CCHP] will be financially self-sustaining… The Administrator will establish and fund a contingency reserve for CCHP in a manner similar to that of the contingency reserve established by OPM for the Federal Employees Health Benefits Plan. Funds to operate the plan shall be derived from premiums for individuals enrolled under the plan and from contributions by employers not providing private health benefit plans.

On the controversial question of provider reimbursement rates — the actual question is: should the public plan reimburse providers Medicare rates or the prevailing market rates of private insurers — Rockefeller lands somewhere in the middle. He argues that “the provider payment rates for the first two years of the Consumer Choice Health Plan will be based on Medicare provider payment rates.” A significant lesson learned from Medicare Advantage is that private plans do not have strong tools, or incentives, for controlling costs relative to traditional Medicare,” Rockefeller explains. “Private plans consistently pass higher costs onto consumers while simultaneously increasing their profits.”

A public plan that uses Medicare-like prices could, in an environment of head-to-head competition, push private insurance companies to negotiate more aggressively with providers and dramatically lower health care spending. Still, critics charge that Medicare rates underpay providers (doctors and hospitals), forcing them to “make up the shortfall in the prices they charge private insurers, effectively subsidizing Medicare.”

But during recent testimony in front of the House Ways and Means Committee, Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission (MedPAC) said that Medicare — which pays providers approximately 14 percent lower than private insurers — “doesn’t underpay doctors and hospitals.” It promotes system efficiency. As the WSJ reported:

Hackbarth largely dismissed complaints about Medicare payment rates. “We think that Medicare rates are adequate and consistent with the efficient delivery of services,” Hackbarth said. One exception, according to Hackbarth, is that Medicare pays too little to primary care physicians. Hackbarth said “overly generous” payments by private insurers to health-care providers drives up overall costs, eventually affecting Medicare payment rates. He said research showed that hospitals which didn’t rely on high payment rates from private insurers “are able, in fact, to control their costs and reduce their costs when they need to” and “combine low costs with quality.”

Moreover, a recent Commonwealth Fund survey found that elderly Medicare beneficiaries “reported greater overall satisfaction with their health coverage, better access to care, and fewer problems paying medical bills than people covered by employer-sponsored plans.” This is partly due to Medicare’s market power — the program is so large that doctors can’t afford to deny treatment to Medicare patients.

Medicare rates aren’t all bad, but it’s unclear if doctors would be willing to accept lower fees from the new public option. In a competitive environment, a public plan that can’t attract providers will rot at the vine; in other words, to attract patients any plan would have to retain doctors its enrolless would want to see. But if Congress requires all providers who accept Medicare to also accept patients with the new public option, then the new public plan would serve as a robust option that could lead to lower health care spending.