Obama, Insurers Go Toe-to-Toe

(MoneyWatch)  President Obama today rebutted insurance industry claims that the proposed "public option"--a government-sponsored plan that would compete with private insurers--would lead to the end of the employer-based insurance system.

"If private insurers say that the marketplace provides the best quality health care ... then why is it that the government, which they say can't run anything, suddenly is going to drive them out of business?" Obama said at a White House news conference.

Insurance companies argue that a government-run plan would put them at a disadvantage if it paid providers at Medicare rates. (Actually, the House committees' proposal would pay them at Medicare plus 5 percent.) According to Scott Serota, president of the Blue Cross & Blue Shield Association, a public plan would also create access issues if it paid so little. He cited research showing that "in some parts of the country, nearly 30 percent of Medicare enrollees report they cannot find doctors willing to take new patients, due to below market rates." Of course, this is inconsistent: If many physicians aren't willing to see new patients at Medicare rates, the public option poses little threat to private insurers.

The carriers' real worry, as Serota puts it, is that "tens of millions" of currently insured patients will abandon private insurers for the public plan if it can get away with paying providers substantially less than the commercial carriers do. And in fact, the Lewin Group, a leading research firm, did predict that if such a public plan were open to small firms and individuals, about 43 million people would vote with their feet. If it were open to everyone, Lewin said, three times that many would join it. The current Democratic proposal is to start with small firms and later invite in big companies, as well.

Under the public option proposal, the President noted today, the government would provide startup funds and then let the public plan compete on its own. But in a letter to senators, Serota and Karen Ignani, president of America's Health Insurance Plans, said, "We do not believe that it is possible to create a government plan that could operate on a level playing field."

That may be overstating the case, but most Democrats don't seem inclined to compromise on their goal of creating a strong, national public plan. And if they're going to pay physicians and hospitals only a bit more than Medicare does, they probably intend to require providers to participate in the public plan as a condition of Medicare participation. The AMA has already said that's a non-starter, and even though the association doesn't represent the majority of physicians, it's likely that many other doctors will oppose it, too.

In an earlier letter to Senators Baucus and Kennedy, President Obama said that a public option was necessary to keep insurance companies "honest." That's a very defensible political stance, because the public hates insurers and HMOs--and they certainly have good reason in some cases. But when a government plan has to deal with the same issues of runaway spending and out-of-control technology that the insurers have to address, it will be interesting to see how differently it comes across to consumers.