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The HuffingtonPost has a fascinating look at the Goldman Sachs analysis of the effect of health care reform on the private insurances companies. Their basic conclusion is that any reform, even under the weaker Baucus bill, would be bad for the insurance companies. Of course, they concluded that the Baucus bill would be dramatically less bad for insurance companies than the House bill. While Goldman Sachs thinks it is unlikely a public option will make it into the final bill, I found this section of their report very interesting:
A “bear” case scenario, where we introduce a government-run public plan that we assume would capture the majority of coverage expansion under reform as well as some of the industry’s current market-share in the MML segment.
Goldman Sachs believes the public option would be the dominant player on the health insurance exchange, with over 50% of that market. This is significantly more than the CBO’s projection that the public option would only sign up 20% of the customers on the exchange. Of course, determining how well a new business would function in a new market place is very much outside CBO’s normal job function and abilities. I trust Goldman Sachs is much better at that type of analysis. This follows closely my projections of how well the public option will perform given its restrictions:
I think the most likely result if the House bill were the final bill is that the public option would be a success, but hampered by a failed exchange. I think the public option will easily get significant plurality of the customers on the exchange. While the CBO concluded that only 20% of people on the exchange would choose the public option, I believe that number will be much higher. A Quinnipiac poll in August found 25% of Americans would sign up for the public option, while an Emory poll from a few days ago found 41% would choose the public option. These polls ask all Americans about sign up for the public option. The people who would be eligible for the new exchange (self-employed, uninsured, small business) tend to have a lower approval of private insurance, and should be more likely to sign up for a public option compared to the entire population.
Scenario: The public option becomes the default insurance choice in people’s minds. It could easily end up being selected by 40-70% of all the people on the exchange. This large risk pool makes the lack of a proper risk adjustment on the exchange less consequential for the public option. The huge customer base allows it to negotiate good rates with providers, lower its premiums, and, in turn, attract more customers. The public option is the dominant player on the exchange with a noticeable percentage of people choosing slightly cheaper, more restricted, private HMO plans, and a small percentage selecting high-cost plans with more expansive coverage. The public option is strong enough and provides coverage for such low overhead that it forces some improvement in plans off and on the exchange.
The biggest hindrance to the public option is that it is restricted to a failed exchange. The problem is the exchange is seen by most of the public as a not very desirable place to get insurance. In many areas of the country only a few plans would be offered. Because of a short sighted decision by Congress, most plans on the exchange are fairly bare bones with relatively high deductibles. The single biggest issue with the exchange is that it generally has a higher-cost risk pool. This problem is made worse by small- and middle-sized businesses that are eligible to get coverage through the exchange. Those businesses with young, healthy employees choose to buy group coverage, but those with older, sicker employees give them vouchers to use on the exchange. The net result is that coverage on the exchange is relatively high compared to many employer plans.
Even though the public option and other plans on the exchange may provide more cost effective insurance, they still need to charge higher premiums because of the risk pool. Most people don’t want to use the exchange, and, as a result, there is no political pressure to open up the exchange. Equally, the private insurers push hard to prevent the exchange from being open to protect their market share from the public option. The public option is a successful at what it does. It has 40-70% of the market, but it is limited by being stuck in small exchange. The result is the fairly powerful public option with 25 million customers.
With 15-30 million customers, the public option would be one the largest insurance companies and would have the ability to really force the rest of the marketplace to reduce premiums. Goldman Sachs agrees that it would really push down profits. This is what really terrifies the private insurance companies, and it is why they are so strongly fighting against the public option. They would be subject to many new regulations, and a majority of their promised 36 million new customers will choose the public option. When it comes to determining if the public option will succeed, I recommond listening more to Wall Street’s analysis than the CBO’s.
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as I pointed out downstairs, let’s compare health care to education, private schools become extinct when we developed the public school system
once only those who could afford shchool would get educated, now everyone has the right, those who want private school can still get it
further, isn’t it bizarre we guarantee everytee everyone has an education but we don’t guarantee everyone has health care
a little backwards right there
Do you really not know that there are thousands of private schools in this country?
I do inn fact know that there are, that’s the very point, private industry did not go out of business when we made public school available to everyone
that is the point of my post, I suppose I wasn’t clear
Ok sorry, sarcasm is tough on the internet
aha
now I get it…am slow today *g*
You think GS makes these remarks public because they’re feeling generous? You trust GS, who has a book to play, over the CBO, who doesn’t benefit from market fluctuations? Really?
I’ve got a very elegant bridge in Brooklyn that I have to sell. Interested?
Medicare For All / HR 676: empowering the heart of the US healthcare market –the American people
Jon, Your comment assumes Goldman Sachs has determined that the PO will actually be able to break into all or most insurance markets across the country and not only survive the entry process but become big enough to set its premiums even with or below those of the existing insurance companies. As I read the tiny little Goldman Sachs report (the version available at the Huff Post site couldn’t have been more than a single page long), Goldman Sachs made no effort to determine whether the PO would establish successful insurance companies anywhere in the country. Do you know if that’s correct?
If it is correct and GS made no effort to determine whether the PO will survive and, if so, where and with how many enrollees, why do you give the GS report any credibility?
I don’t know if you saw my question for you on your earlier “Tipping points…” comment, so I’ll post it again here. My question describes the process I believe the Secretary of HHS will follow in setting up the PO market by market,and then it asks you to comment. Here it is again:
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Jon, I appreciate your effort to depict what will happen to the PO as the Democrats’ legislation envisions it. It’s a difficult task. Other than you and me, I know of no human being on the planet who has tried to describe the birth and early growth history of the PO.
But your scenarios skip over the birth of the PO. How is the PO created and who will do it? I can’t find anyone, pro or against the PO, who can answer that question.
I posted my own scenario plus some question on one of Jason Rosenbaum’s diaries a week ago and asked him if he thought it was accurate. He answered, “Not interested.” I’m posting it again here. I’d appreciate hearing your assessment of my scenario.
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Could you walk us through the process by which the Department of Health and Human Services will set up an “option” plan in any given market, say Boston, under the Senate health bill, HR 3200, or HCAN’s blueprint? Here’s the scenario I believe will occur under both the Senate HELP bill and HR 3200.
* Beginning in 2013, the Secretary of HHS contracts with a “contracting administrator,” that is, a corporation such as Blue Cross Blue Shield, to set up an “option” plan in Boston. The Secretary also loans Blue Cross several hundred million dollars to carry out all the tasks necessary to set up an “option” plan.
* Blue Cross then hires 80-100 people to create an insurance company to serve Boston. These people do the things you’d expect people to do to create a new insurance company, including making cold calls on clinics and hospitals to see if they’d be interested in accepting “option”-insured patients at Medicare rates plus 5% (or about 15% below the insurance industry average).
Question: Do you anticipate that Blue Cross will at some point ask clinics and hospitals to sign contracts with Blue Cross indicating their commitment to be part of the Boston “option” network? Or will contracts be unnecessary?
* After six months of making numerous cold calls, Blue Cross succeeds somehow in inducing a sufficient number of clinics and hospitals to agree to accept “option” enrollees. Now Blue Cross incorporates the Boston Public Option Plan (BPOP) and hires 80 people to staff BPOP.
Question: Does Blue Cross exit the scene now, or do you anticipate Blue Cross will continue to serve as an advisor to BPOP? Obviously, Blue Cross, if it does retire from the project, has to leave in place a contract with BPOP that at minimum ensures BPOP will repay the loan that Blue Cross got from the Secretary of HHS.
* BPOP/Blue Cross now begins advertising heavily and making cold calls on employers seeking to induce tens of thousands of Boston residents to pay their premiums to BPOP in the event that these people are eligible to shop in the MA exchange.
Question: How many people will have to enroll in BPOP in order for BPOP to have sufficient leverage over local providers to get them to accept reimbursement rates even with or below the rates paid by Aetna et al. in the Boston area? I’m not looking for precision, just some evidence that you or someone you know in the “option” movement has thought about this.
* Let’s assume BPOP solves the chicken-and-egg problem of trying to assemble a critical mass of providers and enrollees roughly simultaneously. BPOP formally opens for business. BPOP makes enough money within the next 8 to 9 years that it can repay to Blue Cross the loan it got from the Sec or HHS. Blue Cross in turn repays HHS.
Is this the process you envision?
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Thanks.
Kip Sullivan
*** crickets *** from Rosenbaum. I’m shocked. Three scenarios I can think of to account for this:
1. Lack of knowledge. Rosenbaum genuinely doesn’t know the answer to the question.
2. Disinformation. Rosenbaum knows the answer, but telling the truth would impact whatever goal he thinks he’s achieving, and so he remains silent.
3. Censorship. Rosenbaum would love to give the answer, but his bosses at HCAN won’t allow that, and, as a good employee, he obeys.
Actually, Valhalla points out that Jason’s post is even more disingenuous than we thought. GS writes:
Somehow Jason converts that to:
That’s only in the “bear” scenario. There are two others: “bull” (no change) and “base” (Senate bill). There’s no guarantee that any one of the scenarios will happen; that’s why GS included a range of options.
Has HCAN really been reduced to making sh*t up in order to sell this bad bill?
My bad — I’m so used to dealing with Jason’s non-responsiveness that I mixed him up with Jon. To be clear, then, the disingenuous nature of the post is down to Jon, and Jason.