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Adding Up The Public Option

It can't really cut into the cost of health care.

12:00 AM, Oct 16, 2009 • By STANLEY GOLDFARB
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Intrinsic to the legislative plans now under debate is the idea that we will constrain the growth in health care costs by cutting insurance premiums. This is like reducing automobile accidents by reducing auto insurance payments. It makes no sense at all. Reducing health care costs by reducing insurance payments depends on the concept that there really is no increase in intrinsic health care costs and all of the increase is due to the predatory practices of insurance companies. That is what they would have us believe in order to sign on to either the Baucus bill (insurance exchanges) or HR3200 (the public option). But here is what the CBO in its study, "Key issues in Analyzing Major Health Insurance Proposals" released in 2008, has said about the growth in Medicare costs:

"The rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will increase from about 4 percent of gross domestic product (GDP) in 2009 to nearly 6 percent in 2019 and 12 percent by 2050. Most of that increase will result from growth in per capita costs rather from the aging of the population."

Unless the government is profiting from Medicare, it appears that there really is an increase in health care costs above and beyond the insurance companies' profits. Moreover, private for profit insurance companies actually make up a minor component of health care spending. According to the data from the Alliance for Advancing Non Profit Health Care, 48 percent of Americans with private health insurance are actually covered by non-profit plans (like Blue Cross and Blue Shield plans), based on health plans with an enrollment of at least 100,000 members.

Let's do the math to see the impact of the public option: A recent analysis by economists at the Agency for Healthcare Research and Quality found that the public sector accounted for more than half (56 percent) of all health spending within the civilian non-institutionalized population. Forty-eight percent of the rest are covered by not-for-profit insurance plans. Therefore, we are about to control American health care cost growth by reducing the profits of the 25 percent of spending in the private for-profit insurance sector. Fortune magazine's reports their profits are 3 percent. If we cut their profits in half, we will save 25 percent (private for-profit share of insurance spending) of 1.5 percent (half of private insurance profits); that saves 10.8 billion dollars a year (equal to 0.4 percent of U.S. health care spending). That leaves over 70 billion to 100 billion a year to be funded through increased taxes or cuts in health care spending if we accept the CBO's latest assessment of the cost of the Baucus bill. And that will still leave 7 percent of the U.S. population without health insurance. That amounts to some 20 million people.

Medicare really defines health care in the United States. Private insurance companies pay hospitals and physicians pretty much in the manner that Medicare pays them. Since Medicare and its cousin, Medicaid, are far and away the largest insurance companies in the U.S., they really are to "blame" if there is a problem with American health care costs.

Next time you get to participate in a town hall meeting with your congressman, try to get an answer to how they plan to control health care costs given the arithmetic of how it all is paid for now. Please try to find out how the "public option," saving 10 billion dollars each year, is going to solve our health care system's 40 percent excess cost compared to the supposed highly desired health care system of Canada. That 40 percent is equal to 1.08 trillion dollars. It just does not add up.

So why the public option? It cannot really cut into the cost of health care, certainly not the rising cost of Medicare. There is only one reason and that is ideology and political philosophy--not "keeping the insurance companies honest." What we really need is an honest discussion from our political representatives of how we will control health care costs. We probably will not like what we hear, but at least it might be the truth.

Stanley Goldfarb MD is associate dean of clinical education at the University of Pennsylvania School of Medicine and a nephrologist.