The Reality of a Public Option: What Physicians Need to Know

Over the past few months, we have watched the health care reform debate very closely. We have seen a number of health care reform proposals change drastically before our very eyes, and we have been bombarded with new terms about health care, including Co-ops, health care exchanges, and the newest game in Washington: the public option. As of recently, there are yet even more health care concepts to be learned, including the public option trigger, the public option opt-in, and the public option opt-out. It’s easy to become disillusioned by the abundance of health care terms being tossed around. Let’s break down the latest jargon in the ever-changing world of health care reform.

The concept of the public option trigger is a public option that would not be put into place until something “triggers” it. In this case, the public option would most likely be triggered by one of two things--rising health care costs or a lack of insurance competition. Think of it as a public option sprinkler system. If the flames of health care costs get too high, then it will automatically trigger the public option to kick-in.

The public option opt-in is a concept where the federal government would create a public option health plan, but individual states would have to vote at the State Senate and House of Representatives level to “opt-in” to the public option. If the states chose not to pursue the public option, or can’t get enough votes in either its Senate or House, then that state will not be included in the public option. In other words, each individual state would have the opportunity to choose whether to utilize a public option.

On the other hand, the public option opt-out is the opposite. Every state would be included in the public option unless the individual state was to vote itself out of the federal public option. The opt-out proposal would set up a national insurance plan and would be run by a private, not-for-profit board. But, states would have to prove that they can provide comparable coverage in order to exit out of the federal plan. 

So why is there so much discussion about public option and variations on that theme? Well, it is driven by two things. First, the public option appears to be the biggest hurdle in getting health care reform passed. For months now, Nancy Pelosi has been saying that she cannot get a bill through the House without a public option. At the same time, Harry Reid, the Senate Democratic Leader, has been saying that he cannot get a bill passed through the Senate if it does have a public option. All of this has been going on while President Obama is making it very clear that the only option off-the-table is having no bill pass both the House and Senate. Simply put, both Pelosi and Reid have been told that they need to figure out a way to get something that will pass both bodies of Congress so that President has a new law to sign before the 2010 elections. Enter to compromise or the public option opt-out!

This week, Senator Reid endorsed the idea of a bill that includes the public option with the ability for states to opt-out. This is the first time the Senator has endorsed any form of the public option. In addition, Senator Reid was quoted as saying, “We clearly will have the support of my caucus to move to this bill and start legislating.”

While there were comments both supporting and opposing this idea, it is starting to look like this is the ball that the administration thinks can cross the goal line. 

So what does this ultimately mean for physicians?

Let’s assume that some form of the public option passes. Once the bill is signed into law, the process for setting up this new government insurance company begins. Pelosi has said on numerous occasions that the new insurance company would pay doctors and hospitals 105% of the Medicare rate for the services they provide. Sounds great, doesn’t it? New York Democrat Senator, Charles Schumer, has also come out in support of a public option that pays providers at 105% of the current Medicare fee schedule. This is not surprising, considering that California and New York, where Pelosi and Schumer are from respectively, have two things in common: First, they enjoy major metropolitan areas where Medicare rate is significantly higher than most of the rest of the country because of the geographic adjustments. To illustrate this point, consider this: In New York City, a simple return patient office visit for a Medicare patient pays the doctor $71.51. In San Francisco, that same office visit pays a physician $74.57. Compare that to my hometown of Raleigh, North Carolina, where the exact same office visit only pays a doctor $58.89. That’s right, doctors in New York and California where Pelosi and Schumer are from get paid between 20% and 25% more for the same office visit as there counterparts in much of the rest of the country do. Another important thing that California and New York have in common is that in those states’ insurance companies have actually negotiated fees with doctors that are below the Medicare rate. It is very common, in New York and California, for commercial insurance contracts to pay doctors at rates that are 15% lower than the current Medicare rate. 

Now, given this information, let’s examine what would happen in two different states if a public option passes. For illustration purposes, let’s pick California and North Carolina.

In California, we now have a new government insurance company that is paying doctors 5% better than Medicare and 20% better than other insurance companies. Since this new insurance option is federal in nature, it doesn’t have to rate its product at the individual state-level like the other insurance carriers. So, even though its cost structure in California will be higher, it will still be able to competitively price its product and attract business. The physicians in California will love this plan because it pays much better than anything they have now. This will put pressure on the other insurance companies to match these new fee schedules or doctors will simply leave the CIGNA’s and Aetna’s of world and try to fill their practices with public option patients. The net effect of all of this will be an increase in revenue for physicians and hospitals in California. But won’t that drive up health care costs? Of course it will!

So, what about North Carolina? In North Carolina, where most insurance contracts pay doctors well above Medicare rates, there will be tremendous pressure on the insurance companies to lower their costs in order to compete with the public option. They will begin aggressively driving down fee schedules to levels at or below Medicare as a result of this new competition. The result in North Carolina will be a significant reduction in physician revenue as the new competitive field settles itself.

At this point, you’re probably asking yourself, “Well, if all the public option does is transfer money out of the pockets of doctors in states like North Carolina and into the pockets of doctors in states like California, why are people like Pelosi and Schumer pushing it so hard? One reason could be that both Pelosi and Schumer have to run for re-election in California and New York, and as such, they really don’t care about states like North Carolina. Think I’m being too cynical? Consider this: The Democrat Senators who have been most outspoken against the public option are people like Mary Landrieu (D-Louisiana), Ben Nelson (D-Nebraska) and Kent Conrad (D-North Dakota). What do all of these states have in common? Each of these states pay doctors for office visits even less than the $58.89 that doctors in North Carolina get paid. Secondly, each of these states voted for John McCain in the last presidential election. Right now, the Obama administration is telling Senators like Nelson and Conrad that they don’t really need to worry about the public option because under this new plan, their state can choose to opt out of it. And if that doesn’t work? Well, I’m sure there will be some stimulus money lying around for some new public works project in Nebraska or North Dakota. Anyone for the new Ben Nelson International Airport in Lincoln?

Like they say, there are two things you never want to see made--sausage and legislation!