Washington Post Reporters Don't Know How To Read Simple Reports On The Public Option

It appears the crack team of reporters at the Washington Post don't know how to read. They make the ridiculous claim that the public option would not be able to keep down costs:
The decision to permit states to opt out of the public plan is partly to blame for the Reid proposal's lack of reach, as it would leave about a third of the people in the country without access to the program, according to the CBO's calculation. But even the national plan approved by the House this month would attract only about 6 million people, the nonpartisan group has said, primarily because it would lack the tools to keep costs and premiums down.

This is not really what the CBO said about the public option in the House bill. It said:
The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)

If that is not clear enough, here is what the CMS said about the public option in the House bill. They are the government's experts on health care:
We estimate that the public plan would have costs that were 5 percent below the average level for private plans but that the public plan premiums would be roughly 4 percent higher than private as a result of antiselection by enrollees.

...

The impact of antiselection is estimated as the amount remaining after risk adjustment is applied.

The problem here is not the public option. The weaker negotiated rates public option would still have the tools to keep cost down. It would need to charge higher premiums because every other part of the reform plan is broken. The whole goal of reform was to prevent private insurance companies from cherry picking only healthy people and dropping their sick customers. That will only happen if there is a stronger risk adjustment mechanism. It is critical for a managed competition health care system.

A well designed risk adjustment mechanism makes sure there is no profit in trying to only sign up healthy people and taking steps to drop sick customers. Since it redistributes money based on the cost of covering each person with a set of conditions, an insurance company has equal reason to sign up a healthy thirty-year-old or a fifty-five-year-old with diabetes.

Unfortunately, the risk adjustment mechanism in all the bills is too weak. Even after reform, it will still be more profitable to only sign up healthy people and avoid the sick. Instead of competing on quality or efficiency, the private insurance companies will compete on risk selection. They will game the system and skirt the regulations. They will design plans to only attach young healthy people and hassle their unprofitable sick customers until they switch to another company. These are the "tools" to keep the down premiums that the Washington Post is referring to, and it is a good thing the public option would not be using these "tools."

The public option will attract these sicker people treated poorly by the insurance companies because it is trying to be socially responsible and play by the rules. The risk adjuster will not probably redistribute funds on the exchange, so the public option will need to charge slightly higher premiums.

The problem is not that the public option lacks the tools to keep down costs. It would have the tools to keep down cost.

The real problem is that reform does not take away the “tools” private insurance companies will use to keep down premiums. The bill will ban rescission and denying people coverage because of pre-existing conditions. Unless there are stronger risk adjustment mechanisms, the CBO and CMS are promising us that the private insurance companies will come up with a whole new bag of tools to screw over unprofitable sick people.

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