[ Editor's Note: We originally posted this article yesterday morning. We're moving it up because it's even more relevant today as the Finance Committee debates the public option option.

We've also added some thoughts—below the fold— from Primera spokesperson Eric Earling, who is also quoted in the original story.

Some of Earling's comments are addressed to PubliCola reader "N in Seattle," who weighed in with yesterday's "Comment of the Day." ]

The Democratic side of Washington’s congressional delegation has been consistently progressive on health insurance reform—backing the public option despite the slavering hordes of teabaggers who ceaselessly denounce the proposition as socialism. But the public option may actually be a bad spoon full for Washington.

As reported recently in the Puget Sound Business Journal, (sorry firewall) some business oriented voices, like The Washington State Hospital Association (WSHA) and The Washington State Medical Association (WSMA), have been circulating a wonky, (and as opposed to the teabaggers) a sane and troubling assessment of the public option. They claim that the public option, if based upon Medicare’s fee structure, could potentially break the bank, specifically theirs.

In states like Washington that have efficient health care delivery systems, hospitals tend to lose money by treating Medicare patients because the program’s reimbursement rates are arranged along fee-for-service lines, rewarding quantity over quality. This means that when efficient Washington hospitals get good outcomes for their Medicare patients by doing less, they actually lose money, while states with less efficient care, like Florida, rake in two times Washington-level reimbursement rates. According to  a May WSMA poll, almost 30 percent of physician groups said they were either dropping Medicare patients or no longer accepting new ones because of reimbursement shortfalls.

“When you look at the public plan that is being talked about, particularly on the House side, the strongest proponents for a public option say they want a robust Medicare-like plan that dictates Medicare like rates,” Eric Earling, Senior Communications Manager for Premera Blue Cross, tells PubliCola. “Obviously, if doctors and hospitals in Washington State are already losing money, expanding that problem by bringing even more people into a system that underpays local doctors and hospitals will be really problematic.”

The reimbursement issue is familiar to the Washington congressional delegation—they’ve been working on it for the better part of a decade. But Earling contends their support of the public option creates tension with attempts to fix the Medicare disparities. Would they still support a public option, specifically one pegged to Medicare rates, if the reimbursement overhaul isn’t adequately addressed?

Washington's Democratic  politicians are in a tricky spot. They want pass health care reform for their constituents, but they don't want to screw their other constituents, the health care providers—national exemplars of efficient care—who stand to get slammed by ass backwards reimbursement rules.

“I strongly support a public option [and] I don’t have a problem with basing it on Medicare, if we fix the unfairness on Medicare reimbursement rates,” Rep. Adam Smith (D-9) tells PubliCola.  “I see all of that as somewhat separate from the public option discussion. The reimbursements rates are flawed right now.”

But when we asked if Smith thought the reimbursement rates would be addressed in an eventual health insurance reform bill, he didn’t seem overly optimistic.

“I’m becoming concerned that they will not be, but I don’t know,” Smith says. “Right now everything is up in the air. They haven’t actually put it on the table yet. Thus far they have not come out with language that would address it. But they are continuing to talk about it and continuing to have a discussion, in that sense I do have some optimism.”

In the Senate, Sen. Maria Cantwell, a member of Max Baucus’ suddenly-famous Senate Finance Committee, brought the reimbursement question to the fore last week, ensuring it was included in the revised version of the committee’s bill released Tuesday. But she also said she wouldn’t support a bill that did not contain a public option .

When House Democratic leaders promised to study the reimbursement problem, Cantwell’s response was tart.  “We are beyond studying it,” she recently told the Tacoma News Tribune. “We already know the facts. If we don’t reform the way Medicare pays for health services, we will break the system.”

Back in Washington State the WSMA has already declared their opposition to a public plan based on Medicare reimbursement rates.  But progressive critics don’t think the reimbursement issue should prevent Congress from enacting a strong public option that could potentially cover the tens of millions of uninsured Americans.

“Not having the public option, but having huge public subsidies for healthcare insurance is a gigantic gift to the health insurance industry,” says Shannon Brownlee healthcare expert for the New America Foundation and author of the 2007 book Overtreated: Why Too Much Medicine is Making Us Sicker and Poorer . “I wish we could do both at the same time, but I do not think that any of the current bills get at [the reimbursement] piece of the problem very effectively. We’re going to cover people first and then we’re going to say ‘oh my god it’s costing a bundle’, and then we’re going to need to do something about the delivery system.”

But all of this may end up being purely speculative. With four other bills circulating around D.C., not including the one as yet unfinished by the Finance Committee, it is impossible to predict whether a public option will even make it in to the final bill. If it does, and the reimbursement question hasn’t been adequately addressed, the Democratic side of Washington’s congressional delegation may have an awkward choice ahead of them.

[Postscript: For a more comprehensive understanding of the benefits of basing the public option on Medicare rates, and the arguments against it, read this post by the Washington Post’s resident healthcare policy wonk, Ezra Klein.]



Comments from Primera's Eric Earling:

On issue that I see cropping up repeatedly, including with a number of commenters to the posts in question, is the notion that the cost of healthcare is measured in the cost of healthcare coverage.  That’s not accurate.

Premera pays out 87% of the premiums and premium equivalents it receives in medical claims (doctor, hospital, pharmacy, etc.).  The true driver in the rising cost of premiums is the rising cost of medical care itself.  That’s a reason, for example, that Medicare is in such a problematic financial situation.  It’s inefficient version of the fee-for-service system does provide important coverage to seniors, but as Atul Gawande now famously noted in the New Yorker, the incentives are in the wrong place.

That basic starting point is rather essential to understanding the real issues that need to be address in healthcare reform.  Unless healthcare reform fundamentally addresses the cost of care itself in a thoughtful manner, which is largely an issue that is separate from access to coverage, reform won’t meaningfully address those cost trends that are being felt by individuals, families, employers, and government budgets.

•••

I should note the author of your “comment of the day” fundamentally misses the mark in understanding the public plan. “N in Seattle” implies the public plan wouldn’t be a problem because in theory, its under-65 enrollees would not have the same healthcare needs as current Medicare beneficiaries.  That analogy doesn’t hold, as Jake’s post bears out.

If Medicare underpays for service X, it still underpays – regardless of the patient profile.  That’s a fundamental fact which is driving Senator Cantwell, and others in the state Congressional delegation, to address the issue of Medicare equity (and Medicare payment system reform so that the program rewards healthy patient outcomes rather than volume of services delivered).  Premera supports that Medicare reform and is already working to implement programs in partnership with leading healthcare providers – such as Swedish Medical Center – that incentivize patient health over volume of services.  Joel Connelly mentioned our partnership with Swedish in a story last month discussing Cantwell’s related reform efforts.

As for “N,” if his theory was correct, the Washington State Medical Association wouldn’t be expressing specific concern with a public plan that pays Medicare rates.  The truth is, no matter who the patient is that is being served:  Medicare underpays for services in Washington State.  Meaning, doctors and hospitals charge everyone with private healthcare coverage more to make-up for their losses on government funded programs.  The Puget Sound Business Journal article Jake cited discusses how that cost-shift drives up the cost of healthcare premiums for employers and consumers, and means about $1,800 a year in higher healthcare costs for a family of four.

Expanding that system of underpayments in Washington State would directly harm healthcare providers – exacerbating a situation in which patient access to care is already being affected as Jake’s post noted.  If “N” were correct, local healthcare providers like the Everett Clinic, which is currently working with other leading provider organizations across the country like the Mayo Clinic to support Medicare reform, wouldn’t be publicly on the record pointing out the flaws in the very Medicare system that public plan advocates seek to expand.

Meanwhile, as much as it might feel good for “N” to rely on stereotypes to imply an argument has no merit or to hold the bizarre belief that someone’s past partisan affiliation deprives them of the ability to have a good point in a serious policy debate, “N” might be better served by sticking to facts.  For example, the stereotype is that health insurance companies are making big “profits” and oppose reform.  In reality, Premera Blue Cross is a not-for-profit company, focused on providing value to our members through their healthcare coverage, which strongly supports meaningful healthcare reform, including components discussed above that are being advocated by key Democrats in the state’s Congressional delegation.

Ultimately, this discussion isn’t about individuals, it’s a very serious debate about our nation’s healthcare system.  And quite frankly, as Jake’s post touches on in his discussion with Rep. Adam Smith, we should all be significantly concerned that serious Medicare reform will not be included in final legislation.  Absent its inclusion, the trend of rising healthcare costs for the federal government will continue and Washington State will continue to be disadvantaged in the Medicare system.  Addressing that concern shouldn’t be a partisan issue.