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New Reports Take Drastically Different Views of Public Plan

Cheryl Clark, for HealthLeaders Media, July 17, 2009

A public plan as envisioned by the Obama administration would be a "death spiral" that could wipe out many California hospitals already struggling with federal reimbursements that are far too low.

No wait. A public option, along with a national insurance exchange, is an excellent way to make the system much more efficient, saving between $156 billion and $315 billion per year between now and 2018. Private commercial insurance plans now spend that much to market and administer their products and process claims.

Those are two views of health reform released yesterday in reports from groups with obviously different agendas.

First to warn of a hospital Armageddon with a public option is America’s Health Insurance Plans, which went to California to tap into the nation’s largest database of hospital statistics to show how government payment would devastate healthcare in just that one state.

"As policy makers look at this issue, they realize that it will bankrupt hospitals," says Robert Zirkelbach, AHIP spokesman.

Already, 37% of California hospitals last year reported being in the red from total operational losses, including gains from their portfolios, but 48% reported red ink from operations alone, according to the California Hospital Association.

Current bills now being considered by Congress would have a public plan financed by rates that are only slightly higher than those paid by Medicare. But because Medicare and Medicaid rates are so low, they don’t cover the cost of providing that care, which is now subsidized by companies, individuals and families that pay health insurance premiums, AHIP officials say.

"In California, Medicare reimbursements only cover approximately 83% of hospital costs, and Medi-Cal [Medicaid in California] only covers 81%," AHIP said in a statement. "These shortfalls get passed through the health care system, and consumers and employers end up paying higher premiums as a result."

Now, the statement said, "an average family of four is paying $1,500–or an additional 10%–on their premiums to offset the under-reimbursements from government programs."

Another government plan that would recruit even more people away from private insurance, especially if some employers stop offering it, would mean even fewer people with private coverage to offset those costs, causing private insurance premiums "to increase even further . . . ultimately (leading) to a death spiral resulting in everyone moving to the new government-run plan," according to AHIP.

The California Hospital Association, which was not involved in the data analysis, agrees with AHIP’s conclusions. "This has been our concern all along," says Jan Emerson, CHA spokeswoman. "That a government-run plan that pays Medicare rates, or even Medicare plus 10%, is not sufficient to keep hospitals operating in California.

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