On November 9, Maggie Mahar is doing a book salon at Firedoglake on her book Money-Driven Medicine. I think it probably contains many useful facts, and even decided to order it last week from Amazon. For example, it correctly points out that the largest problems in the American health care system today are unnecessary procedures and overpayment for services. However, I now know that I will need to closely scrutinize its every word before accepting it as true. Why will it be hard to take this book at face value? Because Mahar has lately engaged in a complete flight of fancy about the proposed "public option."

She now exhuberantly and routinely describes the public option as "Medicare E (for everyone)" (1,2,3,4,5). This was before the rates tied to Medicare were removed, but even when they still existed, this was not an accurate characterization of the public "option." In the first place, she herself says: "At most, I’d estimate that 25% of the population will be able to choose the public plan in 2013." In my view this is not totally unreasonable, but it certainly contradicts her description. Her estimate is higher than the CBO’s (10%) because she is considering who can legally join the public plan, not how many are expected to join the exchanges. She even makes what by itself is a valuable point: the CBO is not telling us that 10% of the public can legally join the public plan.

But the more important question is: how many actually will? Let’s say that we had a public plan operating at near Medicare rates. CMS says its premiums would be about 11 percent lower than private premiums. Does that mean everyone would flock to the public plan? No. For one, there’s another big factor that has to be taken into account in discussing consumer preferences: the provider network. For example, I can start an insurance plan in my backyard that pays at Medicare rates. No one will join it because no providers are willing to do business at those rates, unless I happen to have a pre-populated pool of customers at least somewhat comparable in size to Medicare’s (43 million) to negotiate with. In fact, this is a big unsolved problem (1,2) that public option advocates have yet to address. But even assuming it can be dealt with, paying lower rates would certainly have an adverse effect on which providers accept the public option. (Today some providers even refuse Medicare itself.) That will impact consumer choices.

Indeed, if Mahar had paid more attention to the Commonwealth Fund whose work she cites in her articles, she would have noted Karen Davis’s admonition that:

Unfortunately, as legislation has worked its way through congressional committees, the potential power of a public plan has been substantially eroded in three ways: by dropping the requirement that providers that receive Medicare payment also participate in the public plan; by requiring the U.S. Health and Human Services Secretary to negotiate provider payments rather than base prices on Medicare rates; and by restricting access to a public plan option to individuals and small firms. As a result, a strong public option is no longer a component of several bills now being debated in Congress.

And because the public "option" will not be a single payer system like Medicare, its administrative costs will not be as low, though they are expected to be lower than those of private insurance.

There is also no reason to believe that most who are legally eligible to enter the exchanges will do so. For individuals with employer sponsored health insurance, it would in general make no sense to purchase individual insurance on the exchanges any more than it would make sense to purchase individual insurance elsewhere. Administrative costs for individual plans are higher than for group negotatiated employer sponsored plans. It would certainly make sense for many individuals eligible for subsidies to join the exchanges, because in many cases the subsidies would outweigh the high cost of purchasing individual insurance. That is why Congress has limited the subsidies to those without access to employer provided coverage, and mandated that all except the tiniest employers provide such coverage. Arguments such as this are hence generally moot:

…anyone who becomes uninsured during the course of the year can join the Exchange. And even if their circumstances change (for instance they find a job that offers insurance), they can stick with the plan they chose in the Exchange.

Those purchasing individual insurance who are eligible for subsidies would have a clear incentive to join the exchanges. Most who currently purchase insurance individually are fairly well off, so this is a minority, but others would make the shift and the CBO did try to account for that. I wouldn’t be suprised if the CBO figure is not exactly right, but there’s no clear reason why it should be wildly inaccurate. Healthier people would seemingly have an incentive not to join the exchanges because of all the relatively unhealthy categories of people who would get subsidized in, thus raising premiums.

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