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Offer More for More!

By: Ron E. Peck, Esq.
 

COVID-19 and the current pandemic has caused even more attention to be paid to health care and health insurance.  Yet, despite health care being a topic of discussion “in general,” during this Presidential election, I am surprised by how “little” airtime the specific issue of “Medicare-for-All” is receiving, compared to (for instance) the Democratic primaries.  Yet, I wonder if that is due (in part) to a false belief that, by nominating Joe Biden (as compared to, for instance, Elizabeth Warren) the people of this nation have rejected the idea of Medicare-for-All, and can move on to the issue of saving or eliminating the ACA.
 

Yet, some eagle-eyed viewers will note Vice President Biden’s oft referenced “Medicare-for-All-Who-Want-It” and “Public Option” rhetoric.  Make no mistake; if such a plan proceeds, it will amount to – eventually – a Medicare-for-All scenario. 
 

Looking at individual States that have already proposed public options for its citizens, the backbone of such programs is a payment methodology, with that methodology centering on payment of a “percent of Medicare.”  In other words, these public options will pay using a Reference Based Pricing (“RBP”) approach.  Unlike private plans that dare such an approach, however, these public option plans will protect their participants from balance billing, using law and regulation.  In other words, a private plan using an RBP methodology will see its members balance billed, and no legal protections exist to combat it.  The public option plan, however, will pay the same (or lesser) percent of Medicare, and protect its members with the power of the law.
 

This will, obviously, result in the public option costing less than private options; (absent other cost drivers).  If things do indeed go this way, more people will migrate from their private plans to the public option.  Only the sickest members (fearful that coverage under the public option will be inadequate) will remain on the private plans, making those private plans too costly to sustain.  This is called adverse selection, and it would – presumably – be the last straw that breaks the private industry’s back.
 

Yet, this long, drawn out road to an eventual “singer payer” scenario is not guaranteed.  Only if our industry strives to beat the public option at its own game – specifically, “price” – will it lose.  Yet, in so many other markets, private industry competes – and beats – government programs despite being more costly.  In many scenarios, sending a parcel via the USPS is less costly than, for instance, via DHL, UPS or FedEx… yet… many choose to pay more for the private carrier’s service.  Why?  Likewise, taking public transit is often less expensive than driving (and parking) your own vehicle, catching a ride share, or other private means of transportation.  Yet, we don’t all take the train.  Public schools are readily available for most, at little to no cost, but some choose to pay tuition and send their children to private schools.
 

Note that I am not here to opine on these decisions or suggest why people make the choices they make.  What I will say, however, is that – presumably – the people who pay more for the private option do so because, right or wrong, they perceive they are receiving more for their money.  They believe they are receiving added quality, features, or benefits that make the added cost worthwhile.  Further, the service provider has advertised the difference in quality – true or simply perceived – so much so that the consumer readily chooses the more costly, private option.
 

Members of the current health benefits industry are so accustomed to competing with each other over price.  Yes, each entity offers things that differentiate their services from those offered by the competition, but the consensus is that these services are similar enough that price is the big difference maker.  If they maintain this attitude, they will not be able to compete with a public option. 
 

Enter “premium” services; enter “luxury.”  In so many other industries, service providers exist – and thrive – despite prices that exceed those offered by the competition.  Ask these entities whether their prices are higher than the competition, however, and they only consider vendors offering similar levels of luxury (for similar prices) as the “competition.” 
 

It may be the case that, if and when private health benefits cannot compete with a public option on price, they will need to re-invent the industry, and instead view themselves as purveyors of “luxury” benefits.  Offer services people want to buy.

Value is not synonymous with inexpensive.  Value means getting more for your money.  This industry’s future may, therefore, depend upon providing value – something or some things the public option does not offer – resulting in an admittedly higher price still representing value.