Why California’s “Two-Plan” Does Not Support the “Public Option”

Why California’s “Two-Plan” Does Not Support the “Public Option”

Last month, Christina Romer, professor of economics at UC Berkeley, and Chairman of the Council of Economic Advisors, made a presentation at the Center for American Progress in Washington, DC. In response to a question about whether a so-called “public option” for health insurance would increase competition and reduce costs, professor Romer replied that evidence from California’s Medi-Cal (Medicaid) program suggested that it would. She noted that so-called “Two-Plan” counties, with one commercial plan and one non-profit plan providing Medi-Cal benefits, had achieved this, a claim that requires further scrutiny.

Professor Romer was undoubtedly referring to research by professor Mark Duggan of the University of Maryland, who examined the experience of Medi-Cal managed care versus traditional Medi-Cal in California’s counties from 1994 to 2000. After experiencing spiraling costs in the traditional Fee-For-Service (FFS) Medi-Cal program, whereby the government paid providers according to a fee schedule, California decided to increase the number of Medi-Cal beneficiaries enrolled in managed-care programs. This meant that the state paid managed-care plans a fixed fee per beneficiary, and the plan took responsibly for providing care.

Duggan found that “Two-Plan” counties experienced annual Medi-Cal spending per beneficiary $203 lower than average. However, this is only one result of many specifications in a complex econometric model. Indeed, Duggan concluded that the managed-care plans actually drove up Med-Cal costs, without demonstrating superior health outcomes. His analysis is also dated. Recent Medicaid managed-care models are “light years” ahead of early ones. That is why the example of “Two-Plan” counties in Medi-Cal to support a so-called “public option” to reduce peoples’ access to private health insurance is a red herring.

First, the “Two Plan” model was one of three managed-care models introduced to replace a traditional government monopoly – not to inject a government-favored competitor against private insurance. Thus, the “Two-Plan” model replaced a government monopoly with a duopoly.

Second, none of the three Medi-Cal managed-care models really allowed Medi-Cal beneficiaries their choice of a health plan. Instead, the state and counties decided which managed-care plans were available to them.

Third, the “Two-Plan” model does not simply refer to a private plan and a “public plan” dividing the spoils. Rather it refers to a commercial (for-profit) plan and a private non-profit plan replacing a county’s Medi-Cal “public plan.”

Fourth, the two types of managed-care plan that allowed beneficiaries some choice, “Two-Plan” and “Geographic Managed Care” (GMC, which awarded contracts to six or seven plans in those counties), were designed for low-income Medi-Cal beneficiaries, but not the blind, disabled, or aged. The latter categories have much higher medical costs and would benefit the most from effectively managed care. However, while 77 percent of low-income Medi-Cal beneficiaries were enrolled in managed-care plans, only 15 percent of the blind, disabled, or aged ones were.

Most of these were enrolled in counties that had adopted a third model, which required mandatory enrollment of these least fortunate beneficiaries: “County-Organized Health System” (COHS), which replaces traditional Medi-Cal with a single commercial plan. They replace a government monopoly with a government-contracted private monopoly and wonder why they don’t get a bang for their buck!

The literature on Medicaid managed care does not speak with one voice and there are far too many models in states and counties to come to a general conclusion. Nevertheless, there are enough positive examples to support the idea that counties should be free to adopt managed-care models appropriate to their residents’ needs. That’s why the U.S. Index of Health Ownership includes measurement of states’ use of federal Medicaid waivers from the federal government and the proportion of the Medicaid population enrolled in managed-care plans.

Although far from perfect, Medicaid managed-care plans are supposed to increase local control of health-care dollars, reduce the costs of government bureaucracy, and afford those Americans who are already dependent on taxpayer-funded medical services a margin of increased choice. The proposed “public option,” on the other hand, is supposed to increase the federal government’s control of health-care dollars, increase government bureaucracy, and reduce choices for Americans not already dependent on taxpayer-funded medical services.

It’s a shame that President Obama’s faction cannot, or will not, appreciate the difference.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.