The document discusses a hypothetical hospital that treats 10 patients per year at a cost of $100 per patient. It relies on payments from private insurance, Medicare, Medicaid, and uninsured patients to cover its costs. However, these payment rates differ, with private insurance paying the most and uninsured paying nothing. Over time, as more people lose private insurance, the costs are shifted to those remaining with private insurance through higher rates. The introduction of a public option plan is meant to reduce the number of uninsured, but by paying hospitals at the lower Medicare rate, it could cause private insurers to lose members. This would shift costs back onto the private system and not ultimately solve the rising costs of care.

2. DRAFT
Agenda
 The Set-Up
 The Current Situation
 The “Public Option”: The Key Detail that Can Derail the Whole Thing
 So What Can We Do
2

3. DRAFT
The Set-Up
There is a hospital in a community. It serves 10 people a year. It costs $100
to treat each person. The hospital is non-profit – revenues = costs
o o o o o o o o o o
o o o o o o o o o o
3

4. DRAFT
The Set-Up
In order to pay for the treatment of these 10 people, the hospital collects from
private insurance companies, Medicare, and Medicaid. It also gives “charity
care” to the uninsured
Private Insurance
o o
o o o o o o o o o o
Medicare
o o
o o o o o o o o o o
Medicaid
o o
Uninsured
o o
4

5. DRAFT
The Set-Up
THIS IS THE KEY YOU NEED TO UNDERSTAND. THESE “PAYERS” PAY
DIFFERENT RATES TO THE HOSPITAL.
REVENUE per Patient
Private Insurance
o o o o o o o o o o
o o
= $130
Medicare o o o o o o o o o o
o o
= $95
$ Rev/
# Patient $Rev $Cost $Profit
Medicaid Private Insurance 5 $130 $650 $500 $150
o o Medicare 2 $95 $190 $200 ($10)
= $80 Medicaid 2 $80 $160 $200 ($40)
Uninsured 1 $0 $0 $100 ($100)
Uninsured 10 $1,000 $1,000 $0
o o = $0
5

6. DRAFT
The Set-Up
THIS IS THE KEY YOU NEED TO UNDERSTAND. THESE “PAYERS” PAY
DIFFERENT RATES TO THE HOSPITAL.
REVENUE per Patient
Private Insurance
o o o o o o o o o o
o o
= $130
Medicare o o o o o o o o o o
o o
= $95
$ Rev/
# Patient $Rev $Cost $Profit
Medicaid Private Insurance 5 $130 $650 $500 $150
o o Medicare 2 $95 $190 $200 ($10)
= $80 Medicaid 2 $80 $160 $200 ($40)
Uninsured 1 $0 $0 $100 ($100)
Uninsured 10 $1,000 $1,000 $0
o o CURRENTLY, PRIVATE INSURANCE SUBSIDIZES GOV’T PROGRAMS
= $0 AND UNINSURED CARE
6

7. DRAFT
Agenda
 The Set-Up
 The Current Situation
 The “Public Option”: The Key Detail that Can Derail the Whole Thing
 So What Can We Do
7

8. DRAFT
Rise in health insurance cost causes more patients to become uninsured or in
Medicaid. As a result, those who still have private insurance pay more. This
increase accelerates
REVENUE per Patient
Private Insurance
o o o o o o o o o o
o o
= $190 +46%
Medicare o o o o o o o o o o
o o
= $95
$ Rev/
# Patient $Rev $Cost $Profit
Medicaid Private Insurance 3 $190 $570 $300 $270
o o Medicare 2 $95 $190 $200 ($10)
= $80 Medicaid 3 $80 $240 $300 ($60)
Uninsured 2 $0 $0 $100 ($200)
Uninsured 10 $1,000 $1,000 $0
o o = $0
8

9. DRAFT
Rise in health insurance cost causes more patients to become uninsured or in
Medicaid. As a result, those who still have private insurance pay more. This
increase accelerates
REVENUE per Patient
Private Insurance
o o o o o o o o o o
o o
= $190 +46%
Medicare o o o o o o o o o o
o o
= $95
$ Rev/
# Patient $Rev $Cost $Profit
Medicaid Private Insurance 3 $190 $570 $300 $270
o o Medicare 2 $95 $190 $200 ($10)
= $80 Medicaid 3 $80 $240 $300 ($60)
Uninsured 2 $0 $0 $100 ($200)
Uninsured 10 $1,000 $1,000 $0
o o At some point, the rate increases in private insurance required to keep the
= $0
hospital from going broke are unsustainable – this system will break
9

10. DRAFT
Rise in health insurance cost causes more patients to become uninsured or in
Medicaid. As a result, those who still have private insurance pay more. This
increase accelerates
REVENUE per Patient
Of course, this example assumes the hospital’s cost stays at $100
per patient; in fact it’s growing at 6-9% per year
Private Insurance
o o o o o o o o o o
o o
= $190 +46%
Medicare o o o o o o o o o o
o o
= $95
$ Rev/
# Patient $Rev $Cost $Profit
Medicaid Private Insurance 3 $190 $570 $300 $270
o o Medicare 2 $95 $190 $200 ($10)
= $80 Medicaid 3 $80 $240 $300 ($60)
Uninsured 2 $0 $0 $100 ($200)
Uninsured 10 $1,000 $1,000 $0
o o At some point, the rate increases in private insurance required to keep the
= $0
hospital from going broke are unsustainable – this system will break
10

11. DRAFT
Agenda
 The Set-Up
 The Current Situation
 The “Public Option”: The Key Detail that Can Derail the Whole Thing
 So What Can We Do
11

12. DRAFT
In order to solve the problem of the uninsured, a “public option” plan is introduced.
No one is uninsured – pretty good, right?
REVENUE per Patient
Private Insurance
o o -15%
= $111
o o o o o o o o o o
Medicare
o o
= $95 o o
o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
12

13. DRAFT
In order to solve the problem of the uninsured, a “public option” plan is introduced.
No one is uninsured – pretty good, right?
Public Option reimburses at the same rate as Medicare
REVENUE per Patient
Private Insurance
o o -15%
= $111
o o o o o o o o o o
Medicare
o o
= $95 o o
o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
13

14. DRAFT
In order to solve the problem of the uninsured, a “public option” plan is introduced.
No one is uninsured – pretty good, right?
Public Option reimburses at the same rate as Medicare
REVENUE per Patient
Private Insurance
o o -15%
= $111
o o o o o o o o o o
Medicare
o o
= $95 o o
o o o o o o o o
Medicaid
o o = $80 Hospital is cost neutral = HAPPY
Public Option
o o = $95
14

15. DRAFT
In order to solve the problem of the uninsured, a “public option” plan is introduced.
No one is uninsured – pretty good, right?
Public Option reimburses at the same rate as Medicare
REVENUE per Patient
Private Insurance
o o -15%
= $111
o o o o o o o o o o
Medicare
o o
= $95 o o
o o o o o o o o
Medicaid
o o = $80 Hospital is cost neutral = HAPPY
Private insurance has to subsidize less; 15% reduction in rates
Public Option
o o = $95
15

16. DRAFT
In order to solve the problem of the uninsured, a “public option” plan is introduced.
No one is uninsured – pretty good, right?
Public Option reimburses at the same rate as Medicare
REVENUE per Patient
Private Insurance
o o -15%
= $111
o o o o o o o o o o
Medicare
o o
= $95 o o
o o o o o o o o
Medicaid
o o = $80 Hospital is cost neutral = HAPPY
Private insurance has to subsidize less; 15% reduction in rates
Public Option
Of course, SOMEONE has to pay for the $95 in revenues for the public option…
o o = $95 … but that’s not the real problem
16

17. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent.
REVENUE per Patient
Private Insurance
o o
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
17

18. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent.
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
18

19. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” the public option attracts more members…
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
19

20. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” the public option attracts more members…
Remember, it still COSTS THE SAME to provide care, it’s just that the premiums are lower
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
20

21. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” the public option attracts more members…
Remember, it still COSTS THE SAME to provide care, it’s just that the premiums are lower
So… people leave private insurance, and then we’re back to the same subsidization problem
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o = $80
Public Option
o o = $95
21

22. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” the public option attracts more members…
Remember, it still COSTS THE SAME to provide care, it’s just that the premiums are lower
So… people leave private insurance, and then we’re back to the same subsidization problem
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o So, you see how this plays out…
= $80
Public Option
o o = $95
22

23. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” it attracts more members…
Remember, it still COSTS THE SAME to provide care, it’s just that the premiums are lower
So… people leave private insurance, and then we’re back to the same subsidization problem
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o So, you see how this plays out…
= $80
Private insurance rates still go up.
Public Option
o o = $95
23

24. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” it attracts more members…
Remember, it still COSTS THE SAME to provide care, it’s just that the premiums are lower
So… people leave private insurance, and then we’re back to the same subsidization problem
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o So, you see how this plays out…
= $80
Private insurance rates still go up.
Public Option
Public option membership goes up.
o o = $95
24

25. DRAFT
The $95 reimbursement is mandated; the hospital cannot negotiate that. Private
insurers can’t get that rate, since hospitals will then be insolvent. Because it’s
“lower cost,” it attracts more members…
Remember, it still COSTS THE SAME to provide care, it’s just that the premiums are lower
So… people leave private insurance, and then we’re back to the same subsidization problem
REVENUE per Patient
Private Insurance
Remember, this still fundamentally does not solve the problem of the
o o cost of care growing at 7-9% per year!!!
= $135
o o o o o o o o o o
Medicare
o o
= $95
o o o o o o o o o o
Medicaid
o o So, you see how this plays out…
= $80
Private insurance rates still go up.
Public Option
Public option membership goes up.
o o = $95
Burden on public treasure goes up.
25

26. DRAFT
In this end-game, no one is better off…
REVENUE per Patient
x x
Medicare
Remember, this still fundamentally does not solve the problem of the
cost of care growing at 7-9% per year!!!
o o
= $95
o o o o o o o o o o
Medicaid
= $920 Revenue
o o = $80 ($80) Loss
o o o o o o o o o o
Public Option
o o = $95
26

27. DRAFT
In this end-game, no one is better off…
REVENUE per Patient
x x
Medicare
Remember, this still fundamentally does not solve the problem of the
cost of care growing at 7-9% per year!!!
o o
= $95
o o o o o o o o o o
Medicaid
= $920 Revenue
o o = $80 ($80) Loss
o o o o o o o o o o
Public Option
o o = $95 In the end game, either:
27

28. DRAFT
In this end-game, no one is better off…
REVENUE per Patient
x x
Medicare
Remember, this still fundamentally does not solve the problem of the
cost of care growing at 7-9% per year!!!
o o
= $95
o o o o o o o o o o
Medicaid
= $920 Revenue
o o = $80 ($80) Loss
o o o o o o o o o o
Public Option
o o = $95 In the end game, either:
There’s not enough money and the hospital goes broke…
28

29. DRAFT
In this end-game, no one is better off…
REVENUE per Patient
x x
Medicare
Remember, this still fundamentally does not solve the problem of the
cost of care growing at 7-9% per year!!!
o o
= $95
o o o o o o o o o o
Medicaid
= $920 Revenue
o o = $80 ($80) Loss
o o o o o o o o o o
Public Option
o o = $95 In the end game, either:
There’s not enough money and the hospital goes broke…
Or
The public option premiums rise to be equivalent to what private
insurance rates were before reform – to cover the hospital’s cost
29

30. DRAFT
The public plan must promote, not kill competition. Equitable reimbursement is critical
“…But by avoiding some of the overhead that gets eaten up at private
companies by profits and excessive administrative costs and executive salaries,
it could provide a good deal for consumers, and would also keep pressure on
private insurers to keep their policies affordable and treat their customers better,
the same way public colleges and universities provide additional choice and
competition to students without in any way inhibiting a vibrant system of private
colleges and universities.
-excerpt from President Obama’s speech to joint session of Congress
30

31. DRAFT
The public plan must promote, not kill competition. Equitable reimbursement is critical
Usually 10-15% of premiums. Even the
public option would have to have
administrative costs, so this does not
go to 0
“…But by avoiding some of the overhead that gets eaten up at private
companies by profits and excessive administrative costs and executive salaries,
it could provide a good deal for consumers, and would also keep pressure on
private insurers to keep their policies affordable and treat their customers better,
the same way public colleges and universities provide additional choice and
competition to students without in any way inhibiting a vibrant system of private
colleges and universities.
-excerpt from President Obama’s speech to joint session of Congress
31

32. DRAFT
The public plan must promote, not kill competition. Equitable reimbursement is critical
Usually 10-15% of premiums. Even the
public option would have to have
administrative costs, so this does not
go to 0
“…But by avoiding some of the overhead that gets eaten up at private
companies by profits and excessive administrative costs and executive salaries,
it could provide a good deal for consumers, and would also keep pressure on
private insurers to keep their policies affordable and treat their customers better,
the same way public colleges and universities provide additional choice and
competition to students without in any way inhibiting a vibrant system of private
colleges and universities.
-excerpt from President Obama’s speech to joint session of Congress
75-80% of premiums is the cost of care – the equivalent of the $100 that we cited before.
If the Public Option derives its “lower cost” advantage by arbitrarily reimbursing care providers at
rates below what private insurance companies can get, then the public option destroys, not
promotes, competition
32

33. DRAFT
Agenda
 The Set-Up
 The Current Situation
 The “Public Option”: The Key Detail that Can Derail the Whole Thing
 So What Can We Do
33

34. DRAFT
The key is to reduce that $100 of cost per patient. Without that, the math just
doesn’t work
o o o o o o o o o o
o o o o o o o o o
34

35. DRAFT
The key is to reduce that $100 of cost per patient. Without that, the math just
doesn’t work
o o o o o o o o o o
o o o o o o o o o o
So how do we do that?
35

36. DRAFT
First, having more healthy people join a health plan would make it less costly per
person covered
o o o o o o o o o o
o o o o o o o o o o
36

37. DRAFT
First, having more healthy people join a health plan would make it less costly per
person covered
o o
Why:
• Insurance
premiums are a
o o
function of cost of
utilization. Having
a bigger pool
o o o o o o o o o o
reduces the cost, o o
since it’s not only
the currently sick
that seek o o
o o o o o o o o
insurance
37

38. DRAFT
First, having more healthy people join a health plan would make it less costly per
person covered
o o
Why:
• Insurance
premiums are a
o o
function of cost of
utilization. Having
a bigger pool
o o o o o o o o o o
reduces the cost, o o
since it’s not only
the currently sick
that seek o o
o o o o o o o o
insurance
“…Now, even if we provide these affordable options, there may be those -- especially the young and the healthy -- who still want
to take the risk and go without coverage. There may still be companies that refuse to do right by their workers by giving them
coverage. The problem is, such irresponsible behavior costs all the rest of us money. If there are affordable options and people
still don't sign up for health insurance, it means we pay for these people's expensive emergency room visits. If some businesses
don't provide workers health care, it forces the rest of us to pick up the tab when their workers get sick, and gives those
businesses an unfair advantage over their competitors. And unless everybody does their part, many of the insurance
reforms we seek -- especially requiring insurance companies to cover preexisting conditions -- just can't be
achieved….”
Excerpt from President Obama’s speech to Joint Session of Congress
38

39. DRAFT
If you want to understand some reasons why healthcare cost continues to rise, read this
article
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande
39

40. DRAFT
The good news, even if unintended by the Healthcare reform legislation, is that the level
of pain caused by reform has forced people to change old, unsustainable business
models
There is precious little in the current bills that seek to “bend the cost curve” due to demagoguery
40