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Obama’s Big Flip-Flop to Save Obamacare

A public option for the Affordable Care Act is back on the table.

Mark Wilson / Getty Images

The real sign of how Bernie Sanders changed the Democratic Party can be seen not just in shifts in the Democratic Party platform, but in how the party’s current leader, Barack Obama, has altered his own posture. Last month he endorsed the expansion of Social Security, a huge victory for activists pushing the party to improve retirement benefits. And this week, in a special communication to the Journal of the American Medical Association, Obama endorsed a public health insurance option to enhance the Affordable Care Act, his signature legislative achievement.

This puts Obama in line with his preferred successor, Hillary Clinton, who recently reiterated her support for a public option and for allowing Americans between 55-65 to buy into Medicare. Both policies tilt toward Sanders’s vision of universal coverage.

Obama included the public option in his 2008 campaign platform, and maintains in JAMA that in the original debate over the ACA, “I supported including a Medicare-like public plan.” But he fails to mention that in the summer of 2009 he made a deal with the hospital industry to keep the public option out of the final bill, in exchange for the industry’s support and agreement to $155 billion in payment reductions.

We can’t know whether concessions to industry were critical to get the ACA passed, and whether the public option, which had the most grassroots support of any element of health reform, should have been salvaged. But the more important question is: What changed between 2009 and today for the president to view the public option as an essential component of the overall law?

The cynical will grumble that Obama is merely making a rhetorical shift for supporters in an election year, at a time when he knows he cannot pass anything resembling a public plan. But I think something is afflicting Obamacare that only a public plan can fix—and the hospital industry may even agree.

In Obama’s statement, he says that “more can and should be done to enhance competition” in the insurance exchanges. According to the president, 88 percent of enrollees in the exchanges live in counties that have at least three insurance companies offering policies. This means that those companies must pay attention to the pricing of their competitors to maximize market share.

But overall competition in the individual market for health insurance—for those who don’t get coverage from their employers—has decreased since the implementation of the ACA. Non-profit co-ops, the watered-down competition option that made it into the ACA, have routinely collapsed. UnitedHealth announced in April that they would abandon most ACA insurance exchanges by 2017. They were never a huge player in the exchanges—they cover between 600,000-700,000 customers, out of more than 12 million—but others have echoed their claim that the exchanges are too small for them to effectively serve. Blue Cross and Blue Shield of Minnesota decided last month to narrow its options on the exchanges, impacting 100,000 subscribers just in that state. If that spreads to other Blue Cross affiliates—and Blue Cross is a big provider on the individual health insurance market—it would significantly limit competition.

Meanwhile, the insurance industry is consolidating. Aetna and Humana are attempting to merge, despite questions from antitrust officials about potential harms to consumers. Cigna and Anthem are on track for joining forces, although reporting from the International Business Times about corrupt reviews of the deal at the state level has thrown the proposed merger into disarray. Centene and HealthNet, two smaller insurers, had their merger approved in March.

Health Affairs has already predicted increases in insurance concentration of between 40-60 percent if these mergers all go through. In that event, there would effectively be only three large national for-profit insurers, along with Blue Cross/Blue Shield (which often teams with Anthem).

Market consolidation in health insurance is a reaction to market consolidation on the provider side. Hospital mergers have quickened their pace in recent years, as they try to get leverage in negotiations over pricing. A bigger hospital chain has more ability to hold out for higher prices, if they treat millions of patients. Insurers, needing to gain their own leverage over the system, responded by teaming up.

None of this is particularly good news for consumers. Data show that hospital consolidation drives higher prices for treatment. And the linchpin to smoothly functioning Obamacare exchanges is competition on premium prices. Numerous studies show that, even if insurers get better rates from hospitals by consolidating, they don’t pass those savings to customers. So the merger wave at both ends puts consumers in a tough spot.

Moreover, quality suffers when insurers or hospitals have no meaningful competition. Patients have nowhere else to go, so there’s no incentive to provide decent performance. One study from Stanford found that hospitals with competitors increased heart attack survival rates by 10 percent over a monopoly provider.

“Based on experience with the ACA,” Obama writes in JAMA, “I think Congress should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited.”

The public plan is therefore seen as an explicit antidote to monopolies in insurance markets, at a time when monopolization is growing. But why would hospitals, so vigorously opposed to a public option before, see it as a lifeline now?

The answer is that, no matter how skillfully hospital chains team up, they will never reach the consolidation level of the insurance industry. The hospital industry has regional giants; insurers have national ones. Therefore, paradoxically, the introduction of a public option plan might now be the only thing that doesn’t make insurers so big that they can dictate terms. A public plan would never merge with an established insurer; it would always serve to force market competition. So hospitals could be willing to take the compensation hit on public plan patients in service to keeping big insurers honest.

Of course, the ultimate consolidation in health insurance markets would be a single payer, typically the government, dictating prices to providers. Obama isn’t calling for that: He wants competition to benefit consumers. Monopolies on all ends of the health care industry make the potential for competition remote. Having a public plan has become an imperative for the ACA’s survival. That’s why you might see policymakers embark on a real effort this time to make it a reality, rather than a mere bargaining chip.