A New Obama Jobs Program?

House Speaker Nancy Pelosi does not have the votes for what she calls a robust public option- one that pays providers Medicare rates plus 5%.  Many Democratic members of the House believe these rates are too low, and will harm providers.  Physicians have been dropping from the Medicare program for years due to low payment rates, which get shifted onto private insurers, raising the rates they must pay.

The Speaker's solution: let a new public option negotiate rates with providers.

It is worth for a minute trying to understand what this means.   Medicare now has national rate schedules for hospitals and doctors, adjusted for local cost of living differences.  Now a new army of bureaucrats will need to negotiate rates in each of the 50 states with thousands of hospitals  and hundreds of thousands of physicians, for each of the thousands of procedures for which Medicare pays. The insurance companies already do this in states where they operate.

So what exactly will be the new cost advantage from the public option? Will the government be a better negotiator  once it gives up its power to set rates, and is really forced to compete in the market? Will its alleged administrative cost advantage (which is largely illusory) disappear with the new army of rate negotiators? Finally, the Administration, and its ally Speaker Pelosi, seem to have produced a plan for, if nothing else, a jobs program we can believe in. 
House Speaker Nancy Pelosi does not have the votes for what she calls a robust public option- one that pays providers Medicare rates plus 5%.  Many Democratic members of the House believe these rates are too low, and will harm providers.  Physicians have been dropping from the Medicare program for years due to low payment rates, which get shifted onto private insurers, raising the rates they must pay.

The Speaker's solution: let a new public option negotiate rates with providers.

It is worth for a minute trying to understand what this means.   Medicare now has national rate schedules for hospitals and doctors, adjusted for local cost of living differences.  Now a new army of bureaucrats will need to negotiate rates in each of the 50 states with thousands of hospitals  and hundreds of thousands of physicians, for each of the thousands of procedures for which Medicare pays. The insurance companies already do this in states where they operate.

So what exactly will be the new cost advantage from the public option? Will the government be a better negotiator  once it gives up its power to set rates, and is really forced to compete in the market? Will its alleged administrative cost advantage (which is largely illusory) disappear with the new army of rate negotiators? Finally, the Administration, and its ally Speaker Pelosi, seem to have produced a plan for, if nothing else, a jobs program we can believe in.