President Obama thinks a public plan will reduce costs because competition will keep insurance plans honest. What an oversimplification. Costs would be contained only if the plans competes for individuals. But they don’t anymore. No one really wants to insure individuals, and most plans take individuals as an afterthought, with the possible exception of Blue Cross/Blue Shield. The rest of them are competing for employee benefit contracts with employers, and the buyer of those is an HR professional buying on the basis of cost.

So if a public plan only competed in the individual insurance market, would that change competition in the larger market of employer-based plans, where premium increases have been forcing businesses to re-think their policies? I remember when most employers had a wide choice of plans. Now, most employers only offer one — the one that comes to them with the lowest per employee cost within a pretty defined bare minimum set of coverages. So the entire competition is on cost.

Let’s assume that people would buy a public plan. Who would the doctors be? Doctors almost lose money on Medicare, because it pays 20-30% less than what they can charge another insurance company. The reason many of them continue to take it (other than altruism) is that Medicare pays within thirty days, and private insurance often strings out the doctor’s receivables until he can’t pay expenses. Many doctors make their practices a mix of Medicare and non-Medicare patients, and they have three of four levels of fee schedules: Medicare/Medicaid’s, employer-based insurance’s, “MSRP” and cash on the barrelhead. Hospitals are the same.

My daughter just had a baby. The entire hospital bill for the delivery was $62,900 (it was not without complications, a Caesarean section). She paid $699. Her employer-based insurance plan payed $37,500. The other $24,000+ was either 1)absorbed by the hospital, or 2)a billing technique that represents what the hospital wished it could charge and what the Shah of Iran might have paid.

You can imagine that doctors and hospitals won’t be gleefully jumping aboard a public plan that might pay what Medicare/Medicaid pays. According to the National Health Account Medicare represented 20 percent of physician gross revenue in 2007. Previous studies show that private insurance fees for physicians are 20-30 percent higher than Medicare allowances. So Medicare may only be 17 percent of physician net income on average, and they might want to keep it that way.

Well, how else, then, can we control costs in case we don’t get the vaunted public plan?

1)We can quit screening people for anything and everything when the evidence shows it makes no difference. For example, the British Medical Journal just published research that shows screening young people 20-24 for cervical cancer has no impact on rates of invasive cancer in people under 30. Not only that, but young women under 30 may not even have to have their abnormal tissues aggressively treated. Lots of evidence is beginning to show that we screen for too many things too early, and that all the tests don’t change outcomes significantly.

2) We can stop giving patients everything they ask for, even when they may not need it. This is called “demand side” medicine, and Dr. Henry Black, president of the American Society for Hypertension and a noted cardiologist, says in this video that doctors are going to have to deal with this more aggressively. They are going to have to counsel patients, develop trust relationships with them, and help the patients understand that the “latest and greatest” treatment or procedure may not be a)indicated for their condition , b)safe c) necessary and last…d)affordable.

3)We can provide better decision support tools to doctors so they can be less easily swayed by device and drug marketers, and provide effective standardized care rather than respond to headlines and negative or positive publicity. After all, the medical community is as whip-sawed by the pace of change as the rest of us.

These three steps would probably solve President Obama’s cost containment issues, his issues around why costs are so different in McAllen, TX vs Rochester, Minn. and so on.

Not saying a public plan is not a good thing if it’s done right; just saying that we are going to need a great many ways to skin this health care reform cat.