As the Senate gets ready to debate its version of a health-care reform bill, including the potential for a back-from-the-dead public plan, it's important to realize exactly what the fight is all about.
The problem with a public plan isn't what it will do to insurance companies such as UnitedHealth Group (NYSE: UNH ) and Aetna. Really, it won't do a whole heck of a lot, because the plan will serve fewer than 4 million of the 46 million uninsured Americans, at a cost higher than private insurers can offer.
No, the problem is in what the public plan might become.
Earlier this month, the U.S. Preventive Services Task Force recommended that women get mammograms starting at age 50, instead of the previously recommended 40. The task force claims that the change was recommended to eliminate needless biopsies on women in their 40s, after mammograms show a potential for breast cancer that turns out to be nothing.
Critics think otherwise. They're worried that the recommendation was made to save money. Maybe so, but that's always a consideration with preventive care. I'd imagine that getting a professional dental cleaning once a month would prevent some cavities, but no one does that. The cost in time and money doesn't make it practical.
And besides, it's just a recommendation, right?
Maybe. Forty-year-old women still have the option to get a mammogram, but what if the government-sponsored public plan takes the recommendation from the government-sponsored task force as fact and begins paying only for mammograms for women 50 and older? Now that public option isn't looking like a very good option, if you're one of the many women who develop breast cancer in their 40s.
Just look east
You only have to look at the U.K.'s National Institute for Health and Clinical Excellence (NICE) to understand how complicated the potential for the trade-off of cost versus effectiveness can be.
Earlier this month, the agency in charge of running the country's single-payer system said it wouldn't cover Bayer and Onyx Pharmaceuticals' Nexavar for liver-cancer patients, because it costs too much -- $4,850 per month. The drugmakers even offered a buy-three-get-one-free deal, but NICE wouldn't bite.
Granted, the drug doesn't cure liver cancer, but it does extend patients' lives by at least three months. I've always wondered what a month of my life was worth; according to NICE, it's less than $5,000.
This isn't the first time NICE has rejected a cancer drug because of cost. The agency reiterated its rejection of GlaxoSmithKline's (NYSE: GSK ) breast -cancer drug Tyverb last month for the same reason, even after a similar offer of free drugs.
Ultimately, NICE could still cover both drugs. The companies will just need to offer deep enough discounts, as Johnson & Johnson (NYSE: JNJ ) and Pfizer (NYSE: PFE ) have done with their cancer drugs.
Unlike some staunch opponents of the public option, I'm not convinced that a penny-pinching single-payer system is a guaranteed inevitability of establishing a public plan. The government hasn't exactly been a cheapskate about spending money on its citizens and corporate entities recently, after all.
On the other hand, the talk of comparative medicine -- figuring out which drugs work better than others -- is clearly targeted at lowering costs. Why use a high-priced brand-name drug when a cheap generic will do? Even pharmacy-benefit manager Medco Health Solutions (NYSE: MHS ) is running these comparative trials, in testing sanofi-aventis and Bristol-Myers Squibb's (NYSE: BMY ) Plavix against Eli Lilly's (NYSE: LLY ) Effient. Plavix will go off patent soon, and Medco is hoping to prove that the generic, which would save its customers money, works just as well as the full-priced drug.
The bottom line is that investors in the health-care space will need to keep a cautious eye out. The passing of a public plan probably won't affect the companies you invest in all that much, but there's certainly the possibility that a public plan could change into something that could do a lot more damage.
Is a public option really as scary as its opponents make it out to be? Let us know in the comments below.