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Dueling Reports Show Benefits, Problems with Public Insurance Option

Les Masterson, for HealthLeaders Media, April 15, 2009

A leading proponent of creating a public insurance option recently released a 27-page report that serves as a blueprint for how the public plan could compete on a "level playing field" with private insurers. But another recent study suggested a public option could have a disastrous impact on private health insurers and cause physician payments to plummet.

Backed by President Barack Obama, Health and Human Services nominee Kathleen Sebelius, and Senate Finance Committee Chairman Max Baucus, the public insurance option would create a competing public plan that would allow Americans to choose between public and private insurance plans.

Supporters of the public option, such as Jacob Hacker, PhD, a U.C. Berkeley professor, who recently published a policy brief that highlighted how a public plan would work, says that creating a public insurance option would expand coverage, lower healthcare costs, and serve as a check for private insurers.

Hacker says a public option would cut costs by providing direct competition with insurers. Public insurance is better at containing costs through lower administrative costs and greater bargaining power than private plans, he says.

"What I'm arguing for is a system in which public and private plans with their strengths and weaknesses could coexist side by side so that all Americans, not just the elderly or the poor, have access to the distinctive strengths of a public health insurance plan as well as the strengths of private plans," says Hacker.

Though Hacker speaks positively about a public option, The Lewin Group presented a much more negative picture in its paper, The Cost and Coverage Impacts of a Public Plan: Alternative Design Options.

John Sheils, senior vice president at The Lewin Group, a healthcare policy research and management consulting firm owned by Ingenix, which is a wholly-owned subsidiary of UnitedHealth Group, says one public insurance scenario could push 70% of private insurance members into public plans. Because proponents have not created a definitive public insurance plan, The Lewin Group looked at different public options, including one that would allow all private insurance members to switch to a public plan as well as an option that would allow only small employers, individuals, and the self-employed access to a public plan.

Private insurers could lose 70% of its business if the former option is implemented, which could force private insurers to cut a similar percentage of its workforce, he says. Under that option, "private insurance would have trouble surviving," says Sheils. "Maybe there would be some consolidations, but I'm not sure if private health insurance plans would be the most valuable investment in the world at that point."

If the public plan was available to all employees and the government paid at Medicare levels, The Lewin Group estimated that 131 million Americans would enroll in the public plan with 119 million coming from private health plans. This would mean an exodus of two-thirds of currently enrolled private plan members.

If the public option was limited to only small employers, individuals, and the self-employed, The Lewin Group estimated that the public plan would include nearly 43 million Americans with 32 million coming from private insurance.

Because the feds have also not offered a payment structure for the public insurance plan, The Lewin Group evaluated the impact of two possible payment routes: the same payment level as Medicare and paying the same amount as private insurers.

Sheils says that if the feds decide to use Medicare payment levels, public option premiums would be 30% less than comparable private coverage. This would mean a savings of about $200 per family per month on average.

Those lower premiums would woo many people with employer-based coverage to the public plan. However, if the public option paid at private insurance levels, which would lead to higher premiums, fewer insured Americans would be tempted to a private plan, according to The Lewin Group.

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