While a public insurance plan option simultaneously has been one of the most hotly contested healthcare reform proposals, a recent report noted that a public plan as part of a comprehensive healthcare reform approach could slow healthcare cost increases more quickly over a 10-year period.
This cost decrease is not so much related to more people joining a public plan, but to increased competition that would make healthcare insurance more competitive, says Stuart Guterman, an assistant vice president with The Commonwealth Fund.
Guterman is co-author of a new study released last week that found the potential savings for families, businesses, and the federal government will vary depending on whether or not a public insurance plan option is included. This is illustrated under three different scenarios:
- A public plan option in which healthcare providers are paid at rates falling between current Medicare rates and private plan rates
- Another one that includes a public plan option that relates payments more closely to Medicare rates
- An option that relies exclusively on private plans and includes no public plan.
The cumulative health system savings between 2010 and 2020—compared with projected trends for that period—would range from:
- $3 trillion under the scenario that includes a public plan paying providers at Medicare rates in competition with private plans
- $2 trillion for a public plan paying providers at rates halfway between current Medicare and private plan rates
- $1.2 trillion in the private plan scenario
All three approaches would make affordable coverage available to everyone.
Each of the scenarios includes a national health insurance exchange that provides consumers with a choice of insurance plans, along with federal assistance to make coverage affordable. Other than reforms related to the public plan, the cost estimates for all three options include the same payment, system, and insurance reforms.
"In all of these proposals, more people would end up with coverage, and most of that coverage would be through their employers—as it is now," Guterman says.
Offering a choice of a public plan would make it possible for payment reform to spread somewhat more quickly at the current time. A public plan also would provide a way to lower administrative costs—operating with no or low administrative costs and no costs of underwriting. Public plans would serve as a "catalyst" for competing private plans to make their operations more efficient, according to the study, "Fork in the Road: Alternative Paths to a High Performance U.S. Health System."
"You're able to keep insurance premiums down. There's competition between public plans and private plans," he says. "And all of the innovations that are built into our payment and system reform proposals would be spread more widely because the public plan adopts those policies as well."
In the long run, this forces more competition as far as insurance premiums. "And of course, if premiums are lower, that` means that employers' costs are lower because in the end, employers who cover their employees still would cover their employees—they would just cover them through the exchange," he says.
The report also showed that:
- With all three scenarios, near-universal coverage would be achieved. If reforms started in 2010, for instance, the number of uninsured would decline to 4 million by 2012 (or 1% the population) and remain low. Without reform, the number of uninsured could rise to 61 million by 2020.
- By providing a cheaper base for expanding insurance coverage, federal costs would be lower in the scenarios with a public plan choice. With savings offsetting the costs of expansion, the 11 year net increase in federal budget costs from 2010 to 2020 is expected to be $112 billion with a public plan with Medicare payment rates option, $232 billion under a public plan with intermediate payment rates, and $360 billion under private plans.
- Hospital and physician revenues could grow under all three scenarios—but at a slower rate. Reforms that insured everyone and raised Medicaid's payment rates to Medicare's would "infuse new revenues" and "eliminate the need for cross subsidies built into the current charges to private insurers," the report noted.
Overall, the bulk of savings would benefit individuals and families because of the slower growth in premiums and out of pocket costs, the report said. By 2020, the annual savings per household would range from $1,600 in the private plans and the public plan (with intermediate payment rates) to more than $2,200 in the public plan (with Medicare rates). These benefits would accrue across income groups.