Public Plan Option Would Spur Competition

Medicaid insurers offered the lowest-priced silver plan 72% of the time when competing with an MMCO. 

Commercial insurers would likely lower premiums if they had to compete with a public health plan option, a new Urban Institute analysis shows.

That's because setting provider payment rates close to Medicare's would lower marketplace premiums, particularly in high-priced markets," the analysis found.

"As we have suggested elsewhere, a public option could catalyze competition in less competitive markets, leading other marketplace insurers to lower their premiums," the analysis said.

In 2019, areas with an MMCO selling coverage in ACA marketplaces had benchmark premiums about $30 per month lower than comparable areas without a participating Medicaid insurer, controlling for other market differences. Those Medicaid insurers offered the lowest-priced silver plan 72% of the time.

Researchers estimate the potential savings from a public option would have a particularly significant effect in areas with only one commercial insurer.

"Competition can encourage insurers to negotiate lower prices with healthcare providers," said Linda Blumberg, Institute Fellow at the Urban Institute. "A public option may deliver the catalyst that insurers and providers need to make coverage more efficient and affordable."

Using Medicaid Managed Care Organizations that existed before the Affordable Care Act as a stand-in for a public plan, the Urban Institute analysis attempted to understand how commercial insurers would respond to a public competitor with lower expenses.

Rather than fearing that they couldn't compete, Blumberg said the lower rates paid by a public option could give compete insurers more bargaining power over providers with market control, and that bargaining power would be critical to private insurers retaining significant market share.

"Providers could therefore accept lower payment rates, given the threat that a public option would dominate, and insurers could then offer lower premiums," the analysis said.

"A public option paying rates similar to traditional Medicare rates could offer coverage with premiums lower than those of insurers who pay commercial rates. Thus, many commercial insurers resist this reform, believing they cannot compete," the analysis said. "Evidence showing insurers would respond with somewhat lower rates and continue to compete with a Medicaid insurer could inform the conversation about the implications of introducing a public option."

MMCOs are not purely public options, but were used in the analysis because their coverage on ACA marketplaces resemble existing Medicaid networks, which allows MMCOs to pay providers lower rates than commercial insurers, Blumberg said.

The analysis was funded in part by the Robert Wood Johnson Foundation.