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This paper makes the argument that a public plan is important to health reform because it will contribute to cost containment, primarily by addressing problems caused by increased concentration in insurance and hospital markets. We describe how the public plan might be structured, how many people might be expected to enroll, and how much money the public plan might save. We discuss the most frequent arguments that are made in opposition to the public plan. We conclude that the private insurance industry would survive at about the same size but be more efficient and more effective in controlling health care spending.
Unfortunately, the debate over whether to provide a public health insurance option as a
competitor to private plans under comprehensive health care reform seems to have become an
ideological litmus test. Conservatives are fervently aligned against the option while liberals are
as strongly in favor it.2 Those who oppose it fear that the public plan will have so many inherent
advantages that private plans will be unable to compete, eventually leaving the system entirely in
government hands by destroying a competitive insurance market. Supporters believe that a
public plan is a critical fallback option in a universal system that would cover many high-need
and low-income groups.
The arguments around the public plan too
often ignore what we believe is the central
reason for including a public plan as a
component of reform: that health insurance
markets today, by and large, are simply not
competitive. And as such, these markets are
not providing the benefits one would expect
from competition, including efficient operations
and consequent control over health care costs.
We believe that the concentration in the
insurance and hospital industries that has
taken place over the past several years has
been a significant contributor to this problem.
The role of the government plan is to counter
the adverse impacts of market concentration
and, in doing so, slow the growth in health care
In this paper, we first describe problems
with competition in current insurer and
provider markets, in particular focusing on the
implications of consolidation in both markets.
We then discuss how a public plan could help
address these problems. Next, we examine how
a public plan might be structured and how
much money a plan might save. We address
how large the public plan would be and what
impact it would have on the current private
insurance industry. We then examine the most
common arguments against the public plan. We
conclude by arguing that private insurance
plans would survive but be more efficient and
more effective controlling health care spending.
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