Senator Barack Obama, along with others, has proposed developing a public plan that would compete with private insurers within an organized health insurance marketplace. The argument is that a public plan would have lower administrative costs and more ability to control provider payment rates. This paper assesses these arguments concluding that there would be administrative cost savings and lower provider payment rates but not as much as is often asserted. Strong private insurers that offer good value for premiums charged would survive. But most important, the amount of real competition in both insurance and hospital markets would be enhanced.
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