Comparing Public Option and Capped Provider Payment Rate Proposals

Research Report

Comparing Public Option and Capped Provider Payment Rate Proposals

March 17, 2021

Abstract

This analysis explores how public option and capped provider payment rate policy approaches compare conceptually as well as how they could differ in practice for consumer and federal government spending. For example, the capped provider payment rate strategy is explicitly designed to contain costs by limiting the amounts insurers can pay health care providers in specified markets. While some advocates of the public option approach emphasize its potential to reduce health care spending, some advocates’ support arises from a desire to create a consumer focused, broad-based provider network insurance option similar to that in the traditional Medicare program. How these objectives play out in policy details would have important implications for outcomes. Making explicit assumptions about these details and insurer and provider responses to them, the analysis uses two markets, one competitive and one not, to illustrate how the two approaches might affect the distribution of available premiums for unsubsidized and subsidized consumers. Importantly, the analysis shows that how a reform changes the benchmark premium (the driver of subsidies and federal costs) has significant implications for the premiums of the range of plans offered. For example, a public option may introduce a plan premium that would be more affordable to many consumers than the lowest-priced option available under a capped provider payment rate approach. However, depending upon the implications of its introduction for the benchmark (second lowest silver) premium, a public option can make private plans more expensive for subsidized enrollees. The analysis highlights the importance of clearly identifying the goals of these types of reforms, weighing the tradeoffs of, for example, premiums facing subsidized versus unsubsidized consumers and affordability of private plans versus public options.

Research Area: 

Centers

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