In this report, Urban Institute researchers estimate the coverage and spending implications of various forms of a public health insurance option introduced as an alternative to private plans currently available to consumers. The public option would be a plan structured the same as private insurance plans currently available in the applicable markets, but it would also share some characteristics with the traditional Medicare fee-for-service plan. Its actuarial value, covered benefits, and cost-sharing structure would reflect the private options in the market in which it was introduced (e.g., a Marketplace qualified health plan in the nongroup market or a typical plan in the employer market). However, a public option would have a broad network, like the traditional Medicare plan, and would pay providers at Medicare rates or some multiple thereof that would set prices between Medicare’s payment rates and those of commercial insurers today.
A public plan is intended to provide a lower-cost insurance option that would reduce health care spending for consumers and government, lower overall spending growth, and potentially catalyze greater competition by private insurers. The option would be particularly attractive for people residing in insurance markets with higher-than-average commercial insurance premiums and/or few commercial insurers. The analysis also includes reforms that would cap all private insurers’ payments to providers (in the nongroup market alone or in both the nongroup and employer insurance markets) at the same rates, either as an alternative to or in combination with a public option. Capping rates would also allow employers and their employees to lower the cost of their health coverage without changing their current benefit and cost-sharing structure. The capped rate approach follows the precedent of Medicare Advantage.
The full report and brief present multiple reform scenarios because of the significant uncertainties inherent in a public option or capped payment rate reform, such as the size of the payment rate cuts achievable, the markets in which the new rates would apply, which employers (if allowed) would participate, and how providers would respond to lower payment rates.