Brief Extending Rate Regulation in Nongroup and Employer Markets
Capped Rates Versus a Public Option
Michael Simpson, John Holahan
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In this brief, we explore two options for restraining health care spending. Each would make initial reforms to the Affordable Care Act Marketplace; the first would introduce a public option into the nongroup, small-group, and large-group employer markets. We compare these results with a second policy that would instead cap provider payment rates for all payers in these same markets. In both cases, providers would be paid at the same rates—Medicare rates plus 15 percent for physician and outpatient care and Medicare plus 60 percent for inpatient care.


The high levels of health care costs in the US are attributable to some degree to high levels of insurer and provider concentration, which inhibit aggressive negotiations over provider payment rates. We present two policy alternatives to allow individuals to purchase insurance that pays providers at lower rates, either through a public option or a policy that applies rate caps to all providers regardless of payer.


  • Overall health spending under the public option would decrease about $68 billion or 3 percent of current health spending for the nonelderly. With capped rates, overall spending for the nonelderly would fall by $274 billion or 12 percent. These are approximately the same as the effects on provider revenues.
  • Households would save about $20 billion under the public option and about $94 billion with capped rates.
  • Under the public option, employers would spend about $23 billion less on premiums. Under a capped rate policy, employers would spend $147 billion less.
  • With the public option, the federal government would save about $21 billion, primarily because of reductions in premium tax credits. With capped rates, federal spending would fall by $30 billion.


We use the Urban Institute’s Health Insurance Policy Simulation Model to analyze the effects of these alternative policies.

Research Areas Health and health care
Tags Affordable Care Act Health care laws and regulations Health care spending and costs Health insurance
Policy Centers Health Policy Center
Research Methods Microsimulation modeling