This paper examines the impact of two public option proposals and a capped rate policy on household and employer health care spending. The first policy would introduce the public option in the nongroup market. The second policy would extend the public option to the nongroup and employer markets, and the third policy would cap payment rates for all insurers and all enrollees. For each policy, we assume provider payment rates would be set at Medicare rates plus 10 percent for health professionals and plus 25 percent for hospitals.
We find overall savings to households and employers would be small under a public option limited to the nongroup market. Under a public option in the nongroup and employer markets, however, households overall would save about 10 percent on health spending and employers would save about 11 percent. Under a capped rate policy in the nongroup and employer markets, households would save about 20 percent and employers would save about 25 percent.