The Cost and Coverage Impacts of a Public Plan
Alternative Design Options
Summary and Introduction
President Obama has proposed to create a “public plan” that would compete for enrollment with the private insurance industry, but has provided few details on how it would work. During the 2008 campaign, Senators Clinton and Edwards proposed a public plan administered through Medicare using Medicare provider reimbursement levels. Employers and individuals would have been able to purchase coverage from the public plan by paying a full cost premium, with subsidies provided for low-income families.
The public plan is difficult to evaluate because no one has specified in legislation how it would work. During the presidential campaign the President did not specify that the plan would be modeled on Medicare, and said that the plan would be open to only individuals, the selfemployed and small firms. Senator Baucus has also proposed a public plan, but has not yet specified payment levels or the groups that would be eligible to enroll.
Consequently, in this paper, we present impact estimates under several variations on the public plan model. Under each variation, we assume that the public plan is implemented together with President Obama’s coverage expansion proposals, which we estimate would cover about 28 million uninsured people.
If Medicare payment levels are used in the public plan, premiums would be up to 30 percent less than premiums for comparable private coverage. On average, the monthly premium in the public plan for a typical benefits package would be $761 per family compared with an average of $970 per family in the private market for the same coverage.
If as the President proposed, eligibility is limited to only small employers, individuals and the self-employed, public plan enrollment would reach 42.9 million people. The number of people with private coverage would fall by 32.0 million people. If private payer reimbursement levels are used by the public plan, enrollment would be lower, with only 10.4 million people switching to the public plan from private insurance.
If the public plan is opened to all employers as proposed by Senators Clinton and Edwards, at Medicare payment levels we estimate that about 131.2 million people would enroll in the public plan. The number of people with private health insurance would decline by 119.1 million people. This would be a two-thirds reduction in the number of people with private coverage (currently 170 million people). Here again, if the higher private payer levels are used, enrollment in private insurance would decline by only 12.5 million people.
Medicare premiums would be lower than private premiums because of the exceptional leverage Medicare has with providers. Medicare pays hospitals about 30 percent less than private insurers pay for the same service. Physician payments are about 20 percent less than under private coverage. Also, because Medicare has no allowance for insurer profits or broker/agent commissions, administrative costs for this population are about one-third of administrative costs in private health plans.
Assuming Medicare reimbursement rates and eligibility for all individuals and employers, provider net income would decline under this public plan proposal, even after accounting for reduced uncompensated care and increased utilization for the newly insured. Net hospitalrevenues would fall by $36 billion (4.6 percent), and physician net income would fall by $33 billion (6.8 percent). If eligibility is restricted to individuals and small firms, net hospital revenues would actually increase by $11.3 billion due to the increase in newly insured individuals. But net physician incomes would decline by $3.0 billion.
Our estimates and methodology are presented in the following sections:
- Features of the public plan;
- Premiums in the public plan;
- Coverage effects;
- Provider impacts;
- Simulating effects for individuals; and
- Simulating effects for employers.
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This article was prepared for general information purposes only to permit you to learn more about Ingenix Consulting and its services. It is not intended as a basis for decisions in specific situations, may not be current, and is subject to change without notice.