Is A Public Plan A Necessary Part of Health Reform? The Alliance for Health Reform April 27th 2009 John Holahan The Urban Institute

The Argument For A Public Plan Reduce the rate of growth in health care spending by addressing problems caused by increased concentration in the insurance and hospital markets Cost containment is necessary to make low income subsidies affordable Public plan would also help assure access for those with serious health issues

The Evidence on Market Concentration Insurance Markets – three or fewer insurers account for 65 percent of commercial market in 2003; 34 states considered highly concentrated (Robinson 2004) Hospital Markets – 88% of large metropolitan areas are highly concentrated (Vogt and Town 2006) Concentration has contributed to higher hospital prices and increased hospital profitability Provider consolidation, especially among hospitals, makes it hard for insurer competition to be effective in controlling system spending

The Public Plan What would it look like? How much in administrative cost savings? Would the plan use Medicare’s provider payment rates?

The Arguments Against a Public Plan The level playing field argument The misuse of monopsony power The cost shifting issue

Private Insurance Plans Will Survive Public plan won’t use all its market power Private plans more effective at managing utilization Not all private plans will survive but the best will Likely to provide better service and better access than public plan at a somewhat higher cost Will become more aggressive in provider negotiations because of public plan

The Likely Outcome Public plan will not end the private insurance market but will make it more effective Competition from private plans will constrain the use of market power by the public plan Public plan can be part of a comprehensive cost containment strategy but is not all that will be required