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

2. 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

3. 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

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

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

6. 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

7. 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