Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Report: Health Overhaul That Includes Public Plan Would Yield Greater Savings

By Emily Stephenson, CQ Staff

June 22, 2009 -- A new report released Wednesday says overhauling the health care system without a government-run insurance option could cost the federal government up to three times as much during an 11-year period than if a public insurer paying Medicare-level rates existed.

The report from the Commonwealth Fund examines the cost implications of three health overhaul scenarios: one that includes a public plan option that aligns payments with Medicare rates; one that includes a public plan option with rates that fall between Medicare payments and private plan rates; and one that does not include a public plan option at all. Each scenario includes individual and employer insurance mandates, and each would result in universal coverage, the report said.

A health overhaul scenario that includes a public plan approach would yield higher savings than one that only relied on private plans, according to the report. Adding a public plan to the overhaul also would generate those savings faster, said Cathy Schoen, vice president for research and evaluation at the Commonwealth Fund, during a media call Tuesday to introduce the report.

"Offering a public plan choice and the design of this choice makes a difference in the rate of change," Schoen said. "The scenario with only private plans would spread reforms more slowly and thus would reduce spending not as much over 11 years."

The report found that "cumulative health system savings between 2010 and 2020, compared with projected trends for that period, would range from a high of $3.0 trillion under the approach that includes a public plan paying providers at Medicare rates in competition with private plans, to $2.0 trillion for a public plan paying providers at rates midway between current Medicare and private plan rates, to $1.2 trillion in the private plan scenario."

Each scenario would involve a national insurance exchange, offering federal insurance subsidies, and changing Medicare payments to cover primary care and reward efficiency, which would yield overall health-system savings, according to the report.

A government-run insurance plan that paid providers rates about midway between those offered by Medicare and private insurers would result in cumulative net federal costs of about $232 billion between 2010-2020, according to the report. Allowing the public insurer to pay Medicare-level rates would drop costs to about $112 billion, while an overhaul with no public insurance option would result in cumulative net federal costs of $360 billion during that period, the report found.

The report said a public insurance plan would create savings by reducing administrative costs, lowering payment rates and immediately applying new payment methods and other changes to a larger population.

A public plan paying Medicare rates would reduce administrative costs by about $265 billion, while a plan with higher rates would reduce costs by about $223. But relying on private insurers to carry out changes would increase administrative costs by about $32 billion, the report states.

Schoen said even private insurers would see administrative costs decrease under all three scenarios as the insurance exchange reduced spending on marketing. And as private companies reduced premiums, families and businesses would spend less on health coverage.

Households would save more per year following the creation of a public option because it would curb the growth of premiums more quickly than if private insurers adjusted rates on their own, according to the report. With a public plan paying Medicare rates, Schoen said each household could save more than $2,200 per year by 2020.

"Over a three- to five-year period, premiums within the exchange should be nearly comparable within the public plan and the private plans." she said. "By moderating cost growth, the public plans would reduce costs for employers and households."

The report also states that physicians and hospitals would see new revenues under each plan because more patients would have insurance, reducing the burden on emergency rooms, and because of increases in coverage for primary care.

Draft overhaul legislation released by House Democratic leaders last week includes mandates and a public insurance plan that would pay a rate 5 percent higher than Medicare for the first three years. Karen Davis, president of the Commonwealth Fund, said that rate falls midway between the two public options in the report.

House Republicans have warned that the draft bill could hold hidden costs for the public if new taxes were required to establish a government-run option and an insurance exchange. House Minority Leader John A. Boehner, R-Ohio, called it a "government takeover of health care."

Insurance industry representatives have also pushed back against public insurance proposals, saying plans with rates close to Medicare’s would underpay providers and could force them to stop accepting new patients.

Publication Details