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Report: Public Health Plan Would Reduce Costs, Improve Quality

By Mary Agnes Carey, CQ HealthBeat Associate Editor

FEBRUARY 5, 2009 -- Allowing Americans to get their health coverage from a public health insurance plan would provide better care that costs less while offering real competition to private health insurers, according to a report the left-leaning Institute for America's Future released Thursday.

Such a plan, which would be managed by the federal government, could generate enough savings to provide health care coverage to the 48 million Americans currently without health insurance because a public plan would have lower administrative costs and significant bargaining clout, the report concludes.

Analyzing information about Medicare's traditional fee-for-service program, Medicare Advantage, which is administered by private insurers, and the Federal Employees Health Benefits Program, which offers private health insurance to federal employees, the report finds that Medicare has controlled health care costs much better than private insurers over the last 25 years and that the private insurance market "is highly consolidated and needs competition from a public health insurance plan to lower skyrocketing premiums."

Public health insurance programs also have lower administrative costs and broader negotiating power, according to the report. "In a head-to-head competition, the public Medicare plan is much better at containing costs than private Medicare Advantage plans," the study concludes.

A public health plan option that would help provide coverage for the uninsured is an element in health insurance proposals advanced by President Obama and Senate Finance Committee Chairman Max Baucus, D-Mont. Among its provisions, the Baucus plan would create a government-run insurance option to compete with private insurance products and create a national health insurance marketplace where the uninsured could buy coverage.

Business and insurance groups doubted the report's conclusions and said that a federally-administered public health insurance plan could provide an even greater cost shift to private health plans than what currently exists.

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said the success or failure of such a plan "all depends on how it is structured and what rules it would abide by." There also is concern, he said, that a public health insurance plan "would be able to dictate prices for services."

Maria Ghazal, director of public policy for the Business Roundtable, said the concern is that such a plan would shift costs to the private sector, just as the Medicare and Medicaid programs currently do because their reimbursement rates are too low.

"The goal has to be that we improve access," she said. "The goal has to be to think big."

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