Public option and capped-rate policies considered as opportunities to improve ACA
The Urban Institute has put out a new analysis examining the impact of two health care reform options.
Discussion of alternatives to strengthen and improve the Affordable Care Act is heating up as the Biden Administration begins implementing its policies. The Urban Institute analyzed two possible options:
A public option, which is a government-run program providing insurance that could be implemented in the nongroup or both the nongroup and employer markets, would generally set provider payment rates below commercial rates and could reduce government subsidy costs substantially.
A capped-rate policy, which would limit the payment rates paid by all insurers — not just control rates paid by a public option alone — could be combined with the public option and implemented in the nongroup or both nongroup and employer markets. Under this policy, enrollees could benefit from lower prices while keeping their preferred private insurance plan; savings could accrue to the federal government because lower premiums mean smaller subsidies; and more insurers could enter and exit markets than with the public option alone.
Related: A public option would dent private insurers’ profits: Moodys
Interest in capped payment rate and public option proposals stems from the high premiums in many markets because of the lack of insurer and/or provider competition and the resulting higher provider payment rates, researchers said.
If the public option is introduced only in the nongroup market, the effects on the number of people uninsured and government, household and employer spending are small. Although premiums would fall by as much as 20 percent or more, the number of uninsured would decrease by only about 100,000, and national health spending would drop only by about 1 percent. These effects are small, because the nongroup market is small.
Impacts are much larger if the public payment option or capped rates are extended to the employer market. The number of uninsured people could fall by more than one million, and national health spending could fall by as much as 16%.
The lower provider payment rates are set, the lower premiums will be and the greater the savings to households, employers and government. However, lower payment rates will lead to reductions in provider revenues, likely creating more political resistance. Capped rates result in more savings than would occur with the public option alone, because payment reductions would apply more broadly. Targeting public option or capped-rate policies to concentrated insurance and hospital markets still could achieve significant reductions in the uninsured of nearly one million and in spending nationally by as much as 10%.
The analysis highlights the importance of clearly identifying the goals of a reform such as a public option or capped provider payment rates. Researchers ask several questions:
- How important is federal cost containment, which will be driven by the postreform benchmark premium?
- How important is improved consumer affordability, and should that affordability goal emphasize subsidized or unsubsidized consumers?
- How negative would the effects be of a policy that provides a new public option but makes private options less affordable than they are under current law, potentially driving some or even many insurers out of these markets?
“The answers to these questions will lead policymakers to an approach that most effectively balances the trade-offs inherent in these strategies,” they concluded. “Alternatively, it could lead them to consider a combination approach that both introduces a public option and caps provider payment rates for competing private insurers.”
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