The Lewin Group released a report yesterday that shows the possible impact that a “public health plan” like the one that appears in many of the health care reform proposals would have on private insurance carriers. While a public plan would have the desired effect of lowering premium costs and creating greater access to insurance coverage, it would have an adverse effect on private insurance carriers, providers and possibly even large employers. The report does not address the cost to the federal budget.
The report titled “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options,” examines potential impacts that a public health plan might have in competing for enrollment with the private insurance industry.
A team led by John Sheils assumed that the new public plan would offer a plan design and benefits similar to those of the plan that covers members of Congress, with $15 co-payments for in-network care and a $250 deductible for out-of-network care. The report estimates the impact on cost and coverage based on different levels of eligibility and reimbursement rates.
On price, the study concludes that if Medicare payment levels are used in the public plan, premiums would be up to 30 percent less than premiums for comparable private coverage. On average, the study says the monthly premium in the public plan for a typical benefits package would be $761 per family compared with an average of $970 per family in the private market for the same coverage.
This savings, the report says, is possible because provider payment levels for hospital services under Medicare are equal to only about 71 percent of what is paid by private health plans for the same services. In fact, the report notes, Medicare payments to hospitals are actually equal to only between 92 percent and 95 percent of the cost of the services provided by hospitals. For physician services, Medicare pays only about 81 percent of what is paid by private health plans for the same services.
The report also assumed that administrative costs are also expected to be lower for the public plan than under private insurance, reflecting that the public plan would not include an allowance for insurer profit and insurance agent and broker commissions and fees.
Here are the enrollment projections based on various scenarios:
- If as the President proposed, eligibility is limited to only small employers, individuals and the self-employed, public plan enrollment would reach 42.9 million people. The number of people with private coverage would fall by 32.0 million people. If private payer reimbursement levels are used by the public plan, enrollment would be lower, with only 10.4 million people switching to the public plan from private insurance.
- If the public plan is opened to all employers as proposed by former Senators Clinton and Edwards, at Medicare payment levels the report estimates that about 131.2 million people would enroll in the public plan. The number of people with private health insurance would decline by 119.1 million people. This would be a two-thirds reduction in the number of people with private coverage (currently 170 million people). Here again, if the higher private payer levels are used, enrollment in private insurance would decline by only 12.5 million people.
Keep in mind that these shifts from private coverage to the public plan are predicted by the study despite the fact that it has assumed that:
- Medicaid eligibility would be expanded to include all adults living below 150 percent of the Federal Poverty Level (FPL), including able-bodied adults without custodial responsibilities for children;
- Tax credits would be provided to people purchasing private insurance who live between 150 percent and 400 percent of the FPL;
- Medical underwriting and health status rating would be eliminated in all insurance markets, but rating by age is permitted; and
- Large employers would be required to offer insurance or pay a payroll tax; and
- Tax credits are provided to small employers (fewer than 10 workers) with low-wage workers for up to 50 percent of employer spending for worker coverage.
Now for the impact on providers: Assuming Medicare reimbursement rates and eligibility for all individuals and employers, provider net income would decline under this public plan proposal, even after accounting for reduced uncompensated care and increased utilization for the newly insured. Net hospital revenues would fall by $36 billion (4.6 percent), and physician net income would fall by $33 billion (6.8 percent). If eligibility is restricted to individuals and small firms, net hospital revenues would actually increase by $11.3 billion due to the increase in newly insured individuals. But net physician incomes would decline by $3.0 billion.
There is little wonder that the so called public plan has become a major sticking point for health care reform in Washington. The Democrats have included the idea in their reform proposals while key Republicans, Like Sen. Charles Grassley, are saying a public plan is a deal breaker. Meanwhile, the health insurance industry is saying that it will support dropping medical underwriting if coverage is mandated and the idea of adopting a public plan are dropped.
The devil is in the detail they say, and right now the public health plan offering is a very big detail