Raising Women’s Voices

The existence of a Public Insurance Plan would increase competition faced by private insurance companies

Posted in Uncategorized by raisingwomensvoices on October 31, 2008

Democratic candidate Barack Obama has proposed as part of his health care platform a public insurance plan, modeled after the Federal Employees Health Benefits Plan and the Medicare program, that would give individuals the option of purchasing insurance through a public pool, thus providing greater competition to private insurers.

The intent of the competing public plan is to use the administrative efficiencies of government-run health insurance plans, as well as the purchasing power of government to control costs. The underlying argument is that individual insurers do not have (or are unwilling to use) the market power to counter the pricing power of many hospital systems or physician specialties. This seems likely to remain true even if reforms lead to more aggressive competition in insurance/managed care markets. Thus, the power of a larger purchaser motivated to contain costs is needed to control rising health care expenditures.

The concerns over the use of a public plan are that its purchasing power will be overused and will lead to the elimination of the private market and to a government-run health care system. The overuse of monopsony power, seen by some as inevitable because of budgeting constraints, could then lead to reduced access, lower quality, and the explicit rationing of health care due to constraints on supply and financing.”

A study by the Urban Institute concludes that the existence of a public plan would lower administrative costs and provider payment rates, although not to the extent that is often claimed.

Read the full report here.

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