An effective public option that has lower premiums than private plans and saves consumers money would need to pay providers less, according to two analyses published this week, a fact that presents political challenges for a Congress that often fails to take on the healthcare industry.
The public option would need to set provider rates—like Medicare does—and require provider participation, argues an analysis by Matthew Fiedler, a fellow in economic studies at the USC-Brookings Schaeffer Initiative for Health Policy.
"The main way a public option could reduce premiums is by paying providers less," Fiedler said. "It's absolutely true that paying providers less is politically controversial but it's also unavailable if the goal is to spend less on healthcare."
Provider and insurer groups have upped their lobbying in recent years as ideas like the public option and Medicare for All gain traction.
President Joe Biden ran on establishing a public option, and more congressional lawmakers support the idea than did 10 years ago when moderate Democrats blocked its inclusion in the Affordable Care Act.
Democrats in Congress who have introduced public option bills often cite the increasing costs of health insurance as one of their reasons why it's necessary. But any proposals that don't actually pay providers less than commercial insurance may not generate significant savings for consumers or the government, Fiedler argued.
He also said providers should be required to participate in the public option if they participate in Medicare, Medicaid or a competing commercial insurer's plan on the individual market.
The public option could modestly decrease premiums for private plans, he said.
Many public option proposals link provider rates to prices paid by Medicare. Hospital groups already argue Medicare rates are too low when compared with private insurance and a public option would just expand an unfair pay structure.
But Fiedler argued the rates some hospitals are paid are well above the prices that emerge from a competitive market.
The Medicare Payment Advisory Commission estimates that Medicare's prices exceeded providers' cost of delivering care by 8% on average in 2019.
Still, Fiedler acknowledged a public option could be harmful to some vulnerable providers, particularly those in rural areas, making it more difficult for them to operate, harming patient care or forcing them to cut costs.
A brief released this week by the Center for American Progress—a center-left think tank in Washington—also concluded that a key element of a public option's success is lowering provider payment rates, especially for hospitals.
But policymakers should ensure payment rates for rural and safety-net providers, community health centers and others are sufficient, the brief argued.
"It's not just lowering hospital prices or lowering prices in a way that is not thoughtful," said Maura Calsyn, managing director of health policy at the Center for American Progress and one of the authors of the brief. "The idea really is to rethink how those dollars on reimbursement are spent."
The paper argued that a public option would improve health equity, both by increasing access to care for under-served populations by lowering costs and reinvesting savings back into those communities.
"Bringing down costs for care does not have to be at the expense of struggling providers and hospitals," the brief reads.
