Good for the patient, good for the budget

Economic Policy Institute

Why a public health insurance option is key to saving costs

Recent estimates of the high cost of reforming the health care system leave out one critical detail: If the reform included a strong public health care option, it could actually save trillions of dollars over time, while also providing universal coverage.

The Congressional Budget Office, which has attached a massive price tag to health care reform, based its findings on incomplete proposals from the Senate Health, Education, Labor and Pension (HELP) and Finance Committees, leading many to argue that reform efforts must be abandoned or scaled back. Neither of those proposals includes the creation of a public plan. While a public plan would indeed likely raise the level of federal government health spending, it is just as likely to reduce total national health spending. Independent research evaluating proposals produced by EPI and other sources has consistently found that a public plan would save money and result in better health outcomes by providing all Americans regular access to health care. Trying to minimize the government’s investment in health reform does nothing but erode the opportunity for true cost-savings in the American health care sector. This is almost the very definition of penny-wise, pound-foolish.

EPI’s 2007 briefing paper Health Care for America outlines a proposal for guaranteed, affordable health care in which all Americans who lacked access to workplace coverage would have the option to buy into a public health care plan. As part of the proposal, employers who did not provide coverage to their workers would be required to make a payroll-based contribution to help finance coverage for their workers, who would have the option of enrolling in a public health care plan. An independent analysisof that proposal by The Lewin Group, a health care policy research and management consulting firm, found it could save $1 trillion over 10 years, while providing essentially universal coverage.

Some of the other reasons a strong public plan option is essential include:

-Competition American health care today has limited or no competition. A public plan would force private insurers to compete on the basis of efficiency as well as quality, rather than how they often compete today, which is on their ability to select the healthiest individuals and companies or pass costs to employers and workers. If the cost or the coverage of a private plan became unsatisfactory, there would be a large-scale shift to the public plan, and vice versa.

-Reduced costs Since a public health insurance plan would have much lower administrative expenses and could take advantage of its size for negotiating more efficient prices and building economies of scale, it would have significantly lower operating costs, resulting in windfall savings.

-Quality A public insurance plan would be able to introduce quality enhancements and innovations that profit-seeking private plans currently do not have the incentive to adopt, given the short-term commitments to their enrollees.

-Access While the majority of Americans have employer-sponsored health insurance, this coverage has eroded in recent years and it still leaves tens of millions with no insurance, underscoring the need for a system that can provide more comprehensive coverage. Even among full-time workers, 17% do not have insurance. Many more lose coverage each year, at least temporarily, when they leave their jobs - a problem that becomes more widespread in times of high unemployment.

-Good health Besides being the ultimate objective of a health care system, keeping people healthy is far more cost-effective than treating them once they become ill. However, people with spotty insurance coverage or no coverage at all are more likely to forego needed medical attention and preventive care, resulting in poorer health outcomes, which also drive up health care costs.