A Public Health Insurance Plan

Executive Summary

President Barack Obama, Senate Finance Committee Chairman Max Baucus and others have proposed frameworks for reforming the health care system that would allow Americans to keep their employer-provided coverage or, if they do not have such coverage obtain it through a public or private insurance plan that is available through a “national health insurance exchange,” where plans would compete with each other for members. Like the public fee-for-service Medicare plan, the new public health insurance plan in this exchange would be managed by the federal government but would pay private health care providers to deliver care.

This report explains why a public health insurance plan that competes on a level playing field with private insurance plans in an exchange offers the best promise for reining in health care costs, encouraging greater efficiency and quality, and providing people with financial security. Moreover, authoritative studies show that the savings that can be achieved by insuring millions of people in a public health insurance plan may be enough to pay for covering the 46 million Americans currently without insurance.

The findings in this report are based on comparing information that is available about Medicare’s public health insurance plan (the traditional fee-for-service program); Medicare Advantage plans, which are run by private insurers; and the Federal Employees Health Benefits Program, which offers private insurance through an exchange only available to federal employees.

This report highlights the proven track record of significant cost savings that have been achieved under Medicare’s public health insurance plan relative to private insurance and ways to improve upon Medicare in constructing a new public health insurance plan for people under age 65.

The report contains these findings:

  • Medicare has controlled health care costs much better than have private health insurers over the last 25 years.

  • The private insurance market is highly consolidated and needs competition from a public health insurance plan to lower skyrocketing premiums.

  • Administrative costs are dramatically lower under public health insurance plans, resulting in enormous savings to the system.

  • The bargaining power of public health insurance plans significantly reduces provider costs.

  • In a head-to-head competition, the public Medicare plan is much better at containing costs than private Medicare Advantage plans.

  • Independent analyses show substantial savings can be achieved from a public health insurance plan that competes with private insurance plans.

  • Quality and effectiveness innovations occurring under the public Medicare plan show that public health insurance plans have greater potential to drive the quality revolution than do private plans.

  • Public health insurance plans increase choice, competition and accountability.