Design of Public Option and Capped Provider Price Reforms

A small group of health policy experts convened in 2020 to discuss approaches to public option design and limiting prices private insurers pay providers, and their potential impact on premiums and the costs of care.

The Issue

Despite the concept of a public option and lowering health care costs being generally well-supported by health experts and consumers alike, identifying specific approaches with sufficient political support has proven to be very challenging.

Key Findings

Central conclusions from the discussion include:

• Advocates of public option reforms do not always agree on the reforms’ intended objectives. Some see a public option primarily as a cost-containment mechanism, while others view a public option as an alternative to commercial insurance that could better serve the interests of consumers.
  
• Both public option and capped provider price reform options could reduce health care spending, but the extent of savings depends on the prices the reforms rely on and the markets in which the reforms are introduced.
  
• Setting capped provider prices at a relatively high point in the provider price distribution (e.g., the 75th or 80th percentile) would reduce the prices of the highest-priced insurance plans, and such a reform could be introduced into both employer group and nongroup markets with little anticipated health care delivery disruption.
  
• Introducing a public option in nongroup insurance markets would provide new competition in markets dominated by monopolistic providers and/or insurers and would constitute a new tool that could evolve into a valuable option for consumers dissatisfied with private insurance options.  Capping provider prices paid by commercial insurers is primarily a cost-containment tool that could be implemented with or without a public option.

Conclusion

In designing either reform, the interaction of the provider price schedule and the size of the markets included will have powerful implications for the magnitude of system-wide savings and effects on provider revenue. The lower the price schedule and the larger the markets to which they apply, the greater the potential for public and private savings. But greater, too, is the potential to disrupt health care provider markets.

About the Urban Institute

The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector. Visit the Urban Institute’s Health Policy Center for more information specific to its staff and its recent research.