New Report Shows Why Health Care Reform Must Include Obama's Public Health Insurance Plan

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Toby Chaudhuri or Rachel Perrone, 202-587-1639

New Report Shows Why Health Care Reform Must Include Obama's Public Health Insurance Plan

WASHINGTON - National
health care reform legislation must provide consumers the option to
join a new public health insurance plan that would directly compete
with private health insurance plans, according to a new report, "A Public Health Insurance Plan: Reducing Costs and Improving Quality"
released today by the Institute for America's Future. The report
compares the long and successful track record of Medicare, which would
partly serve as a model for a new public health insurance plan, against
the record of private plans, and argues that such a model is the best
way to drive down costs and improve health care quality.

During the campaign, President Obama
proposed a public health insurance plan as part of a new National
Health Insurance Exchange, through which individuals and small
businesses could purchase health coverage. Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, has made a similar proposal.

"The public health insurance plan will be a major point of contention as the debate over health care reform heats up," said Roger Hickey,
co-director of the Institute for America's Future. "Groups representing
consumers and patients are aligned in favor of Obama's proposal, and
the insurance, drug and hospital industries are arrayed against such a
proposal."

Frank Clemente,
health care expert and author of the report, joined Hickey on a
conference call today to release the report. "There is overwhelming
evidence that a public health insurance plan controls spiraling health
costs much better than private insurance, while providing high-quality
care and the broadest choice of providers to consumers," said Clemente.
"Giving consumers the ability to choose between competing public and
private health insurance plans will save the system enormous sums of
money and give consumers peace of mind."

Richard Kirsch,
national campaign manager for Health Care for America Now, a coalition
of groups working hard to make quality health care affordable, joined
Hickey and Kirsch on today's call. Kirsch pointed to new public opinion data by Celinda Lake that shows most Americans want a public health insurance plan.

Said Kirsch,
"Including the choice of a new public health insurance plan in
comprehensive health care reform is the only way to bring down costs
and force private insurance companies to compete. We need a guarantee
of quality, affordable health care for all in 2009, and the public
clearly understands the importance of having a choice of a private or
public health insurance plan. The public clearly understands it's how
we hold insurance companies accountable and guarantee we will have
quality, affordable health care when we need it."

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**For more information, including the full report, a one-page brief of key findings, and public data, please visit: http://institute.ourfuture.org/public_plan**

 

Major findings from "A Public Health Insurance Plan: Key to Controlling Costs and Improving Quality" [PDF] include:

 

  • Private insurers' health care spending has grown much faster than Medicare spending over the last 25 years. Private
    health insurers' average annual spending growth per enrollee was 29
    percent higher than Medicare spending growth between 1983 and 2006, and
    it was 59 percent higher between 1997 and 2006, according to Centers
    for Medicare and Medicaid Services data. The spending was for
    comparable benefits and despite Medicare's much older and therefore
    much costlier population. The beginning of these two time periods
    correspond to major reforms to Medicare's provider payment policies
    designed to deliver greater value for our health care dollar.
  • The
    private health insurance market is highly consolidated and needs
    competition from a public plan to lower skyrocketing premiums.

    In 16 states the dominant carrier accounts for at least 50 percent of
    private insurance enrollment. In 40 states the top three carriers
    account for between 60 percent and 100 percent of the market. Despite
    this consolidation, dominant insurers are not driving hard bargains for
    reduced prices from hospitals because insurers want to offer their
    customers access to flagship hospitals, which are not reducing their
    rates to private carriers because the hospital market has also become
    highly concentrated. In this increasingly consolidated insurance and
    hospital marketplace, employer-paid premiums have increased an average
    of 12 percent a year since 1999.
  • Insurance company and hospital profits have skyrocketed during this consolidation.
    The combined profits of 15 of the country's largest private health
    insurance companies rose from $3.5 billion in 2000 to $15 billion in
    2007 - an increase of 330 percent, according to company SEC filings.
    CEOs at the health insurance companies were compensated a combined
    $147.5 million in 2007 - an average of $10.5 million each, or 259 times
    more than the $40,690 an average worker made that year. U.S. for-profit
    hospitals reported $43 billion in profits in 2007, their best
    single-year jump in profits in at least 15 years, according to the
    American Hospital Association.
  • Administrative
    costs are dramatically lower under public health insurance plans,
    resulting in enormous savings to the system.
    The
    administrative costs and profits of Medicare Advantage plans, which are
    run by private insurers, were 11 percent of spending in 2005, according
    to the Congressional Budget Office (CBO). By comparison, Medicare's
    public plan had administrative costs of less than 2 percent. A
    Government Accountability Office study found an even bigger gap -
    private Medicare Advantage plans spent 16.7 percent of their revenue on
    administrative costs and profits in 2006. Moreover, private health
    insurance industry spending for administration and profits jumped 12
    percent a year from 2000 to 2005 - 40 percent faster than
    overall health spending growth and 50 percent faster than growth in
    hospitals' and physicians' spending. Private health insurance industry
    employment grew 52 percent from 1997 to 2007, but during the same
    period private health plan enrollment of those under 65 rose by just
    3.4 percent.
  • Public
    health insurance plans' much greater bargaining power achieves more
    reasonable provider costs than do private health insurance plans.
    Medicare pays hospitals about 25 percent less than do private insurers for comparable benefits,
    according to the Medicare Payment Advisory Commission (MedPAC). Yet,
    virtually all hospitals participate with Medicare. Medicare pays
    physicians 19 percent less than do private insurers for comparable
    services, according to MedPAC. Yet, 97 percent of all doctors are
    taking new Medicare public plan patients, virtually the same rate as
    are accepting private PPO patients. The number of physicians billing
    Medicare is growing much faster than enrollment growth in Medicare Part
    B, which pays for physician care.
  • In
    a head-to-head competition, the public Medicare plan is much better at
    containing costs than private Medicare Advantage plans.

    Private Medicare Advantage plans are being paid 14 percent more than
    Medicare's public plan for providing comparable coverage in 2009,
    according to MedPAC - nearly $1,250 more per Medicare beneficiary. CBO
    has found that private Medicare Advantage plans are no more
    cost-effective than the public Medicare plan, but that those enrolled
    in Medicare's public plan are at greater risk of health problems and
    therefore more costly to cover.
  • The
    quality and effectiveness innovations occurring under the public
    Medicare plan show that public plans have greater potential to drive
    the quality revolution than do private plans. 
    Like
    with Medicare, the large market share of a new public plan for people
    under 65 will have the resources, power and incentive to reshape market
    practices to promote quality and cost effectiveness. Public plans have
    more incentive than private plans to improve quality in order to curb
    costs because they operate under tight fiscal constraints, and they
    operate in the open and are widely scrutinized by the government,
    providers and the media, unlike private insures. Private insurers have
    limited incentive to conduct comparative effectiveness research and
    disseminate findings because the research is very expensive and its
    benefits, if made public, are not theirs alone.
  • Public plans increase choice, competition and accountability. A
    public plan offers people an alternative to private insurance as well
    as broader access to health care providers. A public plan will promote
    competition, which will place an important check on both public and
    private plans. A public plan will promote accountability and
    transparency because it must meet the test of democratic support. In
    comparison, the billing, payment, and care management practices of
    private insurance plans, as well as their claims and outcomes data, are
    mostly proprietary and of limited access to government oversight.
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The Institute for America's Future is a center of non-partisan research and education. Drawing on a network of scholars, activists and leaders across the country, IAF develops policy ideas, educational materials and outreach programs. The Institute’s efforts help shape a compelling progressive agenda primarily focusing on kitchen-table concerns such as affordable health care, accessible higher education, retirement security, living wages, healthy workplaces, strong infrastructures, safe food, fair trade and clean energy.

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