Healthcare Plan Costs Vary Widely

by: The Burrill Report

The amount of potential savings from healthcare reform for families, businesses, and the federal government depends on the inclusion and structure of a public insurance plan option, according to a new analysis from The Commonwealth Fund. The report from the New York foundation, which promotes access, quality, and efficiency in healthcare systems, is the first to compare three different scenarios. One option includes a public plan in which healthcare providers would be paid at rates that fall midway between current Medicare rates and private plan rates, among other payment reforms. Another includes a public plan option that links payments more closely to Medicare rates. And a third includes no public plan, relying exclusively on private plans.

The Commonwealth Fund found that cumulative health system savings between 2010 and 2020, based on projected trends for the period, could reach a high of $3 trillion under the approach that includes a public plan paying providers at Medicare rates in competition with private plans. That compares to a savings of $2 trillion from a public plan paying providers at rates midway between current Medicare and private plan rates. The savings would amount to only $1.2 trillion in the private plan scenario, according to the study. All three approaches would make affordable coverage available to everyone.

Commonwealth Fund President Karen Davis, a coauthor of the report:

We are in the midst of an economic crisis that will grow worse if we continue on our current path. The nation will be spending one out of every five dollars on health care by 2020, with millions more uninsured—undermining the health and financial security of families, businesses, and the government. This analysis shows we have a choice of paths that could lead to access for everyone, lower costs, and improved quality of care.

Each reform path would include significant reforms to the way the nation pays for care, the report says. But in order to reward value and efficiency rather than volume, the report adds that the two scenarios that include a public plan choice alongside private plans would spread reforms more quickly. These two plans would also reduce insurance administrative costs, and enable the federal government to expand coverage at less expense.

The authors note that all three approaches would represent major steps toward covering the uninsured. Yet scenarios that include a public plan could substantially alter the future trajectory of health spending and trigger a new competitive challenge to private insurers to innovate.

With low marketing costs and net revenues invested in premium reserves, both public plan scenarios have the potential to lower insurance administrative costs and set a benchmark for private plans. The analysis estimates a $223- to $265-billion reduction in administrative spending from 2010 to 2020 in the public plan scenarios, in contrast to a $32-billion increase in the private-plans-only scenario. These savings do not include potential savings to hospitals and physicians from more consolidated payment and reporting practices.

Says Commonwealth Fund Senior Vice President Cathy Schoen, lead author of the report:

Each of the paths we analyzed would take significant steps toward ensuring that everyone has access to high-quality, affordable healthcare. The key difference is the ability to bend the cost curve and the pace of change. At a time when many can’t afford to get sick and businesses are struggling to stay solvent, a public insurance option offers the potential to make markets work in the public interest.