A public option—the type of government plan that was considered and rejected as part of the Affordable Care Act (ACA)—could put downward pressure on premiums in commercial ACA plans, a report says. The findings come from a new study by the Urban Institute.

The public option was an original, if controversial, piece of the ACA, but opposition from more conservative lawmakers led to it being scrapped. At the time, supporters argued that a public plan option would bring more competition to markets dominated by one or two large carriers. The current debate over Medicare for All and other health care reforms has included public option-type proposals.

Healthy competition, or undercutting commercial plans?

The study notes that many commercial insurers originally opposed public plans because they feared public option offerings would in effect be too much competition—that the public option rates would be too low for the commercial plans to match. The Urban Institute researchers explored the idea that a public option dynamic would be similar to state markets where managed care organizations have offered plans for Medicare and Medicaid enrollees. While not true public option offerings, these government-sponsored plans have competed with commercial ACA plans for several years now.

The study's authors said that several general conclusions can be drawn from their research:

Markets with more insurers have lower rates overall. "Regions with only one marketplace-participating insurer are associated with benchmark premiums for a 40-year-old about $230 higher per month than those in a rating region with five or more marketplace insurers."
Markets where the government-sponsored managed care plans have joined the ACA market see lower rates on average. "In 2019, rating regions with a previously Medicaid- or Medicaid/Medicare-only insurer (herein called Medicaid insurers) participating are associated with benchmark premiums for a 40-year-old about $30 per month lower than in comparable rating regions without a participating Medicaid insurer."
Medicaid plans tend to have the lowest rates. "In rating regions with a Medicaid insurer participating in the marketplace in 2019, a Medicaid insurer offers the lowest-priced silver plan 72 percent of the time."
Markets with Medicaid plans see commercial ACA plans with lower rates than markets with no Medicaid plan. "We find having at least one Medicaid insurer as a competitor is associated with a $38 lower premium per month for a 40-year-old. This represents a premium about 7 percent lower than the average non-Medicaid insurer's lowest-priced option."

Caveats and conclusions

The study's researchers say that there are too many variables to claim direct causation between public option-type plans and lower premium rates. However, they say, the results do suggest a causal relationship. The study controlled for variables such as wages and hospital market concentration. And the possibility that Medicaid plans were simply entering markets with little competition was undercut by data showing that regions with a Medicaid plan were more likely to have four or more carriers, indicating Medicaid plans were active in markets with healthy competition.

"Taken together, our findings provide early evidence that lower-cost insurers, like public options, may catalyze competitive responses from other insurers, lowering overall average premiums in a market," the report said.

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Study: Public option plans could bring premiums down

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