The new Lewin Group analysis (pdf) of the public insurance option in health reform has been getting a lot of attention for the past few days, though I think the actual news in it has gotten a bit buried. So I'll put it near the top: The difference between a public plan using Medicare payment rates and a public plan using negotiated payment rates is much bigger than the difference between a public plan using negotiated rates and no public plan at all.The Lewin Group modeled a couple different versions of the private plan. One version, which I've previously called the Single Payer Lite version, attaches itself to Medicare's payment rates. That allows it to offer premiums that are 32 percent lower than those of private insurers. That's what you're seeing in the graph atop this post. In such a world, the private plan is expected to see enrollment of 131 million, 119 million of whom would be refugees from private insurance. When private insurance executives stay up at night worrying about a public plan, this is what they're worrying about.Then there's the level-playing field option. Here, the public plan doesn't get to use Medicare's set payment rates and instead needs to negotiate with hospitals and drug companies just like any other insurance plan. Its rates end up proving similar to private insurance. Lewin assumes a certain set of administrative advantages here that still allow the private plan to offer premiums nine percent lower than private insurance, but the difference is modest. Under these assumptions, the public plan sees enrollment of 20 million, only 12 million of whom are coming for private insurance.The difference between zero and 20 million is a lot smaller than the difference between 20 million and 131 million. What the Lewin report is actually showing, then, is that the key question is not whether there is a public plan, but whether the government can set its payment rates. That's the first-order policy question. The second-order policy question is whether there should be a public plan at all. The answer, according to Lewin's estimates, is pretty clearly affirmative. Even absent government bargaining power, the administrative efficiencies gives consumers a nine percent break on their premiums. Consumers, I imagine, would like the choice to save nine percent. WHAT MAKES THIS PUBLIC PLAN DIFFERENT FROM ALL OTHER PUBLIC PLANS?
The new Lewin Group analysis (pdf) of the public insurance option in health reform has been getting a lot of attention for the past few days, though I think the actual news in it has gotten a bit buried. So I'll put it near the top: The difference between a public plan using Medicare payment rates and a public plan using negotiated payment rates is much bigger than the difference between a public plan using negotiated rates and no public plan at all.The Lewin Group modeled a couple different versions of the private plan. One version, which I've previously called the Single Payer Lite version, attaches itself to Medicare's payment rates. That allows it to offer premiums that are 32 percent lower than those of private insurers. That's what you're seeing in the graph atop this post. In such a world, the private plan is expected to see enrollment of 131 million, 119 million of whom would be refugees from private insurance. When private insurance executives stay up at night worrying about a public plan, this is what they're worrying about.Then there's the level-playing field option. Here, the public plan doesn't get to use Medicare's set payment rates and instead needs to negotiate with hospitals and drug companies just like any other insurance plan. Its rates end up proving similar to private insurance. Lewin assumes a certain set of administrative advantages here that still allow the private plan to offer premiums nine percent lower than private insurance, but the difference is modest. Under these assumptions, the public plan sees enrollment of 20 million, only 12 million of whom are coming for private insurance.The difference between zero and 20 million is a lot smaller than the difference between 20 million and 131 million. What the Lewin report is actually showing, then, is that the key question is not whether there is a public plan, but whether the government can set its payment rates. That's the first-order policy question. The second-order policy question is whether there should be a public plan at all. The answer, according to Lewin's estimates, is pretty clearly affirmative. Even absent government bargaining power, the administrative efficiencies gives consumers a nine percent break on their premiums. Consumers, I imagine, would like the choice to save nine percent. 
