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The Public Option, Hospital Finances, And Private Premiums

September 17th, 2009

One of the main points of dispute in the health reform debate has been whether to include a new public health insurance option. Legislation approved by three House committees and the Senate, Education, Labor, and Pensions Committee includes such a public option, but the proposal unveiled yesterday by Senate Finance Committe Chairman Max Baucus (D-MT) does not.

Earlier this week, Health Affairs published an article titled “How a New ‘Public Plan’ Could Affect Hospitals’ Finances and Private Insurance Premiums,” by Allen Dobson, Joan E. DaVanzo, Audrey M. El-Gamil, and Gregory Berger. According to the authors, a new government-run plan could sharply increase private insurance premiums if the plan were to include large portions of those who currently have private health insurance. Because reimbursements offered by the public plan would likely be below hospitals’ costs, hospitals might attempt to shift costs to those who remain in private plans, thus driving up private premiums.

However, according to Dobson and coauthors, a new public option could bolster hospital margins if enrollment in the plan were dominated by those who are currently uninsured. The study, funded jointly by Dobson Davanzo and America’s Health Insurance Plans, relies on 2007 data from the California Office of Statewide Health Planning and Development.

Editor’s Note: For another take on the public option debate, see this post by David Balto, a senior fellow at the Center for American Progress.

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