The Heritage Foundation - Leadership for America

Despite continued controversy surrounding the idea, President Obama and certain Democratic leaders of Congress continue to support health care legislation that includes a new government-run health plan, commonly known as the “public option.”

Liberal advocates who are pushing the so-called public option believe that a new government plan would keep private insurers “honest” and help control health care costs. Conservatives—including analysts at Heritage—have instead argued that a public plan (especially one that’s modeled on Medicare) would arbitrarily cut payments to health care providers and shift costs onto private payers, causing millions of Americans to see an increase in their private health insurance premiums.

Although both sides seem to have firmly staked their ground in the current health care debate, new research published in the peer-reviewed journal Health Affairs has sought to addresses these competing claims about the potential impact of creating a new government-run plan on hospitals’ finances and private health insurance premiums.

After using a range of assumptions, the authors conclude their study, “supports the contention that a government-run plan that is aggressively implemented to include large portions of the privately insured could test the U.S. health care financing system. Rising hospital private-payer payment-to-cost ratios could be followed by rising private insurance premiums. The result could be the antithesis of what advocates say is the advantage of a public plan: to curtail cost growth for the average citizen.”