Report: Public Insurance Option Would Not Exacerbate Racial Disparities

Implementing a public insurance option would not significantly impact hospital spending, nor would it exacerbate racial disparities in care access for Black and Hispanic populations, an Urban Institute report found.

Policymakers and stakeholders have advocated for a public insurance option as an alternative to commercial health insurance. Ideally, this option would be a nonprofit, government-run program that pays providers lower rates than commercial plans.

According to advocates, a public insurance option could lower consumer premiums and reduce overall healthcare spending. However, some provider stakeholders have raised concerns that lower provider revenue could hurt access to care, particularly for Black and Hispanic individuals.

In February 2021, Senators Tim Kaine (D-VA) and Michael Bennet (D-CO) reintroduced their Medicare-X Choice Act, which would create a public option available to people purchasing insurance through the private nongroup insurance market or small employers.

Researchers used individual-level data from the Urban Institute’s Health Insurance Policy Simulation Model (HIPSM), data from the American Hospital Association Annual Survey, the RAND Corporation Hospital Price Transparency Study, and the CMS Healthcare Cost Report Information System to predict the impacts of a Medicare-X-style public option on hospital revenue and healthcare spending.

The report found that the effects on hospital revenues would vary across the country. For example, in the quintile of hospital referral regions (HRR) most affected, hospital spending would decrease by 2.8 percent. Meanwhile, in the least affected quintile, hospital spending would fall by just 0.5 percent.

Overall, hospital spending would decrease by 1.4 percent nationally, suggesting any changes in care access would be minimal.

The public option would have the greatest impact on hospitals that are paid the highest commercial insurance prices, those with lower Medicaid caseloads, facilities reporting higher spending on uncompensated care, and those in the least competitive hospital markets.

Variations in revenue changes by race and ethnicity were minor, the report noted.

Overall, hospital spending is estimated to fall by 1.1 percent nationally for Black non-Hispanic people, 1.4 percent for White non-Hispanic people, and 1.5 percent for Hispanic individuals. However, the impact in dollars is smaller for the Hispanic population ($29 per person) compared to the White non-Hispanic population ($46 per person) because Hispanic people tend to use less hospital care, researchers said.

Among noticeable differences in certain quintiles, the effects on White non-Hispanic individuals were larger than those on the Black non-Hispanic population. The impact was most significant for the Asian and Pacific Islander population.

In the most affected HRR quintile, hospital spending on behalf of the Asian and Pacific Islander population is estimated to decline by 4.7 percent, compared to 2.9 percent for White non-Hispanic individuals. 3.2 percent for Hispanic individuals, and 2.3 percent for the Black non-Hispanic population.

Black non-Hispanic people and Hispanic people are less likely to be affected by the public insurance option because they would be more likely to retain insurance coverage other than the public option.

In the highest-impact HRR quintile, the average consumer is estimated to save 7.6 percent ($486) per year in premium and out-of-pocket costs if a public option is implemented. The savings would average 7.8 percent for White non-Hispanic individuals and 9.9 percent for Asian and Pacific Islander individuals.

The average consumer in the lowest-impact quintile would save 2.9 percent ($226) per year in premiums and out-of-pocket expenses.

Despite concerns from provider stakeholders, the report’s findings indicate that a public insurance option would not negatively affect Black or Hispanic populations.

Policymakers should consider how a Medicare-X-style public option could lower premiums and out-of-pocket costs, increasing affordability for low-income and other vulnerable populations.

“In addition, a public option could rely upon a provider payment structure that more closely reflects the resources necessary to provide medical services than current commercial insurance payments do,” researchers wrote.