Several current health reform policy proposals include the introduction of a public option health insurance plan that would compete with private health insurance plans.1 Most of these proposals would only allow public option plans to compete with nongroup plans on the Affordable Care Act (ACA) Marketplace, though one prominent proposal would allow it to compete with both large-group employer and nongroup insurance markets.2 Nearly all current proposals for a public option indicate these plans would reimburse for medical services at rates lower than those currently paid by private plans and perhaps comparable with those paid by traditional Medicare. By paying providers lower rates, public option plans could have lower premiums than private plans. In turn, private plans may have to negotiate lower provider payment rates to maintain competitiveness in the market for health insurance coverage. Thus, the introduction of a public option plan could have a cascading effect on both private payment rates to providers and premiums for beneficiaries (Blumberg et al. 2020). In fact, researchers have argued capping provider payment rates across all payers could achieve many of the policy goals of public option plans.3 Reductions in private health insurance payment rates would greatly affect hospital systems. In 2017, private payment rates for hospital services exceeded Medicare’s rates for such services by an estimated 230 to 240 percent (Blumberg et al. 2020; Whaley et al. 2020). At the same time, hospital closures have steadily increased over the past decade, particularly in rural areas and primarily because of consistently low profitability, patient volume, and staffing (Kaufman et al. 2016). If a public option were to reduce private payment rates, it could thereby reduce rates of staff hiring or equipment purchases, the volume of patients served, and hospital operating margins or profitability; thus, a public option could accelerate hospital closures or decrease the quality of inpatient care. Reductions in private payment rates may not present immediate threats of closure or lower care quality for hospital systems with larger financial reserves, but they could hinder such systems’ abilities to access reserve funds during emergencies or delay plans for larger projects requiring significant financial commitments. Understanding what kinds of hospital systems currently dedicate larger shares of services and resources to patients with private insurance is critical to understanding which hospitals’ finances would most likely be adversely affected by a public option. 4 In this brief, we use 2017 hospital discharge data from the Agency for Healthcare Research and Quality’s Healthcare Cost and Utilization Project to identify hospitals that had a greater share of total charges paid by private insurance coverage and therefore would face the greatest risks of losing revenue under a public option. To do so, we estimate the ratio of total patient charges to private insurance relative to charges to all payers in individual hospitals. Though hospital charges are not equivalent to payments received by hospitals, charges for hospital services or procedures are typically identical across payers within the same hospital and are good measures of the intensity of hospital services delivered to patients. Though we observe the intensity of services and therefore hospital resources dedicated to treating patients with different payers, we cannot observe final negotiated payments for hospital charges. Thus, we cannot determine the final payer mix for hospitals. This is a major limitation unaddressed in this analysis. We argue that, in fact, ratios of private to total charges likely underestimate the actual share of total hospital revenues paid by private payers.
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