This paper examines the impact of two public option proposals and a capped rate policy on household and employer health care spending. The first policy would introduce a public option in the nongroup market, the second policy would extend the public option to the nongroup and the employer markets, and the third policy would cap payment rates for all insurers. We assume provider payment rates would be set at Medicare rates plus 10 percent for health professionals and plus 25 percent for hospitals. We show the policies’ effects on households and employers overall and their effects on only the employers participating in and individuals affected by the policies. We find overall savings to households would be small under a public option limited to the nongroup market. Under a public option in the nongroup and employer markets, however, households overall would save about 10 percent on health spending, and they would save about 20 percent under a capped rate policy in both the nongroup and employer markets. Employers would spend about 11 percent less on health insurance under a public option extended to the employer market; a capped rate policy would reduce overall employer health spending further, by about 25 percent. Focusing only on households affected by the reforms and employers participating in the reforms, people with incomes below 400 percent of the federal poverty level (FPL) would save 4 to 5 percent under a public option in the nongroup market. This income group largely already benefits from limits on premiums set at a specified percentage of income. In contrast, people in affected households with incomes above 400 percent of FPL would save about 9 percent under a public option in the nongroup market. Under a public option extended to the employer market as well, however, affected individuals would save about 19 percent on health care spending, and those with incomes below 200 percent of FPL would have slightly lower savings. Affected individuals would save about 21 percent under a capped rate policy. A public option introduced into the nongroup market only would not lower health spending for employers, but a public option or capped rate policy in the employer market would reduce participating employers’ spending on premiums by about 25 percent per insured person.
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