http://www.realclearpolitics.com/articles/2009/10/26/the_public_plan_delusion_98860.html
"...These are as much as 30 percent lower than rates paid by private insurers, says the health care consulting firm Lewin Group. With such savings, the public plan could charge much lower premiums and attract lots of customers.
But health costs wouldn't subside;
hospitals and doctors would offset the public plan's artificially low reimbursements by raising fees to private insurers, as already occurs with Medicare. Premiums would increase because private insurers must cover costs to survive."
"As for administrative expenses, any advantage for the public plan is exaggerated, say critics. Part of the gap between private insurers and Medicare is statistical illusion:
Because Medicare recipients have higher average health expenses ($10,003 in 2007) than the under-65 population ($3,946), its administrative costs are a smaller share of total spending. The public plan, with younger members, wouldn't enjoy this advantage.
Likewise,
Medicare has low marketing costs because it's a monopoly. But a non-monopoly public plan would have to sell itself and would incur higher marketing costs. Private insurers' profits (included in administrative costs) also explain some of Medicare's cost advantage. But profits represent only 3 percent of the insurance industry's revenues.
Moreover, accounting comparisons are misleading when they don't include the cost of Medicare's government-supplied investment capital. A public plan would also need investment capital. And suppose the public plan suffers losses. Congress would assuredly bail it out."
...
"From 1970 to 2007, Medicare spending per beneficiary rose 9.2 percent annually compared to the 10.4 percent of private insurers --
and the small difference partly reflects cost shifting."
