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What is the Public Option?

August 20, 2009 - by Donny Shaw

Conservatives call it a trojan horse for single-payer health care. Progressives call it the key to reform – a way to keep private companies in check and make health insurance more affordable. It’s not the only point of contention between Republicans and Democrats in Congress on health reform, but it’s the one the debate has been focused on the most, with moderates in the Senate trying to replace it with a system of non-profit insurance co-ops.

The public option as proposed in the House health care bill, is a government-run health insurance plan, like Medicare, that would compete along side private insurers in a new Health Insurance Exchange that the bill would set up. The exchange is basically a place where people who aren’t on Medicare or Medicaid and don’t have insurance through their employers would go to comparison shop for a health plan. One of the plans available on the exchange would be the public option. Like all plans on the exchange, the public plan would have to meet certain minimum standards for care – minimum services that must be covered, mental health benefits parity, a fair grievance and appeals mechanism, etc.

The public option and the private insurers on the exchange could still offer different levels of care – from catastrophic-only to comprehensive – but plans would be relatively standardized by type so that comparison shopping is easier for consumers. The exchange would be available to the public as a website and a toll-free hotline, and would be focused on making information about the plans more transparent.

Conservatives argue that the government-run public option plan would drive private insurers out of business because, not being burdened by the need to generate profit, they could offer the same level of care at a lower price. They fear that this would happen to such an extent that eventually there would not be any private insurers left. Liberals on the other hand see the competitive advantage of a public plan as a way to bring costs down throughout the industry, thereby increasing the number of affordable health insurance choices for consumers. Without the public option there will be no real change to the current system that has kept health insurance out of reach for millions of Americans, they argue.

Who’s right? The Congressional Budget Office (CBO), a politically independent, non-partisan government agency whose job is to provide economic data to Congress on the bills they propose, has done some analysis (.pdf) of the public option’s likely effects. This is as close as we can get to an unbiased, scientific take. Based on how the CBO sees the public option working, it’s safe to say that even if the conservatives are right and the goal is to crowd out the private insurers, as written into the bill, it’s not going to have that effect:

Another significant feature of the insurance exchanges is that they would include a public plan that largely pays Medicare-based rates for medical goods and services. CBO estimates that the premiums for that plan would generally be lower than the premiums of the private plans against which it would be competing. Because all plans offered in the exchanges would vary their premiums to reflect the costs incurred in each area, the difference in premiums between private plans and the public plan would vary geographically—but on average the public plan would be about 10 percent cheaper than a typical private plan offered in the exchanges. That difference in premiums is itself the net effect of differences in the major factors that affect all insurance plans’ premiums, including their payment rates to providers, their administrative costs, the degree of benefit management they apply to control spending, and the pool of enrollees they attract (the effects of which would be partly offset by the risk-adjustment provisions described above).

Enrollment in the public plan would also depend on the number of providers who chose to participate in it. Providers would not be required to participate in the public plan in order to participate in Medicare, and CBO assumed that some providers would elect not to participate in the public plan because its payment rates would be lower, on average, than private rates. Even so, CBO’s judgment is that a substantial number of providers would elect to participate in the public plan, in part because they would expect a plan run by HHS to attract substantial enrollment. Taking into account both the access to providers in the public plan and the relative premiums its enrollees would pay, CBO estimates that roughly one-third of the people obtaining subsidized coverage through the insurance exchanges would be enrolled in the public plan—so enrollment in that plan would be about 9 million or 10 million once the proposal was fully implemented. Given all of the factors in play, however, that estimate is subject to an unusually high degree of uncertainty.

This CBO report is from July. Since then, one of the three House committees with jurisdiction over the bill, the Energy and Commerce Committee, has marked up a version that would require the public option to be reimbursed on rates negotiated with the insurance industry. That would make the public option less competitive than it would be how it’s set up in the bill the CBO looked at (public option reimbursement rates based on Medicare rates). At this point, it’s unclear whether or not the Energy and Commerce Committee changes will be incorporated in the bill the House finally votes on.

If you want to read and comment on the official legislative text on the structure of the public option, it’s all in Title II, Subtitle B.

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Comments

Displaying 1-30 of 92 total comments.

  • oderintdummetuant 08/20/2009 3:11pm

    But if we change the regulation on private insurers by allowing national competition for healthcare among private insurers won’t that in effect do the same thing as the public option? By allowing people to purchase insurance from any company regardless of geographical location wouldn’t that stimulate the competitive aspects that a public option is so keen on addressing? If we need a public option to keep healthcare competitive why not a public option for everything? Gas, food, clothing, vehicles, and public works. I mean if we are going to have national competition with private industry why not have national competition with state run programs? If in fact its the plan to drive down prices. Where do we stop?

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    dcornwall 08/22/2009 6:25am

    We don’t need a public option for gas, food, clothing or vehicles because there is a working free market that isn’t employer or geography based. If we could only buy gas if we jobs or couldn’t buy steak unless we lived in New York, a public option in these areas might be needed. But since UNLIKE health care we have full individual freedom to buy these goods from whatever provider we like, there is no need for a public option. In the current health insurance plan we have an oligopoly where patients are not the end consumers. This is NOT a free market.

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    Anonymous 10/01/2009 10:54pm
    Link Reply
    + -1

    REPUBS SUCK!!! JUST PAY FOR MY HEALTH CARE AND SHUT UP!!! OBAMA IS GOD AND GOD IS OBAMA… ALLA SHALE BE PRAISED!!!!! WELCOME TO THE USSUSA THE NEW AMERICA.. YUO WORK FOR BIG BROTHER AND DON’T FORGET IT!!!!!!!!!

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    Anonymous 10/19/2009 6:47pm

    this is one of the best written, fair articles I have read in a long time. To bad, people with too much time, have to ruin it for everyone else. Is there not one wall where these loud mouths havent made ignorant claims!

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    Anonymous 10/25/2009 7:14am

    Alla is the evil of America. There is no OBAMA nation. It’s the nation of the US citizen in collaboration with the President. US citizens are losing their voice and our voices should be heard!

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    Anonymous 10/25/2009 7:17am

    Hey move to the middle east if you like Alla so much. We are tired of catering to you. MOVE

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    kendradawn10 10/29/2009 5:36am

    Well health care is very important to have and this just allows people the oppurtunity to have afforable health care. I would much rather have afforable health care compared to other things we need as an individual. People need health care and I think it is a way to compete with other states, but more of a way to help our people who need it.

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    donnyshaw 08/20/2009 9:34pm

    It won’t cost tax payers anything. Just like with private insurance companies, the public plan would be funded by premiums paid by individuals. The bill would set aside $2 billion in start-up funds, but it specifies that that money would be paid back over a ten year period.

    If you’re asking about premiums for individual plans under the public option, that isn’t set under the bill. That would be decided on by the Secretary of Health and Human Services when the public option takes effect. The CBO report quoted above says, “on average the public plan would be about 10 percent cheaper than a typical private plan.”

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    donnyshaw 08/21/2009 6:29am

    We do have an idea.. it would be slightly cheaper than similar private plans. 10% cheaper according to CBO. Obviously, the exact price for a plan will be set before it is offered for sale. Btw, this wouldn’t go into effect until 2013.

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    Anonymous 10/19/2009 6:53pm

    do you know how much your Emergency room visit costs? do you know, if you are diagnosed with cancer, how much your insurance will pay? how much the bill will be for you? I just came back from the doctor. No doctor accepting insurance will tell you, or can tell you your final bill because they have to be “approved” by the insurance companies. Do you know how they approve it? because I called mine, and they couldn’t, because of the codes of services that need to meet certain criteria’s. So, yeah, i will trade uncertainty for 10% cheaper uncertainty.

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    ConsumerLady 11/13/2009 12:01pm
    “It won’t cost tax payers anything. Just like with private insurance companies, the public plan would be funded by premiums paid by individuals.” ??? WE ARE the tax payers & We ARE the individuals. WE have to pay for this. What about those of us who just cannot afford health coverage? I cannot afford health insurance or life insurance & judging by the premiums I have been quoted, 10% off is not going to make a dent to where I could afford it anyway!.. Something is underhandedly being done. I found a website that has some pretty freaky & scary information & I just wanted to post it here http://www.h1n1666.com/ &

    http://www.h1n1666.com/adverse.html Read those links & then tell me about our lovely government.

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    Anonymous 08/21/2009 9:38am

    and you believe anything the government says? yep you live in a fantasy land

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    brightbird49 08/28/2009 12:14pm

    What makes you think that people can afford to buy an insurance plan that is only 10% cheaper than a private one? Most of those who are uninsured are uninsured because they don’t want to spend the money on health insurance. They will spend money on designer coffee every day and fancy cars but stop at spending the same on health insurance. Another portion are uninsured because they are illegal aliens and shouldn’t have access to our health insurance. Not everyone who doesn’t have health insurance is complaining about it. Everyone just wants everything for free. It can’t happen in a Capitalist nation but our president wants us to be a Socialist nation. Where has Socialism every worked well for the common person?

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    Anonymous 09/01/2009 6:25am

    I have any family members who are uninsured…and its not because they immigrated here or because they choose to spend their money on other things like starbucks or fancy cars…for example: My aunt and uncle are fairly successful organic farmers in VT, but they cannot afford insurance. It would cost them over 1,500 dollars per month, which is insane when they only make around 30-40 thousand a year. They are extremely frugal and have had the same car for almost 10 years, even though it is falling apart. My aunt has had to decide whether she can afford to see a specialist about her osteoporosis, or pay her mortgage.

    If you do not have insurance in a group plan through your job, you are basically screwed, because insurance companies charge ridiculous amounts to individuals.

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    Anonymous 10/01/2009 10:23pm

    1,500 a month???? SAVE IT…. You can get insurance for less than $500 a month anywhere in the U.S for a family plan. They must have some kind of pre-existing condition. Face it, your family is cheap and wants free hand out from working people…

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    Anonymous 10/09/2009 8:29am

    Really?? I graduated college this summer and was dropped from my mother’s health insurance plan TODAY because I’m no longer enrolled in college (Disclaimer: I graduated Summa Cum Laude. Hopefully this will dispell any notion you may possess that parallels being uninsured with laziness and a desire for handouts). My health insurer explained that I can sign up for their most basic plan which is $650 per month.

    In light of budget constraints at my place of employment they can only afford to keep extending my employment as an “Intern” which does not include a benefits package. Therefore, I am left without any insurance coverage, and I can only pray that I don’t get sick or injured. This is a great system we have isn’t it?

    So, to the ignorant individual that I am replying to, I would say it is better to not throw out phony statistics about healthcare costs without actually knowing the facts. It discredits your entire argument, which was very weak and juvenile to begin with.

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    ConsumerLady 11/13/2009 12:12pm

    If you are a family making 3K a month and your mortgage is 2K a month (for a small cape cod home- nothing elaborate) your car insurance is $1800 a month, electric, phone and heating oil I guess you could pay $500 a month if you chose not to feed your frickin family! you are a jerk. $500 a month is extremely expensive when you are on a limited budget. put yourself in someone elses shoes. You are being arrogant and unreasonable. Not everyone has $500 a month to pay for health insurance! How stupid can you really be?

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    ConsumerLady 11/13/2009 12:07pm

    Most of us who have no health insurance are in this situation because we cannot afford it.. not that we choose fancy coffee and clothes and shiny new cars.. get a grip. We CANNOT afford health insurance – and 10% off is not going to make us afford it any better! I live in NJ and our taxes are the highest in the nation. I pay $1800 every six months for auto insurance (no accidents or violations for 20 plus years!) We are struggling just to put food on the table.. health insurance? puleeeze, we cannot afford it & no government plan is going to make it any more affordable. I hear that those who do not pay for this will be fined.. so who knows maybe a good many of us will be posting from prison.

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    Anonymous 09/12/2009 6:01pm

    Brightbird49….How can you say most people that are uninsured either spend their money on fancy cars and designer coffee or are illegal aliens…where do you get your statistics from? Our President wants us to be a Socialist nation because he wants to make healthcare available for all Americans?? Maybe you should change your name to dumbbird49…You apparently haven’t a clue as to what this is about.

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    Anonymous 08/23/2009 8:37am

    Private insurance companies set their premiums based on market conditions and not government fiat. The price of the public option will be set to undercut all private insurance; anything else will make it appear that the government is ignoring their ‘social obligation’ or some such nonsense. The plan will never make a profit and the tax payers will be saddled with the difference. Like Amtrak, the USPS, etc., we the people will pick up the tab when the plan cannot afford to repay these startup funds. Your assertion that the tax payers will not pay anything betrays a breathtaking ignorance in the way a free market actually works.

    If you wish to know why prices are out of control at the moment, take a look at how the government is already interfering in the health care market. We should be reducing or eliminating government involvement rather than greatly increasing it.

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    Anonymous 09/09/2009 1:12pm

    You say “It won’t cost tax payers anything. Just like with private insurance companies, the public plan would be funded by premiums paid by individuals”

    Tax payers are individuals, like me – - paying taxes, so it would cost me. Where do you think the funds come from originally??

    If the CBO is right and this wonderful plan would save me 10% – - I’d rather pay the 10% and not have the government “Sec. of HHS” decide anything for me.

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    Anonymous 09/12/2009 6:12pm

    Who do you think pays the bill when uninsured people go to the emergency room or into the hospital? When mental illness strikes a child whose family doesn’t have health insurance that covers inpatient treatment..do you have any idea what is happening throughout the US? Parents will give up their parental rights and have their child made a state ward…and guess who pays for that? Medicaid…And do you not think your taxes aren’t helping to pay for illegals that receive benefits? Why not try something that just may help cut the costs of uninsured people getting healthcare and it being charged off to the taxpayers.

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    jdavis1510 11/12/2009 11:31am

    I am just wondering – Where is the 2 Billion Start up funds coming from? If not my Tax Dollars then where?

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    donnyshaw 11/12/2009 12:11pm

    Yeah, the $2 billion in start up money would be from federal (taxpayer-supported) funds. But it would be fully paid back to the Treasury over a 10 year period.

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    Anonymous 08/21/2009 5:47am

    Anonymous posted on Aug 20, 2009 8:01pm that if a public option was adopted then why not a public option on everything? Gas, Food, clothing, vehicles and public works.

    What he (she?) isn’t taking into consideration is the fact that a very large number of people don’t consider health insurance a very high priority; particularly many younger people who are still very healthy and not in need of any full-time coverage. They would just as soon pay for medical attention as needed, infrequently as it may be. You just can’t apply those criteria to the other items Anonymous mentioned such as Gas, food, clothing, etc. as you need all of those things ALL of the time; it’s like comparing apples to aadvarks.

    Also anonymous

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    Anonymous 10/01/2009 10:57pm

    EVERY EXTRA DIME YOU MAKE!!!! GIVE IT TO BIG BRO NOW!!!!! THANKS FOR VOTING!!!! SUCKA….

  • moonlitwomyn 08/20/2009 5:16pm

    It should cost NOTHING! We all (congress and the senate included) need to stop listening to the scare being put out by the opposition, telling us that Universal Health Care that resembles any program currently available in other industrialized nations will not work for us. We should be able to go to any doctor or medical facility for treatment when we need it, without thought to how we will pay for the care. Worse yet, is not seeking the care we need because we don’t know how we will pay for it. It is absurd that this occurs in this country! France Belvior, a friend of mine from a village in the south of France, was visiting this summer. She explained how things REALLY are in France’s healthcare system, and others in several European countries. Our system is a joke to most other countries in the world. Don’t take my word for it.

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    Anonymous 10/01/2009 10:41pm

    FREE, I WANT FREE… TAX ME 50% ON THE NOTHING I MAKE…. FREE IS WHAT I WANT..PLEASE PAY YOUR TAXES SO I CAN LIVE FOR FREE…. MY GREAT GREAT GRAND PARENTS WERE SLAVES SO YOU OWE ME…..FREE FREE FREE…. THANK YOU

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