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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 31-60 of 92 total comments.

  • moonlitwomyn 08/20/2009 5:17pm

    Continuatin of previous post..Go out to yahoo France, Britain, Germany, or Canada, and talk to the people who live there. It’s time for this to stop. It’s time to use the internet and put the vote to the people. With all due respect…. Our Senators and Congress People have no right to make such a personal decision for us. I don’t remember being given the opportunity to vote on the type or level of healthcare they enjoy. Or… We can continue to allow 565 (or whatever) people on Capital Hill, to continue making the decisions about how 200 million of us will obtain healthcare. Now. If that isn’t socialism…. I don’t know what is! UNIVERSAL HEALTHCARE NOW!!!

  • Comm_reply
    Anonymous 09/05/2009 6:20am

    Moonlitwomyn says health care should cost NOTHING. How ludicrous! How or where do you think the money will come from to provide that care?? The government is broke – in debt trillions of dollars. If people WANT health care coverage we should come up with a way for them to have it but people should not be ENTITLED to free health care any more than they should be entitled to free shelter or food. Our system has created a generation who thinks Uncle Sam should take care of them.

  • Comm_reply
    Anonymous 09/05/2009 6:22am

    Allowing our representatives to make decisions for the rest of us is called a democracy. We vote them into office.

  • Comm_reply
    Anonymous 10/01/2009 10:45pm

    YOU VOTED THEM IN NOT ME…. OH WAIT, IS IT FREE??? THEN YES I VOTED THEM IN. THANK GOD I SPEAK CHINESE BECAUSE THATS WHO IS MY NEW SLAVE MASTER.. GOD SAVE THE YAUN…

  • Comm_reply
    Anonymous 10/27/2009 8:38pm

    I think you mean republic..

  • moonlitwomyn 08/20/2009 5:23pm

    One more thing because I’m ranting…. Why is HR676 NOT listed on this site as one of the “HOT BILLS”….?

  • Anonymous 08/21/2009 3:53am

    Hey Donny, do me a favor and address my first post. Answer the questions I pose there. Where does the 2 billion dollar start up come from? Didn’t they have a recent program they underestimated by around 2 billion (cash for clunkers). Maybe you and I aren’t reading the same information about how this public option is intended to be funded. You say its supposed to be funded by premiums. Are you sure there aren’t provisions for small business to pay in essence a penalty for not offering health care? That those with income of $250,000 or more won’t be paying a tax to pay for it?

  • Comm_reply
    donnyshaw 08/21/2009 9:48am

    OpenCongress Staff

    There are new taxes in this version of the bill, yes. A surtax on the rich, a tax penalty on businesses above a certain size that don’t provide insurance for their employees, a tax penalty on individuals who don’t get some kind of insurance. But that’s not to fund the public option. It would fund other stuff, like the affordability credits for people below a certain income level to buy insurance on the exchange.

  • Comm_reply
    oderintdummetuant 08/21/2009 10:05am

    So those things will fund (pay for) other people’s insurance? Man are you serious? I’m unemployed right now and I don’t have insurance, but I do have a college education and enough life experience to know how bad an idea this is. Why is it we feel the need to provide for people who won’t provide for themselves? Social Security is broke and broken. The VA is broke, the economy is broke. Our current president has spent more money in the first year of his presidency than the last president did in 8 years in office and our plan is spend our way out? I love your optimism, I really do and I hope to God you and your fellow believers prove me wrong but I think you all have a serious common sense deficit.

  • Comm_reply
    donnyshaw 08/21/2009 10:14am

    OpenCongress Staff

    My goal here is to have a discussion based on the facts and to focus on what’s really important in the bill. I happen to think these tax proposals are something worth focusing on, especially as they relate to the individual mandate for middle income people. But so much of the discussion has been degraded by lies and misinformation that this has hardly been discussed.

  • Comm_reply
    oderintdummetuant 08/21/2009 11:11am

    So am I not discussing it? Tell me how the relate to the individual mandate for middle income people. The discussion isn’t degraded by someone pointing out that you can call it whatever you want as a matter of fact tell me what you call it when you take from one (against his will) to give to another? I’d call it theft. I’m trying to discuss it but it keeps circling back to taking from those who have earned to give to those who haven’t. I’m trying to have discourse but I get no straight answer. What do you call taking from those who’ve earned to give to those who haven’t? What do you call it when you do it against the will of those from whom you are taking? Why is a public option necessary to provide competition? Would competition not occur with what I proposed in my first post, by health insurance not being geographically restricted? Pretty sure thats discussing it, and still I’ve gotten no straight answers. Just rhetoric and accusation.

  • Comm_reply
    Anonymous 08/22/2009 1:36pm

    Un-reimbursed costs take three forms, those who have no income and incur costs, those who have incomes but incur costs greater than they can afford, and those who have incomes that could otherwise afford insurance, but who have not purchased it. This latter group generally consists of younger people, many of whom earn in excess of $75k, but, because of the hubris of youth, think they are medically invulnerable, when, as a class they are not.

    Regardless, the law makes clear that medical treatment cannot be denied. It cannot be denied to those who cannot pay, and it cannot be denied to illegal immigrants. Hence, whether you like it or not, you pay those costs. At issue is whether you are willing to rationally reduce the costs by requiring everyone to obtain insurance to help pay for it.

    The option of denying treatment to those who cannot or did not pay, is not on the table and is not up for discussion in any of these bills.

  • Comm_reply
    oderintdummetuant 08/22/2009 4:29pm

    Well anonymous if in fact those are my choices then I choose to not rationally reduce costs by requiring everyone to pay for it. I would prefer that cost stay high, perhaps we’ll see Darwin proven right. Also, no options are off the table. Everything is up for discussion thats the beauty of this country. Every elected politicians job is on the table, just like socialism or at least its starting point is on the table. Believe it or not I truly hope you enjoy victory in your pursuits, just so your grand kids know who to blame.

  • Comm_reply
    bassmac 12/11/2009 12:34am

    Do you think denying treatment as part of the bill should be an option? If so, could you elaborate?

  • Comm_reply
    Anonymous 08/22/2009 1:27pm

    Donny, analysis presented here http://commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/Jun/Fork%20in%20the%20Road/PDF_1290_Davis_Fork_in_the_road_FINAL_v2.pdf
    by the CommonWealth fund suggests that Health costs of consumers would be reduced by nearly $3T over the next ten years if it includes a Public Option that pays out at medicare rates.

    The CBO suggests that, nevertheless, taxpayers will incur an additional $1T over that same time period.

    Can you discuss how both analyses may be true. That the TOTAL payout takes place in three basic forms, by private individuals, and private employers directly in the form of premiums, and by the same groups, indirectly in the form of taxes. That government cost obligations will increase over but some portion of that trillion is projected to occur regardless of the bill, and that the total private costs to individuals and employers may be reduced by amounts greater than the increase in total public costs.

  • Comm_reply
    Anonymous 08/24/2009 3:30pm

    You can’t compare health care coverage to purchasing items such as food, gas etc and other commodities as access to these items is fairly accessible to all. You don’t need to have a job to buy oil or groceries and the price for these items remains the same regardless of your physical state. No one can deny you access to the purchase these items or demand you return the items once you have purchased them, unlike healthcare.
    The public option is vital to the success of healthcare reform. Healthcare companies are trying their best to spread fear and misinformation in order to protect their HUGE profits. Any company that can afford to pay their CEO in excess of 10 million dollars annually will tell any lie to protect their profits.

  • Comm_reply
    bassmac 12/11/2009 12:31am

    To quote a great American, “With all do respect…” .Ricky Bobby.
    So let me get this straight. You are unemployed and surfing the internet at 2:05pm on a weekday instead of looking for a job. Are you drawing unemployment checks or just getting by on the money you’ve saved not paying for health insurance. I only ask because I do have a job and I pay my taxes which helps pay for things like unemployment for people who aren’t willing to go out and get a job.

  • Comm_reply
    bassmac 12/11/2009 12:31am

    I’m sure you have a reason you aren’t working, so as an educated American do us a favor:(this goes for all of you, myself included) instead of bitching about how this bill isn’t going to work, or defending it with uninformed generalized statements and grossly inflated stats, let’s use our time and energy to come up with a solution that will work while keeping everyone’s best interests in mind.

    Take a note from unemployed oderintdummetuant. At least he has posted an alternative. At least he is trying to spark discussion for other options.

  • Comm_reply
    Anonymous 10/01/2009 10:47pm

    BILL THE CHINESE BECAUSE THEIR GONNA PAY FOR THIS HEALTH CARE BILL ANYWAYS…

  • need_to_comment 08/21/2009 6:12am

    Obviously the public option will cost less than a private policy to lure customers. The commissioner will set the standards for the private and public option. If your current private policy doesn’t cover all the areas your premium will INCREASE, thus luring even more!
    By the way, donnyshaw, it isn’t just conservatives that say the public option will lead to a single payer system, Barney Frank suggested the same thing just a few weeks ago. Also, in the past, President Obama has said that he favors a single payer system. Why would he force reform if the reform wouldn’t fulfill his ultimate goal?

  • Comm_reply
    Anonymous 08/21/2009 9:36am

    because he and his cronies are all a power trip. you think they care about any of us. Wrong they dont and if you cannt see all the programs the government has tried to run and fail, then you have blinders are and not seeing things for what they are. do you have kids? think about them if you do. and if you dont have kids then everything that is said will go over your head

  • Comm_reply
    Anonymous 08/22/2009 1:42pm

    Conservatives agree and fear that a publicly run insurance company will drive privately run companies out of business by providing equivalent coverage for less. So help me understand why that’s a problem. Are we trying to maximize costs to consumer by insuring that for-profit suppliers get to stay in business and over-charge or are we trying to minimize health costs to consumers?

    Why are arguing for higher premium costs? And if you don’t the claim, then what is the worry that a worse, more expensive insurance product will drive better products from the market?

    If private insurers cannot output better price/performance why should they be protected? We are not talking about any other advantage given to the “Public Option” other than that it be profit-neutral.

  • Anonymous 08/21/2009 6:51am

    I’m sure they can all think of better ways to reform the insurance companies and provide for health competition. If they want to cover the poor, they have Medicaid. You could even change Medicaid to include a low-fee option and a supplemental option to help those people who have lost jobs and have too high deductibles.

    Read the bill – at www.FaithfulinPrayer.wordpress.com

  • Comm_reply
    Anonymous 09/05/2009 6:31am

    Why would anyone choose a government run insurance company over private companies? Can’t you look at all our government agencies and see how bloated and inefficient they are? Open up the free market, allow insurance companies to offer coverage regardless of geography and you drive down costs so insurance is more affordable for everyone.
    I cannot figure out why this is so difficult.
    As I understand, people are not being denied health care today. They can go to any county hospital and get treatment. Please correct me if I’m wrong about this.

  • Comm_reply
    bassmac 12/11/2009 12:48am

    If the solution were as simple as “Open up the free market, allow insurance companies to offer coverage regardless of geography ..” then why hasn’t this been done?

    Has it been suggested or studied? What does your Congressman think of this idea? When you mailed him or visited his office, or called his office? When you organized a town meeting to gather support for this approach, what did your congressman think about that?

    You tried some of these approaches, right?

  • Anonymous 08/21/2009 7:16am

    My understanding is they are going to force private premiums to triple in order to meet the new coverage requirements(is that true?). so if the public option is to be 10% less than 3 times what I am currently paying it doesn’t sound like a very good deal.

    I would like to know exactly how much it will cost for my family.

  • Anonymous 08/21/2009 9:00am

    first of all as i have predicted again the government cannt run things right. The program for clunkers. you cannt even predict the dollars to run a simple program for the auto dealers!!!! and you want to run the health reform? I dont think so. the government will screw that up too. What are they going to do when they tell all of us that they have run out of funds to pay for medical care? their sorry, they didn’t expect this or that and give us some bogus reason why it didn’t work. all because from the president down their on a power trip? How would like they someone or thing come into their lives and tell them what do to when to do it, etc.

    they talk about medicare not having any money. did they forget to tell everyone how much they have taken from that fund? and how much the government owes that fund? Noooooo they must make themselves look good by saying that medicare is broke. Come on they would rather talk bad about us, our families, our kids, etc.

  • Comm_reply
    Anonymous 08/22/2009 2:15pm

    In case its news to you, the PROBLEM is the fact that we are running out of our ability to pay for medical care, both public and privately. Medical costs are currently running at 15% of GDP and are projected to reach 21% of GDP. Over the last and into the next decade, the cost of premiums have risen from 11% to 24% of family income. Capitalism is the problem, not the solution.

  • Comm_reply
    Anonymous 08/22/2009 4:10pm

    Keep in mind health care is also part of our gross domestic product we export medical educations, medical equipment and pharmaceuticals around the world. that 15% includes training and research that other countries rely on us for.

    SO it could be stated that government health care will cost 15% of our GDP.

  • Comm_reply
    Anonymous 09/05/2009 6:37am

    And in the cash for clunkers program, car dealers are STILL waiting for their money from the government. Ridiculous.
    I had to laugh when I read Section 133(3)(b) entitled CONTRACTING REIMBURSEMENT, where it discusses reimbursement arrangements between the QHBP (qualified health benefit plan) and the providers. How long with providers have to wait for reimbursement? This bill, as written, will not work…

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