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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 61-90 of 92 total comments.

  • oderintdummetuant 08/21/2009 9:56am

    Yeah, anonymous responding to the post about other government run public options for gas, food, clothing etc. You claim its comparing apples to aardvarks. The simple truth is the comparison is inconvenient for you because its appropriate. The point isn’t about some people finding health care to be a lower priority than others. The point is the public option is supposed to drive down price through competition, I say we don’t need a federally funded option to create competition, just let private insurers compete nationally. I’m still waiting for you to answer my questions from my first post Donny. We can’t have competition sufficient to drive down cost without a publicly funded option?

  • Comm_reply
    Anonymous 08/22/2009 1:47pm

    Here is a study done by the AMA showing that merger and acquisitions have eliminated competition from most markets. http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf

    “…the country’s largest health insurers have continued to pursue aggressive acquisition strategies.

    While large health insurers have posted very healthy profits since 2000, premiums for consumers have increased without a corresponding increase in benefits. … consumers have faced increased deductibles, co-payments and co-insurance. This has effectively reduced the scope of their health benefits coverage.

    It is clear that patients… are not benefiting from these mergers. The AMA is concerned that the United States is heading toward a system dominated by a few publicly traded companies that operate in the interest of shareholders and not primarily in the interest of patients."

  • Comm_reply
    Anonymous 08/22/2009 4:18pm

    Do you get more gas out o a gallon of gas now that it cost more then when it was $2 a gollon, are their more slices of bread in a loaf of bread now that they are $2 a loaf then when bread was a $1 a loaf. You have to keep in mind our cheaper then it used to be that makes other stuff look more expensive.

  • Comm_reply
    oderintdummetuant 08/22/2009 4:36pm

    Insurance is a for profit industry who do you think they care about. Insurance has nothing to do with people, its about money. Government oversight, perhaps good with stringent left and right limits. Government run…, for the sake of argument tell me how well government has run medicaid? social security? public education? the train wreck that is the Patriot Act? want me to keep going? cash for clunkers? bottom up communication in our military? civil rights? the economy?
    I swore to protect this country from all enemies, foreign and domestic and I’m doing my best to continue to keep that promise.

  • Comm_reply
    bassmac 12/11/2009 1:03am

    Oderint,
    Why did you get out? If you are still in, you would have health insurance. If you retired or were medically discharged, you would be entitled to health care. The only way you are uninsured is if you got out some other way, like ETS or less than honorable discharge.

    I am curious about your fealings in regards to bottom up communication and civil rights as failed Government ran projects. Are you a racist control freak? No civil rights and only you can make decisions(assuming you are a leader).(are you still unemployed?) You don’t feel that subordinates can make a positive contribution to our military’s success. You don’t believe that people of many colors and ethnic backgrounds have the same rights as middle-aged white men. Please tell me I misunderstood your point.

  • Comm_reply
    Anonymous 08/22/2009 4:14pm

    Why do people keep saying ts going to drive down cost when it is going to triple the price of monthly insurance premiums?

    how is $600 less then $200, am I the only person confused by this.

    For the love of God! someone please explain to me how tripling the cost of my insurance is going to save me money, I am starting to think I’m nuts.

  • toolib 08/21/2009 10:58am

    Rationing care is the biggest part of this I don’t like.

    a patient is a patient is a patient.

    STOP Obamacare. He get’s an F. I hope his ranking in the polls goes to hell.

  • zigman61 08/22/2009 6:06am

    Does anyone know exactly HOW other countries such as Canada or GB instituted their health plan? How did theirs begin? How could we in some fashion duplicate what they have done? Why don’t we hear tremendous amounts of complaints from the citizens of these other countries if what they have is so terribly bad? They had to have had a starting point like we need – but how exactly was this accomplished?

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

    They don;t complain about their health care they just send thhheir sick people to the US for treatment. Something to consider what is Canada going to do with their preemies if we get health care like theirs, they currently send their sick babies to the US for treatment. Something else to consider Canada can’t get doctors they all move to the US, are they gong to move to Mexico next?

  • Comm_reply
    bassmac 12/11/2009 1:16am

    Those countries share a common interest in health care avalability(among many other government ran programs) by equally paying slightly higher tax percentages to pay for same level care and expertise as in our great but confused country. Thier doctors are as skilled and capable as ours and also enjoy the luxuries being very well paid for thier job.

    Like all things in life, there are exceptions. The anonymous reply to your question is a case in point. If you look for it, you will find it. You can find every excuse for why our current way of providing health care is better than theirs as an alternative. The opposite holds true. Reasons why their way is better can also be found. Truth is, There way and our way is diiferent and people resist change for no reason other than the unknown and uncertain. Average Americans, especially us Repubs, are afraid of change and give in easy to propaganda and words like communism.

  • zigman61 08/22/2009 6:07am

    Additionally, where exactly in this bill does it speak of “rationing” care? I want the exact location and wording.

  • Comm_reply
    need_to_comment 08/22/2009 12:48pm

    The bill doesn’t use the term rationing. The President constantly refers to “controlling” costs. Now, in private industry when they are at the end of the fiscal year and approaching or exceeding their budget, they control costs. What that means is don’t buy anything unless it is absolutely necessary. Basically stop spending money. How else would a government entity “control” cost?

  • Comm_reply
    Anonymous 08/22/2009 2:03pm

    And how else does a private insurer control costs? So you feel more comfortable getting screwed by a private bureaucrat than a public one?

    Costs are controlled by introducing a publicly run insurance competitor that will pay providers at Medicare rates and won’t generate profits for shareholders. Because it only needs to recover its admin costs, it can adopt a re-reimbursement strategy that minimizes premiums, and because it enjoys administrative economies of scale, administrative costs are far less and negotiated discounts are greater.

    Private insurers have no incentive to reduce costs per se, they simply pass them through in the form of higher premiums. Just like Las Vegas, if private insurers charge a 10-point mark-up above payouts, then the higher the costs, the higher the premium and the more profit they make. They have no incentive to reduce costs except in the current fiscal year, which they do by denying or delaying approvals.

  • Comm_reply
    oderintdummetuant 08/22/2009 4:38pm

    More comfortable being screwed by private bureaucrat than a public one? Oh God yes, at least that relationship I’ve entered into by my own choice.

  • Comm_reply
    need_to_comment 08/23/2009 6:29am

    You claim administrative costs will be far less in Government run bureaucracy. You must be kidding. Since when does government at any level run with minimal administrative costs?
    Private insurers would have incentive to reduce premiums if we were actually free to purchase insurance. I can only purchase insurance that is licensed to sell in my state. It should be like car insurance were they can save me money in 15 minutes or less!! I had to purchase insurance from a different company just last year because my rates were increased. We need that freedom in health insurance too.

  • Comm_reply
    bassmac 12/11/2009 1:27am

    Don’t be so literal silly rabit. Read between the lines, or make up your own as so many who have posted are doing. It’s fun. Let’s try it.

    The average American familly income is $1.00 a year and health insurance costs a familly $100,000,000 a day so I just can’t seem to afford it right now.
    Maybe if the Government hadn’t spent 3 Trillion dollars on semi-atractive interns and covering up innapropriate love affairs with teenage boys last week, then we could afford to simply give every familly it’s own private live-in doctor.

    OMG. These posts are driving me insane. If I weren’t having so many laughs I would stop reading.

  • need_to_comment 08/22/2009 12:53pm

    donnyshaw, do you agree with my comment above that the President and Barney Frank intend to enact a single payer system? I am sure you have heard the clips, but if I need to hunt them down I can. Your Blog should include that Conservatives and top Democrats agree this will ultimately result in a single payer system. Thanks.

  • need_to_comment 08/22/2009 12:58pm

    http://www.youtube.com/watch?v=f3BS4C9el98
    0:28 seconds in.
    http://www.youtube.com/watch?v=fpAyan1fXCE
    0:9 seconds in.
    Couldn’t help myself so I went ahead and googled it.

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

    “The only way we are going to get single payer is to adopt a public option and DEMONSTRATE its strength and power.” The claim is that if the Public Option works — it provides better insurance coverage for less, then it will prevail.

    SO

    a.) Either it will work, in which case why are you against a better insurance product at a lower price, or
    b.) It won’t work, so why do you think an inferior product will eliminate superior private offerings?

  • Comm_reply
    need_to_comment 08/23/2009 6:39am

    Response to a) By work I guess you mean better, which is very subjective. It will only be lower until it consumes the entire consumer pool.
    Response to b)That’s the problem, they will make it work. As is the Executive appointed Commissioner will set standards and cost, therefore assuring its success. They have no fiscal responsibility, so they will provide great benefits for very low cost. If the system needs money, they will take it out of existing revenue streams (taxes).
    The Democrat leadership wants a single payer system. That’s why they support this bill. The only reason to support a bill is to achieve or progress to your goal.

  • Anonymous 08/22/2009 5:20pm

    If a public plan were available that was open to everyone it would doom the private health insurance industry because they offer nothing other than the ability to take money from the system in profit. Insurance is all about pooling resources, keeping them safe and offering a part of them to pay claims. There is no entrepreneurial factor, a computer could do it, unlike physicians/drugs where the profit is put to good use for new procedures and pills.

    There are only two workable options – single payer with all or the majority of Americans in it, or do nothing. By trying to create some “public option cooperative”, not enough people will enroll and providers will simply refuse to honor it. We will, on the present course, be offered a re-arrangement of deck chairs that will not help things. Public option/single payer OR throw out the whole idea of health reform, because single payer is what reform is all about. Anything else is simply government protection for the health insurers.

  • Anonymous 08/23/2009 7:40am

    Sounds like Donny is unable to answer any reasonable questions. I want to know also why we think the gov can run something this big with little thought especially when we had a difficult time with the clunkers program. Distribution of wealth is not fair no matter how you look at it. I do applaud Obama for finally acknowledging that illegals will not be draining this program like they do welfare, free lunch programs, medicaid, medicare, public schools and all social programs.

  • Comm_reply
    need_to_comment 08/23/2009 8:00am

    While the bill was in committee a congressman (I think from Texas) offered up an amendment to essentially exclude all non citizens from participating in any of H.R. 3200, and it failed along party lines. Similar fate with an amendment to forbid government funded abortions.

  • Anonymous 08/25/2009 6:39pm

    I think this one is for Donny. It’s a pretty easy one I hope. Will the government let the public plan go under if its expenses outstrip its revenues?

    I guess if anyone knows the answer, I’d just be happy to know. If you wouldn’t mind a reference that would be great.

  • binaryflow 09/09/2009 3:44pm

    Why not first drop the regulations that prevent private insurance companies from interstate commerce? Instead of forcing them to compete in each state separately they should be allowed to consolidate services and find efficiencies. Let’s work on lowering the cost of health care by reducing existing expenses first. Congress should “regulate” interstate commerce. That means they should make it regular and free flowing. Chopping insurance companies up by state certainly doesn’t fit that description.

  • geofrog 10/08/2009 9:07am

    please remove the dictatorial practicies of the pharmaceuital and the medical insurance companies fromt he practice of medicine. Dictating to doctors what they will provide as treatment is not good medicine. Remove the influence of the medical insurance providers and the pharmaceuitical companies from the delivery of our health care system. These practicies drive the cost of medicine up and up and keep the spirial of out of control costs of medicine fueleed. Let doctors practice medicine without the non-professional dictating what he can and can not do to help an consumer seeking medical care. SSGT RET USA Joseph A DiMeco, JR !00% Disabled Veteran

  • poormanslobbyist 10/23/2009 3:04pm

    The Public Option is to health insurance as the post office is to postage, so that you don’t have to pay $5 everytime you want to mail a letter. Some folks will choose UPS and FedEx (the presence of USPS didn’t put them out of business), but it’s important to have the USPS public option. I find it interesting that the “socialists” are arguing for competition, while the “capitalists” are arguing for monopolies. I have many more thoughts on this in a blog post at http://blog.poormanslobbyist.org/2009/10/public-option.html

  • Anonymous 10/25/2009 2:35pm

    Unless we have (at the very least) a public option, “reform” will not be acheived. We need to transition from the current profit making business of private health insurance to an industry that is focused on providing quality healthcare to all its citizens.

  • happycamper 11/08/2009 6:07pm

    Well,according to the House version our insurance will cost us at least $5,000 a year,maybe more. What I have now only costs me about $1,000. Boy, I’m gonna be so much better off. I won’t even have to pick my Dr they’ll just assign me one. Wow!

  • Comm_reply
    bassmac 12/11/2009 1:37am

    Or, and I’m just spit-balling here Happycamper, you could keep your current insurance provider. That’s right. While everyone without insurance can get more affordable coverage through this bill, you could chose to stay with what you have now! That’s why they call it the public OPTION! Noticed how I capitalized the word option. This bill is suposed to be aimed at creating lower costs by providing cheaper alternatives as competition for private ran insurers. This would imply that your annual cost would be more likely to get lower, not higher.

    Better idea, you could tell us all who your insured with at $1,000 a year, and we could all use your provider, too. Then, only those suckers out there who thought insurance was too expensive will spend $5,000 on Gov health care.

    Have a great day

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