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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.

donnyshaw 08/21/2009 9:48am
in reply to Anonymous Aug 21, 2009 3:53am

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.

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?

need_to_comment 08/22/2009 12:48pm
in reply to zigman61 Aug 22, 2009 6:07am

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?

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.

Anonymous 08/22/2009 1:42pm
in reply to need_to_comment Aug 21, 2009 6:12am

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 08/22/2009 2:08pm
in reply to need_to_comment Aug 22, 2009 12:58pm

“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?

Anonymous 08/22/2009 2:15pm
in reply to Anonymous Aug 21, 2009 9:00am

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.

Anonymous 08/22/2009 4:10pm
in reply to Anonymous Aug 22, 2009 2:15pm

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.

Anonymous 08/22/2009 4:14pm
in reply to oderintdummetuant Aug 21, 2009 9:56am

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.

oderintdummetuant 08/22/2009 4:38pm
in reply to Anonymous Aug 22, 2009 2:03pm

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.

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.

need_to_comment 08/23/2009 6:39am
in reply to Anonymous Aug 22, 2009 2:08pm

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.

donnyshaw 08/21/2009 6:29am
in reply to Anonymous Aug 21, 2009 6:23am

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.

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.

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

Anonymous 09/12/2009 6:01pm
in reply to brightbird49 Aug 28, 2009 12:14pm

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.

Anonymous 09/05/2009 6:31am
in reply to Anonymous Aug 21, 2009 6:51am

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.

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.

Anonymous 10/19/2009 6:47pm
in reply to Anonymous Oct 01, 2009 10:54pm

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!

Anonymous 10/01/2009 10:41pm
in reply to moonlitwomyn Aug 20, 2009 5:16pm

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

Anonymous 10/01/2009 10:45pm
in reply to Anonymous Sep 05, 2009 6:22am

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…

Anonymous 09/05/2009 6:20am
in reply to moonlitwomyn Aug 20, 2009 5:17pm

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.

Anonymous 10/01/2009 10:47pm
in reply to donnyshaw Aug 21, 2009 9:48am

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

Anonymous 10/01/2009 10:23pm
in reply to Anonymous Sep 01, 2009 6:25am

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…

Anonymous 08/20/2009 4:01pm

Why can’t they just tell me how much it will cost?

HOW MUCH WILL THIS COST ME ? $100 a month $500 a month? HOW MUCH DOES IT COST? why won’t they say?

jdavis1510 11/12/2009 11:31am
in reply to donnyshaw Aug 20, 2009 9:34pm

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

Anonymous 09/12/2009 6:12pm
in reply to Anonymous Sep 09, 2009 1:12pm

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.

donnyshaw 11/12/2009 12:11pm
in reply to jdavis1510 Nov 12, 2009 11:31am

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.

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!

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