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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.

Anonymous 08/22/2009 1:47pm
in reply to oderintdummetuant Aug 21, 2009 9:56am

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."

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 1:36pm
in reply to oderintdummetuant Aug 21, 2009 11:11am

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.

Anonymous 08/22/2009 1:27pm
in reply to donnyshaw Aug 21, 2009 10:14am

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.

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.

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 12:48pm
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?

dcornwall 08/22/2009 6:25am
in reply to oderintdummetuant Aug 20, 2009 3:11pm

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.

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.

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?

oderintdummetuant 08/21/2009 11:11am
in reply to donnyshaw Aug 21, 2009 10:14am

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.

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.

donnyshaw 08/21/2009 10:14am
in reply to oderintdummetuant Aug 21, 2009 10:05am

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.

oderintdummetuant 08/21/2009 10:05am
in reply to donnyshaw Aug 21, 2009 9:48am

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.

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?

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.

Anonymous 08/21/2009 9:38am
in reply to donnyshaw Aug 20, 2009 9:34pm

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

Anonymous 08/21/2009 9:36am
in reply to need_to_comment Aug 21, 2009 6:12am

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

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 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 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

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 08/21/2009 6:23am
in reply to donnyshaw Aug 20, 2009 9:34pm

So we have no Idea how much they are going to require as to pay each month. I know I would not sign a contract to buy a car under a situation were the car dealer gets to decide my payment after I take the car home.

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?

Anonymous 08/21/2009 5:47am
in reply to Anonymous Aug 20, 2009 4:01pm

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

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?

donnyshaw 08/20/2009 9:34pm
in reply to Anonymous Aug 20, 2009 4:01pm

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

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”….?

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!!!

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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