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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.

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.

bassmac 12/11/2009 1:42am

So in conclusion, it is obvious that there are 4 types of politically minded people in America.

1st. Those who watch CNN and believe every word.
2nd. Those who watch FOXnews and believe every word.
3rd. Those who don’t have a clue.
4th. Those who wish they could reach out and choke the first two groups.

Anonymous 08/22/2009 4:22pm
in reply to zigman61 Aug 22, 2009 6:06am

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?

Anonymous 08/22/2009 2:03pm
in reply to need_to_comment Aug 22, 2009 12:48pm

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.

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.

Anonymous 09/09/2009 1:12pm
in reply to donnyshaw Aug 20, 2009 9:34pm

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.

need_to_comment 08/23/2009 8:00am
in reply to Anonymous Aug 23, 2009 7:40am

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.

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.

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.

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

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?

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.

Anonymous 10/27/2009 8:38pm
in reply to Anonymous Oct 01, 2009 10:45pm

I think you mean republic..

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.

kendradawn10 10/29/2009 5:36am
in reply to oderintdummetuant Aug 20, 2009 3:11pm

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.

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”….?

bassmac 12/11/2009 12:31am
in reply to oderintdummetuant Aug 21, 2009 10:05am

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.

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?

Anonymous 08/22/2009 4:18pm
in reply to Anonymous Aug 22, 2009 1:47pm

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.

Anonymous 10/25/2009 7:14am
in reply to Anonymous Oct 19, 2009 6:47pm

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!

Anonymous 09/05/2009 6:22am
in reply to Anonymous Sep 05, 2009 6:20am

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

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.

Anonymous 09/05/2009 6:37am
in reply to Anonymous Aug 22, 2009 2:15pm

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…

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 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.

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.

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 9:36am
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

bassmac 12/11/2009 12:31am
in reply to bassmac Dec 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.

Anonymous 10/25/2009 7:17am
in reply to Anonymous Oct 19, 2009 6:47pm

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

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