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.