President Barack Obama and presidential nominee Hillary Clinton have banded together to revive the possibility of a public option for health insurance. The idea of a public option had been proposed as a component of health reform before the Affordable Care Act (ACA) passed, but did not make it into the final legislation. Now that a public option is back on the block, is it likely and what would it mean for private payers?
New proposals for a public option
Insurance provided through a public option would likely be cheaper than plans provided by private payers because it would not need to turn a profit, have lower administrative costs, and could force providers to accept below-market reimbursements. As hikes in premiums on ACA plans loom and private payers exit ACA exchanges, proponents of a public option argue it would force private payers to offer more competitively-priced products.
In a recent commentary published in JAMA, President Barack Obama said a public option could enhance competition in the insurance marketplaces enacted by the Affordable Care Act.
“Twelve percent of ACA marketplace enrollees live in areas with only one or two insurers,” he wrote. “Some parts of the country have struggled with limited insurance market competition for many years, which is one reason that, in the original debate over health reform, Congress considered and I supported including a Medicare-like public plan. Public programs like Medicare often deliver care more cost-effectively by curtailing administrative overhead and securing better prices from providers.”
Although the exact language no longer appears on her campaign website, Clinton appeared ready to work with states to enact public options at the local level rather than nationally. She appeared ready “to empower states to establish a public option choice,” according to a February article in Politico. This would be a more politically viable approach as there seems to be little motivation among lawmakers on Capitol Hill to legislate a nationwide public option. However, it doesn’t mean state legislators would be willing to enact public options at the local level in areas where little competition exists on ACA exchanges.
Even if it isn’t politically viable, supportive lawmakers seem primed to push for the public option.
Would a public option kill the private insurance industry?
A public option would likely offer cheaper insurance than private payers. Private payer healthcare spending is expected to rise 104% from 2007 levels through 2023, according to an analysis from Drew Altman, president and CEO of Kaiser Family Foundation. Meanwhile, Medicare and Medicaid spending is expected to rise 63% over the same time.
Cheaper insurance offered through a public option is the reason opponents argue against it. It is unlikely private payers could compete and a public option would, at least eventually, mean the death of the private insurance industry.
However, according to at least one analysis, private payers could coexist alongside a public option. Some plans would meet there demise with the introduction of a public option, but those that were able to adapt and become more efficient would survive, according to a June 2009 analysis by the Urban Institute.
A nationwide public option that offered providers 20% more than Medicare rates would reduce costs by 15%, according to the analysis. If this were the case, private payers would reduce their costs by an estimated 5% through reductions in rates and more efficient stronger utilization management.
Although consumers could spend less by shifting to a public option plan, private plans would remain attractive because they would likely be more responsive to consumer demands and offer innovation in care management.
If a public option were to play out the way the Urban Institute analysis expects, the number of people with private coverage would fall from 177 million to 161 million. “Many will leave employer coverage, particularly those in small firms, and join the public plan as will many with non-group coverage,” the analysis reads. “But on the other hand, significant numbers of those who are now uninsured and some now on Medicaid would join private plans, either by taking up coverage in large firms outside the exchange or choosing a private plan within the exchange.”
While proponents have reignited calls for a public option, any proposal is likely to meet stiff resistance. Proponents are convinced that it would reduce national healthcare spending and significantly expand coverage. Opponents are convinced it would mean the end of the private health insurance industry and lead to substandard care. The debate over a public option is likely one that will continue for years to come.