The idea of a public option for health insurance has become increasingly politicized. Insurance companies, the pharmaceutical industry, and powerful hospital systems—all groups that profit from the status quo—are attempting to stir up fears about a plan that would actually help American families. In reality, a public option would lower costs, save American families money, and allow private insurance plans to continue to compete. The public option also remains a popular path for reform with growing support: A recent survey shows that 2 in 3 voters support a public option. In this column, the Center for American Progress sets the record straight on what a public option would do and discusses four common misconceptions about the plan.
As noted above, more than 2 in 3 Americans support a public option, including 2 in 5 Republicans. Notably, the Kaiser Family Foundation (KFF) finds that support for a public option that competes with private insurance has also seen a steady increase in support over the past decade, up 12 percentage points since 2009. Unlike during negotiations over the Affordable Care Act (ACA), the percentage of Americans who indicate that they strongly favor a public option eclipses the total percentage of respondents who oppose the idea. In 2009, 39 percent of Americans opposed the creation of a public option, while just 29 percent strongly supported it. Today, 40 percent of Americans strongly favor a public option, while just 27 percent oppose it. This shift toward increased support and enthusiasm for a public option suggests opposition to a plan similar to President-elect Joe Biden’s may come at a political cost.
What is a public option?
Public option proposals come in many different shapes and sizes. At its core, a public option aims to improve coverage and bring down costs through greater competition in insurance markets. Many recent reform proposals centered around a public option would make other changes—such as lowering premiums and cost sharing for more middle-class families, extending financial assistance to people in the Medicaid coverage gap, and making subsidized coverage through the individual market—available to people with employer-sponsored insurance (ESI).
For the purpose of this column, a public option refers to a reform proposal similar to that of President-elect Biden’s, a scenario modeled by the Urban Institute, and a proposal from Brookings Institution scholars. Those plans build upon the framework of the ACA and share the following key characteristics:
- Anyone can enroll in the public option, including people who currently have ESI.
- The public option competes alongside existing private plans in the individual market.
- The government sets the public option’s payment rates for providers, enabling it to pass along savings to consumers.
- The plan offers income-based financial assistance for premiums and cost sharing, with a no-premium option for those with incomes below the poverty level.
With this framework in mind, CAP corrects four key fallacies about the public option.
Myth 1: The public option is a government takeover with one-size-fits-all insurance
There is a reason such reforms are called a public option: They allow people to switch to the public option plan, continue to purchase plans offered by commercial insurers, or remain enrolled in existing public plans. Existing public plans are extremely popular; nearly 4 in 5 Medicare and Medicaid enrollees rate their health care coverage and the quality of care they receive as good or excellent.
The public option would bring down the price of care and improve health care by competing alongside existing plans. The public option combines the market pressures already present in the private insurance market with the leverage of a government program to lower premiums and out-of-pocket costs for beneficiaries.
For people with ESI, the public option would provide more choice and likely offer more attractive options. The roughly 1 in 2 Americans who currently receive insurance through an employer could decide to stay in their private coverage. But a public option would give workers and their families a new way to obtain lower premiums and comprehensive benefits for enrollees. The public option could also help small-business owners who struggle to find affordable, quality care for their workers.
Myth 2: The public option will undermine health care providers
Evidence shows that higher rates of health coverage improve hospitals’ financial sustainability. With nearly universal coverage under a public option, previously uninsured and underinsured individuals would have better access to care and providers would receive insurance payments for nearly all of their patients, reducing their expenses for uncompensated care. In 2018, hospitals alone provided $41 billion in uncompensated care by providing charity care and writing off patients’ debts. The total cost of care for the uninsured is likely much larger: KFF estimated that uninsured individuals received $84.9 billion in care that was paid for by federal, state, or local governments or by providers, rather than the patient or an insurer.
Even in hospitals or practices in regions where providers struggle to stay afloat, the path to financial vitality points to increasing coverage, rather than inflating payments. Analyses by academic researchers and the U.S. Government Accountability Office found that rural hospitals are less likely to close in states that expanded Medicaid under the ACA, a phenomenon linked to reductions in uncompensated care expenditures. In fact, while the number of rural hospital closures between 2013 and 2017 was double that of the previous five-year period, closure rates remained roughly the same in states that expanded Medicaid. Meanwhile, hospital closures increased nearly 500 percent in states that did not expand Medicaid.
The public option need not pay providers as much as commercial insurance in order for the option to be a good deal for hospitals. For example, at payment rates set to 110 percent of Medicare rates—which would be closer to Medicare rates than that of private insurance—hospitals would still be able to maintain a 2 percent margin on average, according to estimates by Avalere. For example, a 2019 MedPAC analysis found that when faced with public payment shortfalls, hospitals in competitive markets focused on cutting costs and increasing efficiency, while hospitals with greater market power raised prices for private payers and invested these revenues in cost-increasing activities.
Myth 3: The public option will raise families’ health care costs
Analyses that consider only the taxes or government savings needed to fund a public option ignore the reform’s potential impacts on equity and how the plan could affect ordinary families’ total health care expenditures, including premiums and out-of-pocket costs. Under a plan such as President-elect Biden’s, middle-class families who buy insurance on their own would benefit from substantial savings. Among those who would save the most are near-elderly, middle-class Americans who do not currently qualify for marketplace financial assistance—especially those who live in rural areas, who tend to have fewer plan options and higher premiums in the individual market.
KFF estimates that a person with a $50,000 annual income seeking a gold plan would save 66 percent as a 60-year-old, 32 percent as a 40-year-old, and 20 percent as a 27-year-old compared with current individual market rates. These savings would add up meaningfully for American families: The 40-year-old referenced above would save $354 per month, with a total savings of nearly $4,250 per year. Even people who are currently enrolled in ESI could benefit: The same KFF analysis estimates that 12.3 million ESI enrollees would save money by switching to a Biden public option.
A key purpose of a public option is to make quality coverage more affordable and limit out-of-pocket costs. While the ACA limited how much insurance companies can keep in profits for most health plans, there is no limit on what providers can charge patients and insurers. Insurers and providers go to extreme lengths to conceal their prices, often tying contractual secrecy requirements to negotiated rates. Prescription drug prices are similarly opaque, making it difficult for consumers to understand the cost of medications and value of their coverage. A public option would be transparent about the prices it sets for the public plan, and competition could bring down costs elsewhere in the private market.
Another way the public option can reduce premiums throughout the individual market is by bringing healthier people into the risk pool. In fact, the Congressional Budget Office has scored public option proposals as net deficit reducing. The Biden campaign estimates that the president-elect’s public option reform, which includes expanding subsidies for coverage, would cost $750 billion over 10 years. That amount could be funded entirely without raising taxes on the middle class.
Myth 4: The public option won’t help people who are already insured
The pandemic has underscored how many Americans rely on employer-based insurance—and how many would become uninsured if they lose their jobs. The Commonwealth Foundation estimated that “as many as 7.7 million workers lost jobs with employer-sponsored insurance as of June 2020 because of the pandemic-induced recession.” When accounting for dependents, mass layoffs during the pandemic led to the loss of employer coverage for 14.6 million people, although many people who lost job-based insurance were able to enroll in Medicaid or Marketplace plans thanks to the ACA.
Comprehensive coverage is especially important for people with disabilities and preexisting conditions. For many, a few months without coverage could be the difference between life and death and added medical costs during this time of economic crisis. The peace of mind of knowing there could be alternative coverage that is not tied to employment resonates with millions of Americans. In a Morning Consult survey, a plurality of Americans—41 percent—reported that the coronavirus pandemic made them more likely to support universal coverage.
The public option would also offer a new alternative to people who are privately insured but are dissatisfied with the cost of care or the benefits they have by allowing them to purchase coverage on their own and making them newly eligible for income-based subsidies. According to a study by the Commonwealth Foundation, 28 percent of adults with ESI are underinsured, meaning their coverage does not provide adequate financial protection against health care costs. For people who feel stuck in a job because they or their family depend upon it for health coverage, the public option would give them the freedom to change employers or start their own business.
Conclusion
The flip side of high health care costs for ordinary Americans is rising profits for insurance companies and large health provider systems. It is telling that members of those industries support some of the most vocal opposition to the public option. After four years of rising uninsurance rates and stalled progress on affordability, a public option would help put American health care back on track toward universal coverage and lower costs for average Americans.
Nicole Rapfogel is a research assistant for Health Policy at the Center for American Progress. Emily Gee is the health economist for Health Policy at the Center.