Can Biden’s Push for a Public Option Lower Your Healthcare Costs?

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In Biden’s campaign he proposed a new public option that would provide an alternative to private insurance for Americans who are not eligible for Medicare or Medicaid.The effects of a public option would …

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  • In Biden's campaign he proposed a new public option that would provide an alternative to private insurance for Americans who are not eligible for Medicare or Medicaid.
  • The effects of a public option would depend on the details of the plan.
  • In general, payment rates are expected to be lower under a public option than most commercial insurers.

As one of his campaign promises, President Joe Biden pledged to build on the Affordable Care Act (ACA) by passing a public health insurance option.

Under the plan forwarded in his campaign, the new public option would provide an alternative to private insurance for Americans who are not eligible for Medicare or Medicaid.

The plan would cover ACA essential health benefits. It would be free for people with an income below 138 percent of the federal poverty line, and premiums would be capped for others at 8.5 percent of their income.

This is just one of many public option proposals that politicians have floated. The proposals vary in terms of eligibility criteria, benefits coverage, premium rates, provider payment rates, and more.

“Right now, the discussion in the United States on a public option is a theoretical one,” Dr. Georges Benjamin, executive director of the American Public Health Association (APHA), told Healthline.

“Until people actually put something down on paper for people to react to, it’s going to be very difficult to predict the winners and losers and the people that would be for or against it,” he said.

What is a public option?

A public option is a government-sponsored insurance program that provides an alternative to private insurance. It’s distinct from the Medicare-for-all approach that some healthcare reform advocates favor.

“Medicare-for-all proposals typically replace the panoply of existing coverage types with a single new government coverage program,” Matt Fiedler, PhD, a fellow with the USC-Brookings Schaeffer Initiative for Health Policy in Washington, D.C., told Healthline.

“A public option is a publicly operated insurance plan that would compete alongside private plans in the individual market, the employer market, or both,” he continued.

A 2020 poll from the Kaiser Family Foundation found that about 68 percent of adults in the United States support a public option, including 85 percent of Democrats and 42 percent of Republicans. Roughly 56 percent of poll respondents support Medicare-for-all.

How could a public option affect insurance costs?

The effects of a public option would depend on the details of the plan.

In general, payment rates are expected to be lower under a public option than most commercial insurers.

The government could use its purchasing power to negotiate lower provider payment rates, similar to Medicare.

It could then invest those savings in ways that benefit consumers, for example, through lower premiums.

When researchers from the Urban Institute modeled the effects of a public option for individuals and families, they estimated it would lower average premiums by 12 to 28 percent.

Many public option proposals cap premium rates at a percentage of the enrollee’s income. Some proposals would provide no-premium plans or heavily subsidized plans for low-income enrollees.

It’s possible that a public option might also drive down premiums in the wider market by increasing competition and incentivizing private insurers to negotiate lower provider payment rates.

How could a public option affect insurance choice?

A public option could increase the number of choices available in some regions by adding another choice for buyers.

On the other hand, some worry that private insurers may struggle to compete with a public option. This may lead to reduced choice in some regions if any private insurers drop out of the market.

Fiedler expects that private insurers will generally be able to adapt.

“In my view, creation of a public option would reshape negotiations between private insurers and healthcare providers in ways that would allow insurers to negotiate much lower prices,” he said.

“Private insurers would also probably have some competitive advantages over a public option, such as being able to manage utilization more effectively or attract healthier enrollees,” he said.

How could a public option affect healthcare choice and quality?

Some healthcare providers may opt out of participating in a public option if provider payment rates are set as low as Medicare rates.

“The problem with Medicare rates, particularly for hospitals, is they're well below what providers or hospitals are getting paid now by commercial insurance,” said John Holahan, PhD, a fellow with the Health Policy Center at the Urban Institute in Washington, D.C.

“And if you're going to offer a plan that people are going to want, they're going to want to have participation by the hospitals they like and the higher-paid specialties,” he added.

Setting provider rates too low may also put some healthcare centers at risk of closure or compromise the quality of care they provide.

“It’s possible to go too far and threaten access to care or quality of care,” said Fiedler. “My view is that there is likely some room to move in this direction without undue effects on access or quality,” he continued, “but this is a trade-off that policymakers would need to consider.”

What are the barriers to passing a public option?

To pass a public option, lawmakers would need to contend with opposition on several fronts.

Republicans generally oppose increased government involvement in health insurance. They would likely seek to block proposals for a public option.

Support for a public option within the Democratic party is also variable. Although Democrats generally support healthcare reform, they are divided on which approach is best, with some favoring a Medicare-for-all model.

Many members of the healthcare industry have also lobbied against the introduction of public options. These include hospital associations and other providers that fear lost revenues.

The APHA is among those that support public options. However, Benjamin said the specific approach taken would affect buy-in among providers.

“If billing, collecting, paperwork, all those things are easy and simple, and the reimbursement is reasonable, then providers are going to be much more likely to support it,” he said.