What Is the Public Health Insurance Option?

This is currently one of the main fault lines in the debate on health care. During the presidential campaign, Barack Obama, Hillary Clinton and John Edwards all endorsed the principle of having a public plan, similar to Medicare, which would compete with private insurance. President Obama, all three committee chairs in the House, and at least one committee in the Senate is strongly in favor of giving people the choice of private insurance or a robust public plan. Many Republicans, as well as the private insurance and pharmaceutical industry, oppose it.

But what is it, and how would it work?

1.) How would someone sign up for the public health insurance option?

Those who are satisfied with their employer-based coverage will keep it - nothing changes for them. A National Health Exchange will be set up for those do not have insurance provided by their employer, or who work for a small business which has opted to participate in the Exchange rather than negotiate directly with a private insurer. Those buying a plan on the Exchange will be given a subsidy based on their ability to pay in order to afford the premium, and no one will be turned away on the basis of age, gender, or a pre-existing condition. They will be presented with their choice of coverage plans in an easy-to-compare format; each plan participating in the Exchange will provide comprehensive medical, dental and mental health benefits at least as good as a Member of Congress's.

One of the options in the Exchange will be the public health insurance plan, which will be administered by the government on a national level, similar to the way Medicare is run. Those opting for public plan will have the exact same subsidies available as those who opt for a private insurance plan. The benefits will likewise need to be as comprehensive as those for a member of Congress.

2.) How is the public health insurance option different from a private insurance plan?

For a number of reasons, proponents of the public plan believe it will yield better quality at lower costs. The public plan will be administered by the government - it will need to be actuarially sound, but it will not generate a profit. The public plan will have substantially lower administrative costs than private insurance (according to the Centers for Medicare and Medicaid Services, administrative costs account for 3% of Medicare costs and 15% or higher of for-profit insurance costs). It will also save money through economies of scale and through bargaining clout on items like prescription drugs. Finally, since the public plan will not generate a profit, its incentives are towards maintaining long-term health and excellent quality. Since most private insurance is tied to a person's job, insurers assume that the average customer will change policies within a few years; they do not have a financial incentive to make sure the customer receives primary care and prevention to head off future chronic conditions. But the public plan will assume it has a customer for life (even those who choose to leave the plan will ultimately be on Medicare), and will take steps to focus on primary care, support research on what treatments work best, and disseminate that information to participating providers.

The belief of reformers is that private insurance does not pay attention to these factors because it has no financial incentive to do so. A public health insurance option changes the game. It will force private insurance to compete for millions of customers on cost and affordability, creating the incentive to transform the way coverage works, system-wide. As the President said on June 11, "If the private insurance companies have to compete with a public option, it will keep them honest and it will help keep their prices down."

3.) How will the public health insurance option affect provider rates?

The exact details of how the public plan will work are currently being debated in Congress, and there are many ideas on the table. One option would be to pay providers 110% of Medicare reimbursement rates, with the extra 10% an acknowledgment that, particularly for primary care, Medicare rates may be too low. A second proposal would be that the administrators of the public health insurance option would need to negotiate with providers and hospitals to create networks of coverage, exactly the way a private insurer would. A third proposal would be that the plan would start with Medicare rates +10% so that it could be instituted right away, but would transition to negotiated rates over a number of years. This question is still being actively worked on.

4.) Opponents say that people will be forced into the public plan. Is this true?

The Exchange will specifically be set up to put the choice of coverage into the hands of our patients. Private insurance plans will be offered alongside the public health insurance option, held to the same benefits requirements and receiving the same subsidies for those who cannot afford the premiums. No one will be forced to choose one plan over another.

Opponents of the public plan claim that it will be so successful at holding down costs while maintaining high levels of quality that no private insurance plan would be able to compete. They claim that private insurance companies will be driven out of business, making the public health insurance option the only plan left standing. There is cause for skepticism - certainly, the private Medicare Advantage plans are in no danger of going out of business despite costing more for arguably the same benefits as publicly-administered Medicare. But it is striking that the argument against a public health insurance option is that it will do too good of a job improving quality and reducing costs.

5.) Why is CIR supporting a public health insurance option?

CIR as an organization has been a strong supporter of the Health Care for America Now coalition for the past year and has endorsed its principles of reform. Many of you have participated in HCAN events and have seen firsthand how necessary it is that a physician's perspective be taken into account in the health care reform debate.

Among HCAN's prescriptions for reform is "A choice of a private insurance plan, including keeping the insurance you have if you like it, or a public health insurance plan that guarantees affordable coverage without a private insurer middleman." Of the ideas currently under consideration and likely to be implemented in the health care bills being drafted in Congress this year, the inclusion of a high-quality public health insurance option that competes fairly with private plans is the one that will most effectively "change the game" to make private and public coverage more efficient, more affordable, and yielding better quality. We believe that having the choice of a public health insurance plan will help make health care more affordable for patients, foster greater competition in the insurance market, and guarantee that quality, affordable coverage will be there for our patients no matter what happens.