Why A Public Option Would Not Be Successful

Why A Public Option Would Not Be Successful

Editor’s Note:  Last week, PRI President, CEO, and Thomas W. Smith Fellow in Health Care Policy Sally C. Pipes participated in a debate on the public option at the annual conference of the National Council of Insurance Legislators conference in Las Vegas.   

Nevada Assemblywoman Maggie Carlton moderated the debate.  Arguing against the motion “The Search for a Successful Public Option” were Pipes and Amber Stidham of the Henderson Chamber of Commerce. Arguing in favor of the motion were Adam Fox of the Colorado Consumer Health Initiative and Liz Hagan of United States of Care.   

Below are Pipes’ opening comments, presented as written: 

Good afternoon. Let me begin by thanking our moderator, Assemblywoman Carlton, as well as my fellow panelists: Adam (Fox), Liz (Hagan), and Amber (Stidham).

I’d also like to thank the National Council of Insurance Legislators for inviting me to join this important and timely discussion.

It’s been over a decade since the public option was cut from the Affordable Care Act. But this supposedly “moderate” brand of healthcare reform is still very much with us. In fact, the public option might have more momentum now than it did during the Obama administration.

It was the centerpiece of Joe Biden’s healthcare agenda during his campaign for the White House. He saw the public option as an alternative to Bernie Sanders’s vision of Medicare for All. He wagered – correctly – that voters were not on board with an explicit government takeover of the country’s health insurance system.

A poll conducted last year by Morning Consult and POLITICO found that nearly seven in 10 voters were in favor of a public option. That includes 80 percent of Democrats and 56 percent of Republicans – a far cry from the 62 percent of Republicans who oppose single-payer health care.

Why does the public option seem to have bipartisan support?

Its supporters brand it as an affordable, subsidized health insurance plan that exists alongside private coverage options. It’s just one more choice – one that can keep private insurers honest and foster competition in the health insurance market. Competition leads to lower prices and better quality. What’s not to like?

Quite a bit. For starters, the public option is not just one more insurance choice. A government-run plan doesn’t face the same strictures as private plans – and will thus rapidly take over the market.

A public option doesn’t need to cover its costs. If it ever pays out more in claims than it takes in premiums, its owner – the government – can dip into state funds to cover losses.

A public option also can dictate prices to healthcare providers. Doctors and hospitals can decline to accept private insurance they feel doesn’t pay them enough. States, on the other hand, can order providers to accept the public option, regardless of its payment rates.

Our existing public plans – like Medicare and Medicaid – pay less than private insurance does. For example, private insurers pay hospitals more than double what Medicare does, and 20 percent more than what Medicare pays for physician services.

Supporters of a public option are explicit about their plans doing the same. One study found that a national public option would reduce spending for hospital services by $774 billion over its first decade.

This might make for low-cost plans. But it leaves private insurers in a bind. They won’t be able to compete with the public plan’s artificially low-cost structure. A public option will always be able to underprice them.

People – and employers – respond to incentives. Over time, they’ll move to the public option.

According to one study from KNG Health Consulting, one-fourth of all people currently enrolled in private health insurance would transition into the public option in the first decade.

An influx of lower-paying public option beneficiaries will cause healthcare providers to raise prices for their privately insured. Private insurers will be forced to pass those increases along to their customers.

The more private premiums rise, the more people will flee to the public option – and the cycle will continue.

Gradually, and then suddenly, private insurance will disappear. One study found that within three decades of a federal public option, 70 percent of states wouldn’t have a private option. Whatever private insurance remained would be unaffordable to most Americans.

In this way, a public option is not moderate. It’s another route to government-run, single-payer healthcare – albeit in slow motion.

Democrats don’t have the votes in Congress to push a public option forward at the national level. But a number of states have pressed ahead.

Take Washington, the first state to implement a public option. “Cascade Care” opened for enrollment in November 2020, and coverage took effect last year.

Rather than offer public option plans directly, Washington contracted with private insurance companies to provide subsidized plans on the state’s health insurance exchange.

There are two types of publicly sponsored plans. The first are Cascade Care Plans, which meet all the Affordable Care Act’s requirements and include a standard benefit design. Every private insurer selling on the state’s exchange must sell a plan that adheres to the Cascade Care Plans’ requirements.

The second kind of publicly sponsored plans are Cascade Select Plans. These are the “real” public option plans. Five private insurers offer them. They pay providers no more than 160 percent of Medicare rates. But as part of an attempt to keep providers from rebelling, these plans must pay rural hospitals at least 101 percent of allowable costs and primary care providers no less than 135 percent of Medicare’s rates.

These are meant to be the most affordable plans, the ones that will help Washington’s 600,000 uninsured, and inspire private plans to cut premiums.

So far, they’re failing on all fronts. In 2021, public option plans cost up to 29 percent more than traditional insurance plans offered on Washington’s insurance exchange. On average, mid-level Silver Cascade Care plans have higher out-of-pocket costs and similar premiums to comparable private plans.

At the moment, Cascade Care plans are available in all 39 counties, while Cascade Select is available in just 25 counties.

Despite its built-in cost advantages, a public option plan was not the lowest-premium option in 10 of the counties where it was available, according to a November 2021 study.

And so much for increasing competition. Premiums were up 4 percent across Washington state in 2021. It’s no wonder only 2.5 percent of Washingtonians enrolled in Cascade Select plans in 2021.

Washington’s leaders have responded to Cascade Care’s failures with a mixture of carrots and sticks. Last May, Gov. Jay Inslee signed Cascade Care 2.0 into law. This measure made state subsidies available to Cascade Care enrollees who make less than 250 percent of the poverty level.

The law also mandates that hospitals accept at least one Cascade Select plan if they take Medicaid or public employee health insurance.

In other words, the state is effectively forcing hospitals to accept a public option plan.

When he signed Cascade Care into law, Gov. Inslee said he hoped the program was a model “for the rest of the nation to consider.” I sure hope not!

Although Washington’s experience with a public option has been less than rosy, other states are still following its lead.

In 2021, the Nevada legislature passed SB 420, which requires the state to set up a public option plan by 2026. The governor signed it into law in June.

By law, premiums for Nevada’s public option plans will have to be 5 percent lower than the benchmark Affordable Care Act premium in every zip code in the state.

Initially, plan prices won’t be allowed to escalate at a rate higher than the Medicare economic index, which measures input costs for physician services. However, that standard can be relaxed if average public option premiums statewide are 15 percent lower than the Affordable Care Act benchmark rate.

Nevada’s heretofore unnamed public option has a few things in common with Cascade Care. Like Washington, Nevada will contract with private insurers to administer plans rather than offer them to consumers directly. Like Cascade Select plans, Nevada will require these insurers to reimburse hospitals and other healthcare providers at or around Medicare rates.

But unlike Washington, Nevada started off with a clever mechanism to make sure providers take these publicly sponsored plans. Any provider that takes Medicaid patients or participates in the state’s employee benefit system must also accept at least one public option plan.

Such a mandate should meet the state’s goal of universal acceptance of the public option. After all, there are quite a few Medicaid enrollees and public employees. Providers can’t afford to turn away these big patient pools, right?

That may be true. But they can limit the supply of care they’re willing to provide for those low-paying public plan enrollees. Some doctors may decide to retire early, or spend an extra day a week on the golf course. Others may leave Nevada for states without a public option, or exit the practice of medicine entirely.

Hospitals may limit access to doctors, triaging more care to lower-paid nurses, nurse practitioners, and physician assistants. They also may trim employee headcount; getting someone on the phone to answer a question or make an appointment may become an hours-long affair.

The result will be long waits for care – for everyone, not just those with publicly sponsored insurance.

The possibility of this disastrous outcome was one reason why many Nevada doctors opposed the state’s public option plan.

Now let’s turn to the third state that’s moving ahead with a public option – Colorado. The Centennial State was on track to implement a program similar to Washington’s and Nevada’s before the COVID-19 pandemic. But in April 2021, it took a different tack.

Rather than offer subsidized plans directly or tap private insurers to sell them, Colorado opted to meddle directly in the insurance market. The Colorado Option empowers the state to regulate private insurance rates in order to “guarantee” affordable insurance options across the state.

This plan is more extreme than the other public options we’ve looked at – and it could have the most devastating impact.

To get the plan off the ground, Colorado struck a deal with the state’s insurers, who agreed to lower their premiums by 18 percent on average by 2025. If insurers miss the target, they will be called before state officials and forced to justify their premium rates.

If that happens, state officials could also interfere with provider reimbursements. Under the plan, Colorado could force insurers to set reimbursements as low as 165 percent of Medicare rates for hospitals and 135 percent of Medicare rates for other providers.

As with all public option plans, these lower reimbursement rates would deliver a severe blow to healthcare providers. The Common Sense Institute, a Colorado think tank, projects that the new rates imposed by the bill could reduce provider payments by $830 million to $1 billion by 2024.

Such a reduction could eliminate somewhere between 3,900 and 4,300 healthcare jobs. As the Common Sense Institute notes, Colorado’s public option would “effectively ask Colorado health care providers to do more, with less, while they are attempting to recover from the staffing and budgetary stresses of the COVID-19 pandemic.”

If healthcare providers respond to lower public reimbursements by raising prices for private insurers, the rest of Colorado’s economy will feel the impact. Insurers will raise premiums for employers. Employers will deal with those higher premiums by raising prices for their customers or curbing their own labor costs, whether by cutting pay or eliminating jobs.

Common Sense estimates that the states’ public option will put so much strain on the state’s job creators that it could lead to a loss of 5,400 jobs across all sectors of the economy, as well as $470 million in personal income each year.

Between the low reimbursement rates and the economic tumult, healthcare providers might understandably want to opt out of this plan.

Fortunately, the good folks behind Colorado’s public option have thought of this. The state will compel all healthcare providers, from doctors and nurses to midwives and massage therapists, to accept the public option.

Any provider who refuses will be subject to disciplinary action, including the revocation of their medical licenses. Even hospitals can have their licenses revoked for not taking public option patients.

Now let’s turn from the states that have made headway on a public option to those that would like to. It’s on the agenda in no less than 16 states.

Oregon, for instance, has announced that it hopes to use its planned public option to address racial inequities in health care.

In July 2021, Gov. Kate Brown signed a bill directing the Oregon Health Authority to develop an “Implementation Report” that would lead to a public option. Many of the specifics are yet to be determined, but any resultant public option would use state funds to subsidize plans with up to a 98 percent actuarial value.

Supporters assert that a public option will erase health disparities driven by race, gender identity, and other “socially determined circumstances” by 2030.

Connecticut has tried to implement a public option three times since 2019. The state’s most recent proposal would allow employees of small businesses and union members to join the state employees’ health insurance plan.

Allowing people to enroll in an existing plan may be simpler than setting up an entirely new program. But it also comes with its pitfalls.

A Yankee Institute study concluded that the state had not collected enough funds to support this plan, and that moving so many people onto the public plan would pose “a significant financial risk for state and local taxpayers.”

New York is also flirting with a public option. There is a bipartisan movement to create a public option plan in the Empire State, one that would require an additional $287 million in federal subsidies.

This is admittedly a more modest public option plan, which makes sense considering that so much of New York is already on public coverage. Nearly 40% of the state’s population is already on Medicaid. Nearly 20% are on Medicare.

Then again, those pushing a public option for New York have bigger ideas. For an additional $345 million, the state could provide a subsidized, low-cost insurance plan for undocumented immigrants who aren’t otherwise eligible for subsidized insurance.

This type of plan – a kind of public option aimed directly at those in the country illegally – is popular in states that already have myriad subsidized coverage options.

Legislators in California are currently considering expanding the state’s Medi-Cal program to cover all undocumented immigrants, an expansion that would cost an estimated $2.4 billion each year.

New York and California show yet another way that the public option can lead to complete, government-run health care. Entitlement programs are rarely scaled back. Instead, they have a tendency to expand.

This is particularly true in health care. Once a program expands to cover a certain population, governments don’t typically declare victory. They identify another group to exercise their dominion over.

That’s where a public option is headed. Lawmakers could be direct about their plans, as those in California and New York are. Or they could be cagey, dismissing fears about a public option death spiral that results in a government takeover of the health insurance system as unrealistic.

Proponents of a public option have good reason to distance themselves from single payer, at least rhetorically. And that’s because single payer is disastrous for patients.

Let’s start with the basic claim of a single-payer system: that it would make health care free.

That’s not exactly true.

According to Emory University economist Kenneth E. Thorpe, 70 percent of working, privately insured households would pay more for healthcare under “Medicare For All” than they currently do. That’s largely due to the increased taxes that would be needed to fund the program, which could run as high as $46 trillion over 10 years.

Citizens of countries with single-payer face significant tax burdens to underwrite their public health insurance systems. The average Canadian family of four pays around $15,000 for “free” health care each year. The average household in the United Kingdom, meanwhile, shells out a little over $7,900 in taxes each year to fund the National Health Service.

Those tax bills are even bigger when you consider that per-capita GDP in the United States is roughly 50% higher than in Canada or the United Kingdom.

And all those taxes don’t buy much more than a spot on a waiting list for care. Over 4.5  million patients in the United Kingdom are waiting for surgery and NHS officials say that number may balloon to 14 million later this year. Canadians had to wait a median of 25.6 weeks – nearly half a year – to receive treatment from a specialist following referral by a general practitioner.

This may seem hyperbolic, but it is merely an acknowledgment of an economic reality. This is what patients face in systems where there are limited resources and unlimited demand. Public option plans may take longer to get us there relative to Medicare for All, but the end result is the same.

Perhaps Americans clamoring for a public option should ask why patients in single-payer countries are desperate for what we might call a “private option.”

In 2017, Canadians spent $690 million on 217,500 trips abroad for health care. The rich and famous in the United Kingdom and Canada – from Mick Jagger to Michael Bublé – come to the United States for care all the time.

We can and should work to expand the number of health insurance options available to Americans, and to make them more affordable. But instituting a public option, whether at the state or federal level, is not the way to do that.

I look forward to discussing how competition can bring about the high-quality, high-value healthcare system we all desire with my fellow panelists. Thank you again for inviting me to speak today.

 

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