Why the Less Disruptive Health Care Option Could Be Plenty Disruptive

Joe Biden campaigning in Greenwood, S.C. He is one of the Democratic presidential candidates calling for a public option.

Source: The New York Times

The single-payer health plans proposed by Senators Bernie Sanders and Elizabeth Warren are often assailed as being too disruptive. A government plan for everyone, the argument goes, would mean that tens of millions of Americans would have to give up health insurance they like.

Democratic presidential candidates with more moderate brands have their own proposal: a “public option” that would preserve the current private insurance market, while giving people the opportunity to choose government insurance.

Joe Biden, the candidate and former vice president, has gone as far as to say that “if you like your private insurance, you can keep it,” under his public-option proposal. Pete Buttigieg, the South Bend, Ind., mayor, has also embraced such a plan, which he calls “Medicare for all who want it.” His implication is that, if you don’t want it, there will be other choices.

A public option would be less disruptive than a plan that instantly eliminated private insurance. But a public option that is inexpensive and attractive could shake up the private market and also wind up erasing some current insurance arrangements. Conversely, a public option that is expensive and unattractive might not do much good at all.

“The political appeal of the public option is it preserves the choice of private insurance,” said Larry Levitt, a vice president at the Kaiser Family Foundation. “But the better it works, then the less likely it is to actually preserve a private insurance market.”

Most Democratic presidential candidates favor public-option plans, not just Mr. Biden and Mr. Buttigieg. Ms. Warren recently released one, too — part of her “transition plan” to single-payer. (Mr. Sanders has long had a public option tucked into his Medicare for All Act, to expand coverage for the four years before a single-payer system kicks in.) Public opinion surveys show that public-option plans command higher support than single-payer plans, even among Democrats.

The basic idea behind a public option is that it would have certain advantages over private insurance. But most of the public-option plans are a little vague about how strong those would be. The government is able to pay doctors and hospitals lower prices for Medicare patients than most private insurance does because it sets the prices and covers so many people.

A public option, by contrast, would cover a smaller population at first, and might have to negotiate with hospitals for good deals, just as other insurance companies do. In those circumstances, several economists said, the public option might look a lot like existing insurance: pretty expensive, and covering a limited set of doctors and hospitals.

“What would happen?” said Sherry Glied, the dean of New York University’s Wagner Graduate School of Public Service and a former health official in the Obama administration. “Almost nothing.” Ms. Glied said that the public nature of the plan, alone, would not do much to distinguish it from private offerings.

If the public option became explicitly linked to Medicare — requiring all providers that wanted Medicare patients to accept public-option patients, too — the public option might be able to negotiate low prices for care and include a wide range of doctors and hospitals. In most markets of the country, that might make it far more appealing than the choices that people who buy their own insurance now have.

Insurers would have to adjust. Either they would also have to lower prices, or they would have to offer some sort of special services. Otherwise, they would lose a lot of customers.

“It would push them to demonstrate the value of what they are selling,” said Linda Blumberg, a fellow at the Urban Institute. Her research has estimated the effects of several public-option plans, and found that the plans would tend to change remaining private insurance.

There’s also the possibility that linking public-option coverage to Medicare could cause some doctors to stop accepting Medicare patients, Ms. Glied said. That would be another form of politically risky disruption.

Plans from the leading presidential candidates would also change rules around employer health plans, allowing workers to leave their work-based coverage to buy the public option. That change could have effects on employer insurance. Some workers, particularly those whose low incomes would qualify them for financial assistance in buying a public plan, might shift over. Ms. Blumberg said that the transition of individuals out of private plans would most likely be slower there, because employer insurance tends to be “sticky.” But the existence of a public option might also induce some employers to abandon private coverage altogether.

A public-option plan wouldn’t directly affect private insurers. But by changing the rules of the market, it could influence a company’s business decisions. And that could affect consumers who want to buy private coverage.

Under Obamacare, new health plans had to follow a set of rules, while many old ones were allowed to stick around under the old rules. Many insurance companies canceled the old plans anyway, setting off a round of recriminations about how the law had caused people to lose coverage that they liked. President Obama had promised Americans they could keep their existing coverage under the Affordable Care Act, a vow that became Politifact’s lie of the year in 2013.

A very competitive public option could have a similar effect: If it took a lot of market share from private insurers, some might decide to stop selling certain lines of coverage. Private insurance could disappear from some places, or exist largely to fill certain niches, like high-deductible plans.

The health care industry tends not to like public-option plans for this reason. A competitive public option would probably take business away from private insurers. And it would almost guarantee that doctors and hospitals would be paid less for their work. The effects might be less significant than under “Medicare for all,” but they would tilt in the same direction.

Many of the candidates have been vague on key details, like whether the public-option plan would pay health care providers Medicare prices or some other price. They have also been unclear about whether the government itself would offer the public option, or whether it would allow private carriers to operate it.

Just this year Washington State established a public option but, under pressure from doctors, hospitals and insurers, set rates well above what Medicare pays and hired a private plan to run it. A national public-option plan like that would probably be less disruptive than one that’s more like Medicare — but it would also be less popular.

Last Updated 12/04/2019

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