Public Option, Explained

Your guide to understanding the public option.
Joe Biden speaking with attendees at the 2019 Iowa Federation of Labor Convention hosted by the AFL-CIO at the Prairie Meadows Hotel in Altoona, Iowa – August 21, 2019 (Gage Skidmore/CC BY-SA)

Joe Biden speaking with attendees at the 2019 Iowa Federation of Labor Convention hosted by the AFL-CIO at the Prairie Meadows Hotel in Altoona, Iowa – August 21, 2019 (Gage Skidmore/CC BY-SA)

It’s widely agreed that US health care costs are off the charts and something needs to be done. Many insurance premiums are sky-high and so are deductibles. For many Americans with serious illness, prescription medicines are prohibitively expensive. A major illness can, and does, put regular people so far under financially that they have to declare bankruptcy, or worse, not get medical treatment and prescription drugs at all.

If you’ve been paying attention to the debate about solutions—especially among the current candidates running for president—you will have heard the term “public option.” Unless you know exactly what a public option is or could be, it’s easy to confuse it with publicly funded healthcare. After all, isn’t the government in charge of it?

Well, yes. But not the way it sounds. If you’re going to be able to make informed choices about candidates and solutions, it’s important to understand this term.

What is a public option?

Conceptually, a public option for insurance is an alternative to what’s already out there, meant to broaden coverage and make health care more affordable across the board. Simply put, it’s a government-sponsored, designed, and run insurance plan that citizens can choose if they don’t currently qualify for Medicare or Medicaid, but don’t want or can’t afford private insurance.

The concept of the public option has been around for the past decade. It was included in the original version of the ACA passed by the House, but eliminated when the bill got to the Senate. Even though it didn’t pass in 2010, lawmakers in favor have not given up. It was included as a Democratic plank during the 2016 elections, and since then has been incorporated into several potential bills in the House.

Because healthcare is such a burning issue in this current election cycle, virtually all Democratic candidates have addressed a public option in some form.

How does a public option work?

In a sense, this is the wrong question. Because there is no set public option at this time, it could work in any of a variety of ways. Even current proposals in the House of Representatives differ on this. So the question becomes how could a public option work? That’s why it’s so important to understand the concept and assess how candidates are approaching it.

At its most basic, a public option would function like an insurance agency, but run by the federal government. It might look like Medicare or Medicaid, but without the age and income restrictions. And ideally, it would lower the costs of healthcare.

After that? It depends on who you talk to!

The only component that’s consistent right now is that unlike Medicare-for-All, public options would be a choice, and current sources of coverage such as private and employer-provided insurance would not be replaced. The public option could be financed via premiums only, through taxes, or handed off to states, who would administer the programs and determine financing. In all cases, it would be competing within the existing insurance market.

Some candidates propose automatic enrollment for qualifying individuals, such as those who are low-income and/or uninsured. Some apply caps on premiums. All cover what ACA and Medicare covers. All cover pre-existing conditions and prohibit raising premiums or denying coverage for them. One, Elizabeth Warren’s, adds significantly to what would be covered.

Ideally, premiums and premium subsidies would make coverage less expensive for individuals, but that is not necessarily the case, depending upon eligibility criteria. Most would expand subsidies, and some would make the public option free for low-income subscribers. The level of participation for medical providers is also up for grabs.

The truth is, until a public option proposal is decided upon, we won’t know exactly how it would work.

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Who would be covered in a public option health insurance plan?

It depends on the plan. People already on Medicare would not be covered. Other than that (and Elizabeth Warren is proposing to lower Medicare eligibility to age 50), pretty much everybody would qualify. If you need insurance and you want to be on a public option, you can choose that. Some plans limit enrollees to those who are eligible for the Marketplace. Some would give access to employers, and/or to employees who have access to employer plans but want the public option instead. A few set income or age limits. In most plans, low-income and uninsured people are automatically enrolled. One proposal (Warren) automatically enrolls children. And one proposal (Steyer) includes undocumented immigrants.

What are the Pros and Cons of a Public Option?

Pros

  • Overall costs could come down significantly because of the federal government’s bargaining power, and its nonprofit status.
  • With a public option, people would not lose their insurance when they change jobs or get laid off. No expensive COBRA payments and no gap in coverage. No need to start all over with a new plan.
  • Signing up for insurance and receiving benefits would be a more simplified, unified process across the board.
  • Pre-existing conditions would be covered.
  • Deductibles could be reduced, as could fees for service.
  • Premium subsidies could be expanded, and in some cases, low-income enrollees would not have to pay any at all.
  • Unlike Medicare-for-All, individuals would have the choice to enroll. Those who prefer their job-based or union-negotiated plans could keep them.
  • It could pave the way for single-payer or Medicare-for-All over time.

Cons

  • It could pave the way for single-payer or Medicare-for-All. From the point of view of private insurance companies, and those who wish to retain their current insurance, that is a huge drawback.
  • Private insurers might not be able to compete, and could ultimately be forced out of the market.
  • Without a specific proposal adopted, it’s difficult to ascertain what the costs will be to the federal government, providers, and individuals.
  • Right now, healthcare providers who take Medicare get paid a lot less than they do with private insurance. If a public option is widely adopted, they may find themselves struggling to provide adequate services because they can’t meet the costs.
  • In light of the attacks on the ACA—and ongoing threats to Medicare, Medicaid, and Social Security—any government program is vulnerable to political winds.

What would a public option mean for private insurance?

Even though public options specifically do not replace private insurance, any federal public insurance option could be challenging for the insurance industry. If the public option starts off small, it might not be that much differently priced than private insurance, in which case it would take a while for private insurers to see any problems.

At the very least, the industry is going to have to figure out how to stay competitive, especially if the public option takes off and is widely adopted. They have to maintain their bottom lines, please their stakeholders, and maintain their levels of service to their customers.

If the public option adopted is tied in with Medicare, it could deliver quite the blow to private insurers, because Medicare has already negotiated far lower fees for services and has an extensive reach throughout the country.

The worst-case scenario for the private insurance industry would be that the public option is so popular, and so affordable, and so much better at meeting the needs of the American people, that ultimately nobody will want private insurance anymore.

Regardless, in the meantime, employers could choose to go with public options instead of private insurers. If that were to happen, private insurers could lose masses of customers at once.

Presidential candidates who currently support a public option.

All of the current presidential candidates except for Andrew Yang and Bernie Sanders include a public option in their healthcare plans. Bernie Sanders is the only one who insists on Medicare-for-All, which by definition excludes a public option. Andrew Yang’s plan doesn’t include either of the two.

The Rantt rundown.

Because affordable healthcare is at a crisis level in the US, there is a resurgence in interest in adopting a public option to, at the very least, fill in the gaps. This would be a government-run insurance plan similar to Medicare and Medicaid but without the age and income restrictions, which would allow the choice between private and public insurance. All of the current presidential candidates but two include a public option in their proposed policies. Although we won’t know until a specific plan is adopted how it might work, a public option has the potential to lower healthcare costs and make it more affordable and widely available than it is now.

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Rantt 101 // 2020 / Healthcare / Public Option