Public Option – The Trojan Horse of Healthcare Reform

The Trojan Horse

The political system is designed to bring disparate views toward middle ground. The healthcare proposals by Democrats and Republicans – “Medicare for all” and short-term and association health plans, respectively– that I referred to in last week’s blog post, could hardly be more diametrically different.

There is another, little understood but perhaps appealing solution that is being proposed under various tag lines, such as former vice president Joe Biden’s “if you like your private insurance, you can keep it” or Mayor Pete Buttigieg’s “Medicare for all who want it.” The more technical name, public option, sounds like choice, and who wouldn’t like that? With neither party seeming to have a good solution, I could foresee many people being lulled into supporting one of these plans.

The reason I call it the “Trojan horse” concept is that it appears harmless on its face, but nothing else has the potential to gain wide support that could quickly evolve the market to exactly what progressives are proposing – single-payer, universal health care – and have the beauty of actually being proposed and carried by moderates in the party. Public opinion surveys show that more Democrats support a public-option plan than single-payer plans, and just over 40 percent of Republicans support a public option.

There are many permutations and few details available about how those Democratic presidential candidates who are supporting the public option would structure it. That makes a big difference. Would the public plan for the public option be Medicare? Would it reimburse providers at Medicare rates? Can employees leave their employer-sponsored plans and sign up for the public option? Would there be premiums for the public option, and if so, how would they be structured? Does the public option cover all services covered under Medicare? Would there be out-of-pocket expenses under the public option plan?

If the public option was a Medicare buy-in, these plans would have a significant competitive advantage over commercial insurance plans – much lower administrative costs, no or few marketing dollars, broader networks, comprehensive benefits packages and non-negotiated provider payments that tend to be far less than commercial plan payments to providers – all factors that would allow these public option plans to be offered at a significantly lower premium, and likely in the majority of cases, a lower deductible.

The experience from the public exchanges has shown that people will change insurance plans for a premium savings of $5 per month. The premiums for the public option should be far less, likely precipitating significant moves from commercial coverage to the public option, especially once those signing up confirm that their physicians and hospitals are on the public option plan (which will almost certainly be the case).

As large numbers of people move to the public option plan, the insurance pools for commercial payers likely would shrink significantly, adversely affecting smaller plans. As still more people move over to the public option during ensuing years, commercial insurance would become progressively less viable. Bond and other ratings of commercial insurers would be adversely affected as soon as the legislation is enacted and stock prices of publicly traded insurance companies would drop as soon as the legislation is introduced.

The end result would be a significant shift to “Medicare for most,” if not “Medicare for all,” and a progressive decline and deterioration of the commercial insurance market. It would occur with much greater acceptance of the public, and instead of the forced transition under the Sanders or Warren plans, the transition would happen over a number of years, without Americans even realizing it is happening.

Therefore, the public option really is the Trojan horse that would lead to nearly the same outcome as those candidates proposing a more immediate move to Medicare for All. Either approach will profoundly impact the American health care delivery system – in some good ways and some bad ways. I’ll have more to say about the impacts of Medicare for All, whether as proposed by Sens. Warren and Sanders or whether the indirect result of implementing a public option in a future blog piece.

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