Opinion, Berkeley Blogs

Is the public option essential for meaningful health reform?

By Helen Halpin

I would argue that a public option or the choice of a public health insurance plan is essential to meaningful health reform.

The 4 major goals of giving Americans the choice of a single payer plan or a “public option” operating along side a choice of private health plans offered through a Health Insurance Exchange are:

1. To reduce the administrative costs of delivering medical care, which can be realized in a public plan (like Medicare), where there is literally a single payer to providers and administration is simplified at both the plan and provider levels, compared to the high administrative costs (marketing, profits, pre-authorization approvals, claims denials, complexity of benefit design, etc.) in the private, for-profit health insurance industry.  It is expected that administrative costs could be anywhere from 5% to 25% lower in a public plan.

2. To create purchasing power, through the pooling of millions of people who enroll in the public plan, to be able to negotiate lower prices on pharmaceuticals, medical equipment, and other medical supplies and devices, further reducing the costs of delivering medical care.

3. To force the private insurers to compete head to head on a level playing field (i.e., under the same set of rules) with the public plan on both costs and quality, so that the rate of cost increases goes down in both the private and public sectors, and incentives to improve quality increase throughout the system. The level playing field includes requirements that all of the health plans offered in the Exchange (private and public) must enroll any eligible American, not increase premiums or exclude benefits because of pre-existing conditions, not impose annual or lifetime caps on benefits, adopt limits on out-of-pocket costs, not drop coverage, etc.

And last, but certainly not least,

4. To give the American people the CHOICE of under what kind of insurance plan they want to get their health care – a private, for-profit health insurance plan OR a public plan like Medicare.

The real question at this point in the debate is how the public option will be structured, because depending on how it is set up, it may or may not be able to accomplish the goals laid out above.  The key issues are:

1)    Who is eligible to buy insurance through the Exchange?  Most of the bills in Congressional Committees restrict the purchase of health insurance in the Exchange (and thus the option of the public plan) to the uninsured not eligible for Medicaid and those who work in small firms.  There is a strong push by some to open the Exchange to anyone who is not happy with their present coverage.  This decision has huge implications for the ultimate size of the public plan option.

2)    How big will the subsidies be in the Exchange? Most Americans who are uninsured are in the families of the working poor.  They are not poor enough to qualify for existing public programs but do not have incomes high enough to buy private coverage.  Meaningful subsidies must be available to Americans in families who earn less than 300% or 400% of the federal poverty level, otherwise it will not be affordable and many will remain uninsured.

3)    Will it be a national public option and will all states participate? The public option is likely to function most effectively and efficiently if it operates at the Federal level.  We are unlikely to realize many of the benefits of the public option if we set up 50 different plans - one in each state.  However, there are also issues of states’ rights.  The most interesting idea to emerge recently is to give state legislatures the right to “opt out” of the new Federal public plan option.

If a national public option is offered through a Federal Health Insurance Exchange and millions of Americans are given access to it along with meaningful premium subsidies based on their annual incomes, it has the potential to transform the US health care system to one that is more efficient, affordable, accessible, equitable, and offers meaningful choices to high quality care for the American people.