Improving Value

Public Coverage Option

Equitable access to quality coverage for all is a basic prerequisite to achieving health equity and driving value in our health system. 

A public insurance option is a government-directed form of health insurance that individuals can purchase. Variations on a public option are being discussed at the national level and states can adopt this strategy within their own borders. This differs from a single payer system as other coverage options would be available alongside the public option. 

Having a “public option” could, in theory, save money in three ways:

  • First, the public plan could use its legislative or market power to restrain the prices of the medical services it finances. The extent of savings would depend, in part, on the size of the public plan's enrollment--a larger plan would have more purchasing power to control costs. Savings would also depend on the political willingness to reduce payments to medical providers below the high rates paid by commercial insurers
  • Second, the public option might benefit from the lower administrative costs of government-run programs.
  • Finally, the availability of a less expensive public option could prompt private insurers to innovate in ways that lower costs.

Within this basic framework, many variations have been proposed. 

Public Option Offered On the Exchange/Marketplace

A public option offered through the ACA marketplace may not help individuals below 400% of FPL as the amount of advance payment tax credits (APTC) that govern the final premium enrollees pay are would remain tied to their income, not the underlying premium of the plan they selected. Indeed, if the public option offered in the exchange serves to lower the premium associated with the “benchmark” plan, this could lower the APTC amounts. 

On the other hand, families that make too much to qualify for APTC (more than 400% of FPL) could benefit from lower premiums if the public option reflects provider rates that are closer to Medicare than those usually paid by commercial insurers. 

Public Option Offered Outside Exchange/Marketplace

Another approach is to offer the public option outside the exchange and for states to use a 1332 waiver to garner federal tax credit monies to help subsidize premiums and cost-sharing for enrollees. While untested, in theory this approach would help enrollees below 400% FPL realize more of the benefit from the lower premiums. 

What kind of savings are possible?

The ability of a public option to provide lower premiums rests on a host of assumptions and the local market conditions with respect to provider market power. Important considerations include:

  • What portion of the population will enroll? Does this enrollment promote healthy competition across insurers or destabilize the marketplace? 
  • What kind of savings on provider rates can be achieved before it becomes difficult to form a high quality network? Medicare can command low rates because of its large patient population – enrollees in a public option would potentially number far fewer. Some approaches have explored compelling provider participation. 

Because so many variations have been proposed and little hard evidence is available, each public option proposal must be carefully scrutinized on its own merits.