Who’s afraid of a public health plan?
According to a Congressional Budget Office preliminary analysis (here), only 6 million people would enroll in the public option proposed as part of the House healthcare reform bill. Why? Because a public plan required to negotiate with providers — as stipulated in the House bill — will have higher premiums than private plans offered through insurance exchanges, CBO says.
A public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)
Basically, CBO is saying what others (including myself) have been speculating for some time: that the public plan might end up a dumping ground for the sick as insurers cherry pick the healthy, i.e., a risk-selection mechanism (see prior post). Said another way, in opposing a public plan, the health insurance industry may actually be shooting itself in the pre-existing foot.
CBO notes that all told, about 36 million more people would have insurance coverage under the House bill at a cost of $894 billion over 10 years (not including a physician fee fix). About 21 million people would purchase coverage through insurance exchanges and 15 million would be added to Medicaid. (Actually, the exchanges would enroll a total of about 30 million; however, 9 million are expected to come from employers already offering coverage to their employees). Another 18 million people, including 6 million illegal aliens, would remain uninsured.