Public Option Health Insurance Pros and Cons

An Explanation for the Debate

A woman signs up for public health insurance.

Joe Raedle / Getty Images

A public health insurance option would mean the government would provide a form of health insurance that citizens can purchase so that their healthcare is covered. It would operate like the Medicare program for seniors or the Veterans Affairs (VA) system. A public option was not included in the 2010 Affordable Care Act (ACA) healthcare reform law, but some experts believe that it could become part of the payment system eventually.

Many Americans have an opinion on whether a public option should exist, and often those opinions are made without truly understanding how a public option would work. Here is some clarification on the terminology and concepts.

How Would the Public Option Be Run?

A public option health insurance program would be run by the government but could be implemented just like private health insurance.

  • Self-sustaining: One option is to require a public health insurance to be self-sustaining; that is, paid for only by the premiums paid by those who "belong" to that program.
  • Tax Subsidized: Another option would be for the premium costs to be subsidized through government taxes.
  • Federal or State Administered: Another approach is that the public option might not be handled solely by the federal government; instead, it could be administered by individual states, which would set their own requirements.

The public option was not a part of the healthcare reform, to begin with, but if private insurers do not manage to keep pricing fair, and do not keep those with pre-existing conditions covered, it could trigger the implementation of a public option.

Who Would Be Included in a Public Option Health Insurance Plan?

There are two groups that are challenged by health insurance coverage; these groups would find more complete, easier access to health insurance with a public option plan.

  • First: People who cannot afford expensive, private insurance plans, particularly those who work for employers who don't offer health insurance as a benefit, would find a more affordable option with a public payer option.
  • Second: A public option would also help those with pre-existing conditions purchase more affordable insurance. The Affordable Care Act of 2010 (Obamacare) ensured this group could not be discriminated against by insurers. A public option that would modify or replace the ACA would need to continue this protection.

Prior to the ACA, no one was required to participate in health insurance; whether you wanted to have health insurance was up to you. In practice, that means the people who participated in insurance were those that used healthcare services the most.

Many professionals and politicians agree that whether or not a public option is implemented, everyone who works should be required to purchase private (or public) insurance coverage to control costs. If younger, healthier people paid into the health insurance system, it would alleviate financial strain on others. These younger, healthier people would financially benefit from their participation later in life, or if they became sick.

Think of the public option like social security. You pay in when you are younger, in order to reap its benefits when you are older or become disabled.

The Pros of a Public Option Health Insurance

Perhaps the most important "pro" is that since the government is so large, and because so many people would participate in a public option, the pricing for healthcare needs would come down. That means premiums would be lower than those paid to private health insurance companies.

Why Would the Cost Be So Much Lower With a Public Option?

  • First, the government is a non-profit organization. Since their goal is to cover their costs, but not profit by the service, they don't have to build the profit into their premium costs.
  • Second, administrative costs would be lower. Administrative costs are a substantial part of healthcare spending in the U.S., but are significantly less for public payer programs (such as Medicare and Medicaid) versus private insurers.
  • Third, a very large entity has better bargaining power. Better bargaining power would bring down pricing for all aspects of healthcare. Further, because private insurers would be in competition with the public option, the private insurers would have to lower their premiums and bargain more intensely, too.

There is also a question of tax liability. A public option would be tax-exempt because, of course, it does not earn a profit. Private insurers exist only to make a profit for themselves and their investors. Their profits would incur tax liability – a cost they would have to bear and include in their premium costs.

One other "pro" bears mentioning; that is, a public health insurance option would also allow for portability. That is, people could move or change jobs without fear of losing their health insurance or having to switch to a different healthcare plan and select new providers. With a state-run public option, they could move anywhere within their state. With a federal program, they could move anywhere within the U.S. The ACA allows for portability, but an individual may have to switch to a different plan if they change jobs or move. With a public option, there would be no need to change to a different plan, eliminating the hassle of selecting a new plan.

The Cons of a Public Health Insurance Option

The cons of a public option health insurance all relate to the professionals involved in healthcare. However, what affects the professionals eventually trickles down to affect patients, too.

Private health insurers believe that a public option would put them out of business because it would cost much less and would have massive negotiating power. They would not be able to financially sustain their levels of service or keep paying their investors. Further, they fear that eventually so many people would flock to the public option, and the U.S. would end up with a single-payer system.

Providers are also concerned; they believe massive negotiating power would force lower patient costs, but much of those lower costs would be borne by providers. Doctors fear they would be reimbursed at even lower rates than they are now.

Conservative healthcare reform watchdogs tell us that those lower reimbursements would mean more doctors and providers would reject patients who used any of the public option payers, including Medicare, Medicaid, TriCare, the VA, and the Children's Health Insurance Program.

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