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 option means the government would provide a form of health insurance that citizens can purchase, to pay for their healthcare. It would operate like the Medicare program operates for seniors or the VA system operates for veterans. No public option was included in the Affordable Care Act (ACA) healthcare reform law of March 2010, but some experts believe that it will become part of the payment system eventually.

Most 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 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 insurance be self-sustaining; that is, paid for only by the premiums paid in by those who "belong" to that program.
  • Tax Subsidized: Another option would be for premiums to be subsidized by the government, through 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, and states would set their own requirements.

The public option was not a part of the reform, to begin with, but if private insurers do not manage to keep pricing fair, and 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 who are challenged by health insurance coverage who would find easier, or more complete access to health insurance than they had before the ACA.

  • 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.
  • Another group – young, healthy people – would be served by a public option, even though they have little trouble getting health insurance anyway.

The way health insurance worked prior to the ACA was that no one was required to participate; whether you wanted to have health insurance was up to you. In practice, that means that the people who participated in insurance were those people who use 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 coverage, either through public or private insurance, in order to control costs. In order to bring the cost down for everyone, younger, healthier people must pay into the system to alleviate the financial strain on others. The benefits to the younger, healthier people who don't use much of their coverage would be that later, when they get older or if they get sicker, the coverage would be available to them less expensively than it would be otherwise.

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

The Affordable Care Act of 2010 requires participation, with penalties for those who don't.

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 health 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, because the government is non-profit. Since their goal is to cover their costs, but not profit by the service, they don't have to build the profit into their premiums.
  • Second, because administrative costs would be lower. No marketing costs, smaller administrative costs. Estimates for current public payer programs (Medicare, Medicaid, Tricare, CHIP, and the VA) average 3% to 11%. Estimates for private insurers run from 25% to 35%.
  • Third, because 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 premiums.

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

Providers are also concerned about a public option. That massive negotiating power would force costs lower for patients, but much of that lower cost would be borne by providers. Doctors fear they would be reimbursed at even lower rates than they are now.

Conservative health care 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 CHIP.

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