The Myth of the ‘Moderate’ Public Option

The Biden and Buttigieg plans would bust federal budgets, hurt patient care and gut private insurers.

By Lanhee J. Chen.

"such proposals would increase the federal deficit dramatically and destabilize the market for private health insurance, threatening health-care quality and choice.

While estimates by the Congressional Budget Office and other analysts have concluded that a public option-style proposal would reduce federal deficits, those effects are predicated on two flawed assumptions: first, that the government will negotiate hospital and provider reimbursement rates similar to Medicare’s fee schedules and far below what private insurers pay; second, that the government would charge “actuarially fair premiums,” which cover 100% of provided benefits and administrative costs.

History demonstrates we should be skeptical of cost estimates that rely on such assumptions. Political pressure upended similar financing assumptions in Medicare Part B only two years after the entitlement’s creation. The Johnson administration in 1968 and then Congress in 1972 had to intervene to shield seniors from premium increases. Objections from health-care providers to low reimbursement rates have regularly led to federal spending increases in Medicare and Medicaid. The result isn’t hard to fathom. If premiums can’t rise to cover program costs, or reimbursement rates are raised to ensure access to a reasonable number of providers, who’ll pay? Taxpayers, who were promised a self-sufficient government program."

"a public option available to all individuals and employers would add more than $700 billion to the 10-year federal deficit. The annual deficit increase would hit $100 billion within a few years. Some 123 million people—roughly 1 in 3 Americans—would be enrolled in the public option by 2025, broadly displacing existing insurance. These estimates don’t include the costs of additional Affordable Care Act subsidies and eligibility expansions proposed by Messrs. Biden, Buttigieg and Bloomberg."

"federal spending on the public option would exceed total military spending by 2042 and match combined spending on Medicaid, the Children’s Health Insurance Program and ACA subsidies by 2049. In the latter year the public option would become the third most expensive government program, behind only Medicare and Social Security. The public option alone would raise the federal debt by 30% of gross domestic product over the next 30 years."

"if tax increases to pay for a politically realistic public option were limited to high-income filers, the top marginal rate would have to rise from the current 37% to 73% in 2049—a level not seen since the 1960s. Such large rate increases would undoubtedly have economic effects, causing revenue to fall short of our static estimates."

"The generous cost-sharing rules in the public option would likely increase demand for health-care services, while the federal government would be unlikely to implement the stringent and sometimes painful cost-management procedures needed to limit use."

"the public option would quickly displace employer-based and other private insurance. This would force some private insurers to exit the market and encourage greater consolidation among remaining insurers. Consumers seeking coverage would be left with fewer insurance options and higher premiums."

"many health-care providers would suffer a dramatic drop in income, while at the same time experiencing greater demand for their services. Longer wait times and narrower provider networks would likely follow for those enrolled in the public option, harming patients’ health and reducing consumer choice. Declines in provider payments would also affect investment decisions by hospitals and may lead to fewer new doctors and other medical providers."