Wednesday, November 4, 2009

Public option: Much ado about nothing?

During the past year, it seems like much of the hoopla over health reform has focused on whether there should be a public option. Up until now, however, no one has really analyzed exactly how many people likely would be covered by the public option. The answer, according to the nonpartisan Congressional Budget Office, is not nearly as many as you’d think.

According to the CBO, of the 30 million Americans who would likely buy insurance through the health insurance exchanges that would be created by the legislation, only about 6 million of them (that is, one-fifth of the 30 million expected to get insurance through the exchanges) would enroll in the public option. This would mean that only two percent--6 million people out of the estimated 282 million Americans under age 65 who would have coverage by 2019—would be enrolled in the public option. Yes, you read that right, it’s not a misprint. Only two percent of the pre-Medicare American population likely would enroll in the public option.

According to Kaiser Health News, this works out to an average of 120,000 people per state, though some small states might have only a few thousand people enrolled in the public option. In fact, the number of people covered by a public option might actually be lower if states can opt out, as the Senate bill would allow them to do.

All this townhall anger, hand wringing, media coverage, debate, and general hullabaloo over two percent of the population? Amazing!! This is the tough competitor that private insurers are afraid of? All along, the claim was that the public option would bring competition to the health insurance industry. Now, if the CBO is correct, it appears that the public option might just be taking the health insurance industry castoffs, the sickest patients, because, as one commentator observed, “the public option will just be a gentler creature--it won't erect as many restrictions on available providers and services as its private competitors will, and that's likely to attract riskier consumers.”

After all the time and energy devoted to the public option, you’d think that it would’ve been a key player in the post-reform world but it doesn’t appear that it’ll happen that way. "The public option is a significant issue, but its place in the debate is completely out of proportion to its actual importance to consumers," said Drew Altman, president of the Kaiser Family Foundation. "It has sucked all the oxygen out of the room and diverted attention from bread-and-butter consumer issues, such as affordable coverage and comprehensive benefits."

About now, you might be asking yourself: “Why would the public option cover so few people? Why would it cost so much? I thought this was supposed to put the health insurers out of business.” Well, the CBO has an answer for that, namely: "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.” However, the CBO also points out, a “public plan paying negotiated rates would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges."

Some see this startling statistic as the death knell for the public option. For instance, one commentator says the public option “would see its role as sanctuary doom its role as price competitor. Private insurers would engage in aggressive `management of utilization by its enrollees,’ i.e., dumping or avoiding the people most likely to need the services of doctors and hospitals, leaving them no place to go except the public option. This would drive down private insurers' costs and drive up the public option's.”

I don’t necessarily agree with the “CBO report as death knell for the public option” view. However, I do agree that the public option probably won’t be the tough competitor the private insurers (and critics) have feared. Of course, all of this is subject to change as the health reform plans change so, for now, all I can say is “stay tuned.”


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