Why The House’s Public Option Is Better Than Kennedy’s Public Option

doddenziThe new House bill seeks to reduce health care costs by establishing a robust public health insurance option that takes complete advantage of Medicare’s leverage and lower reimbursement rates.

Initially, given its limited size, a public health insurance option may have difficulty securing cheaper rates with providers. But by reimbursing providers some percentage above Medicare rates, the public option would benefit from Medicare’s ability to negotiate with providers (and given its size and national presence it can negotiate lower rates) and pass on the savings to consumers. Compelling Medicare providers to also accept enrollees from the new public option would ensure a large provider base.

Though the House bill is not perfect—it encourages providers to participate rather than compells them to—it goes much further than the Kenedy bill to take full advantage of a public plan’s market power.

Under the House legislation, Medicare providers are auto-enrolled as providers in the public option (the legislation presumes they will offer coverage unless they opt out) and their reimbursement rates, which are tied to Medicare rates for the first three years, include a 5% bonus for physicians that participate in both Medicare and the public plan.

In other words, rather than compelling participation, the bill incentivizes it and in the process secures a strong provider base that will attract more enrollees and allow the public plan to grow to a point where it can secure real savings. As the CBO notes, “on average the public plan would be about 10 percent cheaper than a typical private plan offered in the exchanges. That difference in premiums is itself the net effect of differences in the major factors that affect all insurance plans’ premiums, including their payment rates to providers, their administrative costs, the degree of benefit management they apply to control spending, and the pool of enrollees they attract.”


The more complete CBO analysis of the HELP bill concludes:

The new draft also includes provisions
regarding a “public plan,” but those provisions did not have a substantial
effect on the cost or enrollment projections, largely because the public plan
would pay providers of health care at rates comparable to privately
negotiated rates—and thus was not projected to have premiums lower than
those charged by private insurance plans in the exchanges.

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