The Newly Introduced Public Option Proposal Will Reduce the Deficit by $68 Billion

Our guest blogger is Emma Sandoe, a Health Care Researcher at the Center for American Progress.

This is the public option.

This is the public option.

Just when you thought the last nail had been driven in the public option coffin months ago, like a phoenix rising from the ashes, the public option has once again returned to Congress. As Noam Levey reported last night, “[c]reating a major government health insurance program was roundly rejected last year, but 128 House Democrats are pushing to reconsider the idea, contending that it would hold down federal spending.” The legislation, HR 5808, is sponsored by Rep. Lynn Woolsey (D-CA) and the 128 cosigners are largely progressive caucus members and include all three chairmen of the committees of jurisdiction, Ways and Means, Energy and Commerce, and Education and Labor.

The Congressional Budget Office (CBO) scored the legislation and noted some promising findings. The public plan, in this form, has always been a deficit reducer and this is no exception. CBO found the proposal would reduce the deficit by $68 billion from 2014 to 2020. Despite likely lower reimbursements than private plans, CBO found providers would likely participate in large numbers because of the number of enrollees. CBO estimates the average public plan premium would be 5 to 7 percent lower than other private plans available within the exchange, making it more affordable to individuals. They also estimate approximately 13 million or one in every three individuals eligible for exchange coverage would chose the public option.

The legislation looks very similar to the original House public option that passed the Ways and Means and Education Labor committees. It is important to remember the public option that passed the full House of Representatives in November of last year looked very different from this initial version. Both the original House bill and the new legislation would create an option for a public plan within the health insurance exchanges beginning in 2014. Providers would be paid Medicare rates plus 5 percent in the initial years. The providers will not be required to accept Medicare to enroll in the program.

Realistically, this chances of this public option bill passing this Congress, who is exhausted from the last public option fight and in full midterm mode, are slim. This hasn’t deflated Woolsey who said, “This will be there for the next Congress.” Whether or not this proposal goes anywhere legislatively, it reminds more progressive voters and members of the party that the public option has not been forgotten. States have already begun showing support for public run insurance systems, this support from the federal government can work to galvanize the effort.

In comparison to the original House version of the public option, as CBO notes, some of the savings are not as large. This is primarily due to the fact, “that total federal subsidies for exchange participants will be substantially smaller under PPACA than they would have been under the legislation that was considered in the House.” In other words, because we aren’t spending as much as we were with the original House bill, we can’t save as much.

In comparison to a very early Senate public plan option, this public plan would cover more individuals and premiums would be cheaper for individuals. Providers would likely see lower rates which would make them not favor this plan. A public plan with payments linked to Medicare was never an option for this Senate.

A summary table comparing the three public option proposals is below.

Initial House Proposal HR 3200, Summer 2009 (later became a negotiated rate system) Early Senate Proposal for HR 3590, November 2009 (public option later dropped) Woolsey HR 5808, July 2010
Deficit Reduction
Not separately scored – unofficial estimates had a savings of $110 billion $3 billion 2014-2019 $68 billion 2014-2020
Premiums 10 percent cheaper than private plans in the exchange More expensive than private plans in the exchange 5-7 percent cheaper than private plansin the exchange
Estimated number of individuals enrolling 9-10 million 3-4 million 13 million
Payment Medicare rates with +5% bonus in first three years for physicians enrolled in Medicare Negotiated rates with providers Medicare +5% bonus for first three years
Sexy Fact The public plan can negotiate drug prices from the start. Provider participation is voluntary. Healthier enrollees, states could opt out of the plan, start up costs must be repaid. State based exchanges with a federal Medicare linked payment system.