Democrats in Congress have proposed several versions of a public option over the past decade. This blog post summarizes the main features of four bills from the current congressional session that would establish new federally operated public plans: the Consumer Health Options and Insurance Competition Enhancement (CHOICE) Act (S. 983), the Public Option Deficit Reduction Act (H.R. 2010), the Medicare-X Choice Act of 2021 (S. 386; H.R. 1227), and the Choose Medicare Act of 2021 (S. 1180; H.R. 5011).
Public Option Plan Eligibility May Be Broad or Narrow
The CHOICE Act and the Public Option Deficit Reduction Act take a narrow approach to eligibility, limiting public plans to consumers eligible to enroll through individual marketplaces. This offers marketplace shoppers, some of whom continue to face consolidated insurance markets with a limited choice of carriers, new and affordable plan options.
The Choose Medicare Act is broader, offering public plans across all markets, including the employer market. Such wide availability could result in significant savings for the government, consumers, and employers by lowering costs across the commercial market.
The Medicare-X Choice Act gradually phases in coverage across geographic regions and markets. It starts in individual market rating areas with only one marketplace issuer or a lack of competition among health care providers. Over time it extends coverage to the remainder of the individual market as well as the small-group market.
Public Option Plans Resemble Qualified Health Plans
Current proposals would design public plans to resemble existing marketplace plans, including in the scope and generosity of benefits. This minimizes concerns about an unlevel playing field, which could cause adverse selection with individuals who expect to use more health care gravitating toward plans offering greater financial protection and plan premiums increasing correspondingly.
But even while generally aligning with existing standards, public plans can be used to make targeted coverage improvements. For example, the Medicare-X Choice Act prohibits public plans from imposing cost sharing for primary care services, while the Choose Medicare Act requires coverage of all reproductive services, including abortion. While not currently included in any federal proposals, recent state action demonstrates how plan benefit designs also can be tailored to reduce health care disparities.
Public Option Bills Aim to Contain Provider Reimbursement Rates While Ensuring Access to Care
Research shows that high and growing prices paid to many health care providers by private plans are the primary driver of increasing health care costs and, by extension, what individuals pay in premiums and out-of-pocket expenses. Often these high prices are the consequence of consolidated insurer or provider markets. All four public option bills seek to contain health care costs by controlling provider reimbursement rates, but they split on whether public plans should negotiate rates or use administratively set rates.
Under the CHOICE Act, public plans would negotiate directly with providers but revert to Medicare rates if no agreement is reached. In the Choose Medicare Act, negotiated rates must stay within upper and lower bounds so that, in the aggregate, providers are paid no less than Medicare and no more than average marketplace plan rates. The Medicare-X Choice Act would pay Medicare rates generally, but up to 50 percent more in rural areas where hospitals are struggling to stay open. The Public Option Deficit Reduction Act initially sets rates above Medicare levels, but later allows the Secretary of Health and Human Services the flexibility to vary rates for specific services as long as aggregate payment levels remain the same.
Similar to recent state public option laws, all the bills would require Medicare-participating providers to also participate in public plans. The CHOICE Act and Medicare-X Choice Act extend this requirement to Medicaid providers. All but the Choose Medicare Act would allow providers to opt out under certain circumstances.
Public Option Plans Are Self-Sustaining After Initial Establishment Costs
All four bills require public plans to set premiums so that the program is self-sustaining. But creating a new insurance plan requires startup costs that would be incurred before premiums are collected, including to set up infrastructure to contract with providers, enroll participants, and process claims. A new insurance plan also requires an initial influx of reserves to ensure the plan can pay in a timely way all claims that come in during the first few months of operation. The bills generally provide $1 billion to $2 billion for upfront costs and additional funds as necessary to pay 90 days of claims. The CHOICE Act and the Public Option Deficit Reduction Act require repayment of these funds over a 10-year period.
The current proposals have many similarities. Policymakers and stakeholders could build on them to negotiate a single public option proposal in future congressional sessions. A narrow version of a public plan could offer a more affordable option to consumers in areas with consolidated insurance and health care markets. A broader version that reaches large employers could achieve significant savings across the health care system but would likely generate more opposition from industry interests who prefer the status quo. Ultimately, the viability of any public option proposal passing in the next session will depend on whether Democrats retain control of Congress following the midterm elections and their appetite for taming health care costs.