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A Proposed Public Option Plan to Increase Competition and Lower Health Insurance Premiums in California

Photo, people in park with Los Angeles skyline in background

People enjoy a sunny afternoon in a Los Angeles park with a view of the downtown skyline on December 31, 2021. A proposed public option plan for California could lower insurance premiums in the state’s marketplace and save $243 million in one year, with additional savings generated from increased competition. Photo: Chris Delmas/AFP via Getty Images

People enjoy a sunny afternoon in a Los Angeles park with a view of the downtown skyline on December 31, 2021. A proposed public option plan for California could lower insurance premiums in the state’s marketplace and save $243 million in one year, with additional savings generated from increased competition. Photo: Chris Delmas/AFP via Getty Images

  • “Public option” health plans have not gained traction despite significant support from voters and the current White House

  • A proposed public option plan for California could lower insurance premiums in the state’s marketplace and save $243 million in one year, with additional savings generated from increased competition

  • “Public option” health plans have not gained traction despite significant support from voters and the current White House

  • A proposed public option plan for California could lower insurance premiums in the state’s marketplace and save $243 million in one year, with additional savings generated from increased competition


  • Issue: A public option is a government-established health insurance plan designed to inject more competition into the market and improve coverage affordability over time. Despite widespread support, little progress has been made at the federal or state level toward creating such a plan. We propose a public option plan for California, Golden Choice, that would be based on the state’s “delegated model” of health care under which provider organizations accept the financial risk for delivering health care services.
  • Goals: To assess the proposed plan’s competitive impact on premiums in 19 markets in the Covered California health insurance marketplace.
  • Methods: Regression models using Integrated Healthcare Association and related data to estimate premiums; qualitative interviews with health plan and medical group leaders.
  • Key Findings and Conclusions: Golden Choice would have the lowest premiums in 14 of the 19 Covered California regions and save $243 million ($1,389 per year per projected enrollee) in one year. Similar results were found when assessing the impact of public-employee HMOs as well as L.A. Care, the only county-based public option. Plan and medical group leaders reported that under Golden Choice, they could provide high-quality care while operating with premiums of 5 percent to 10 percent less than current plans. Moreover, a successful public option based on the delegated risk model would not require regulatory changes or mandates.


Even though a “public option” health plan has support from the Biden administration as well as the majority of voters, little progress has been made in creating one at the federal level.1 At the state and county levels, public options — simply, health insurance plans established by governmental entities — have been introduced to increase competition in the insurance market and improve affordability of health coverage over time. Governmental authorities can either directly administer these plans or establish a public–private partnership whereby the state sets requirements for private health plans to offer coverage.

Absent federal action, several states like Washington, Colorado, Nevada, and Minnesota have developed their own public option plans, with many other states in the process of developing plans.2 These plans rely on price caps or regulations, such as a requirement that insurers offer a public option plan to participate in Medicaid.3 To date, however, they have had little success in attracting enrollment or increasing competition among insurers to lower premiums.4

We propose a different type of public option plan for California. It would be based on the state’s “delegated model” of health care: provider organizations accept the financial risk of delivering health services, and their earnings are linked to their ability to keep patient care costs within a budget. Below we describe this new approach to a public option, which we call Golden Choice, and evaluate its potential impact on consumers’ health insurance premiums.

The Case for a Public Option in California

The gap between the rate of health insurance premiums and average weekly pay is widening in California (Exhibit 1). From 2000 to 2021, health insurance premiums increased 251 percent while average weekly wages doubled. Premiums and deductibles have risen so much that they now are equal to as much as 12 percent of the state’s median income.5 This trend is even worse among Hispanic and Black Californians, whose incomes tend to be significantly lower than those for other racial and ethnic groups in the state.


In a 2022 survey, just over half (52%) of Californians reported they skipped or postponed care because of costs.6 Additionally, more than one in three (36%) reported having medical debt, with one in five (19%) of those with medical debt owing $5,000 or more. Among respondents with lower incomes, half (52%) reported having medical debt, compared with 30 percent of those with higher incomes. Latino (52%) and Black (48%) Californians were more likely to have medical debt than white (28%) and Asian American (27%) residents.

A public option plan also could help address the relative lack of competition within California’s private insurance market. In 2021, just two insurers, Kaiser and Anthem, accounted for nearly half of all enrollment. According to the U.S. Department of Justice and the Federal Trade Commission’s Horizontal Merger Guidelines, 21 of the 26 metropolitan statistical areas in California would be classified as highly concentrated and lacking market competition.7

How Golden Choice Would Work

The Golden Choice plan is designed to improve competition in health insurance markets and slow the growth of premiums. It’s designed to leverage the special characteristics of California’s health care delivery system, specifically the delegated risk model, in which insurers transfer some or all of the risk of the costs of providing care to medical groups and independent practice associations (IPAs).8 California’s medical groups and IPAs, one-third of which have more than 50 physicians, have extensive experience operating under a delegated model. They receive a risk-adjusted, per member per month payment for each enrollee, providing the organization with a predictable revenue stream and with incentives to develop innovative care models and continuously improve patient care.9

By forming a network of low-cost, high-quality integrated providers that accept risk, the new public option could offer a lower premium than many of the health plans currently available in the state. Not needing to turn a profit would further enable Golden Choice to keep premiums lower.

Currently, many provider organizations accept full risk for the total cost of care for both hospital and physician/outpatient care. Some accept professional risk, which applies to the physician and outpatient component, and others are paid on a fee-for-service (FFS) basis only. The full-risk provider organizations have a significantly lower total cost of care and higher quality scores than the FFS provider organizations (Exhibit 2).10 They also have higher quality scores than the provider organizations that only accept professional risk. In turn, the organizations that only accept professional risk perform better on both cost and quality than those operating under FFS.


Although not all physicians in California are organized to currently take on such risk, a number of technical assistance initiatives have been launched to provide them with the infrastructure and capabilities to do so.11

In California, health maintenance organizations (HMOs) are regulated by the Department of Managed Health Care in accordance with the laws set forth in the Knox–Keene Health Care Service Plan Act of 1975.12 Some medical groups have restricted Knox–Keene licenses from the Department of Managed Health Care to receive global per member per month payments that include financial risk for all hospital charges, thereby assuming both professional and institutional risk.13 Partial-risk plans are plans with capitation for only professional risk or institutional risk.

Assessing the Competitive Impact

We used non-Kaiser data from the IHA to estimate premiums for Golden Choice as a proof of concept.14 Utilizing the 19 markets in Covered California, the state’s Affordable Care Act (ACA) marketplace, we analyzed the potential impact overall and in each market region. Then, we adjusted premiums to compare the gold and silver plans on the Covered California marketplace to prototype premiums in Golden Choice from the IHA total cost of care data for 2019, prior to the COVID-19 pandemic. The premiums are for a 36-year-old enrollee, which is the average age in the IHA data.

We next assessed the effects of L.A. Care, a county-based plan that aims to reduce premium growth. Finally, we examined the impact on the commercial market using data from California Public Employees’ Retirement System (CalPERS) enrollees (see “How We Conducted This Study” for more details).

Golden Choice Would Be the Lowest-Cost Plan in Most Regions

When comparing gold plans, we found that Golden Choice would be the lowest-cost plan in 14 of the 19 Covered California regions and the second-lowest in three regions. We found similar results for the average silver plan (data not shown). To increase our confidence in our estimates, we tested the sensitivity of the prototype premium estimates by increasing them by 5 percent and 10 percent; we saw no change in the ranking.

Given the lower-cost premiums and trends found in other research, we estimated that 175,000 enrollees would switch from their current plan to Golden Choice, reducing total premiums in the first year by $243 million ($1,389 per switcher).15 In a separate analysis, we found that premium growth was 1.6 percent lower in markets with five or more insurers. If there had been at least five insurers in each of the 19 Covered California regions between 2016 and 2020, premiums would have been $288 million lower.

Additionally, in examining the ACA marketplace premiums in Los Angeles, we found that L.A. Care — the only county-based public option on Covered California — has offered some of the lowest premiums since 2014 (Exhibit 3). It offered the lowest premium for the first time in 2018, which resulted in a 4.8 percent reduction in the annual growth of premiums of all other plans in Los Angeles from 2019 to 2022. Savings amounted to $345 million across all plans in the L.A. market.16


In examining the CalPERS data, the Golden Choice premiums would be the second-lowest among HMO plans.17 For example, if enrollees switched from Blue Shield to Golden Choice, premiums would be $57 million lower a year.


We supplemented our analysis of health plan data with data on the adequacy of provider organization networks in the state to assess the feasibility of implementing the Golden Choice public option plan. The data show that there are medical groups and IPAs in all suburban and urban-dominated counties of the state, but fewer in some rural counties. Using a generally accepted primary care physician (PCP) panel of one doctor per 2,500 potential patients (or 4.0 per 10,000), we found more-than-adequate coverage overall (6.5 PCP per 10,000 enrollees) in most counties, but fewer than 4.0 in some rural counties.

We also gathered insights about the Golden Choice plan from interviews we conducted with seven administrative and clinical leaders of delegated model physician organizations and associated health plans (see “How We Conducted This Study” for more details). Reporting independently, each believed they could provide high-quality care, operating with premiums of 5 percent to 10 percent less than plans (and their associated provider organizations) currently on Covered California.


Golden Choice, California’s public option plan, would have a substantial competitive impact on the cost of health insurance and the growth rate of premiums in the state’s ACA marketplace. Our prototype premium, based on the total cost of care for risk-based plans, demonstrates cost savings. Furthermore, the impact of L.A. Care provides convincing evidence on the effect of increasing competition in the ACA marketplace.

Golden Choice would not require any additional price regulation or market intervention. Instead, it would lower costs and increase competition in the health insurance market by leveraging California’s delegated model plans, which incentivize providers to focus on prevention and continuous improvements in the quality of care.

Despite these promising findings, there are still many unanswered questions, including whether the plan would be listed on Covered California, whether a new public agency would need to be created to administer the plan, and how attractive Golden Choice plans would be in the commercial market. Further, the health plan and practice leaders we interviewed emphasized the following: 1) the importance of enrollees choosing or being assigned to a primary care provider upon enrollment; 2) the need to include the social determinants (drivers) of health in risk-adjusting the premiums; and 3) the desirability of having all plans agree on a set of standardized quality measures to be reported.

Given the evidence on the competitive impact and feasibility of implementing the Golden Choice plan, one option for California policymakers to consider is applying for a Section 1332 waiver to capture much of the savings from the reduced growth of premiums.18 This type of plan also could be pursued by other states, especially those where a significant number of provider organizations are able to accept financial risk for providing care, similar to California’s experience with the delegated model.19


For our exchange analysis, we assessed whether our proposed integrated care public option would be competitive against plans currently available on the exchange. To do this, we compared the silver premiums of the exchange plans with the average total cost of care per member of exchange HMO plan enrollees in the Integrated Healthcare Association (IHA) database. We did this for all 19 Affordable Care Act (ACA) regions in California. The exchange data do not include copayments or deductibles, while the IHA total cost of care figures do, but various adjustments were needed. In 2019, the ACA gold plan enrollees in IHA’s data had a member cost sharing of 10 percent. Thus, we added this amount to the exchange premiums.

Although the exchange premiums do include the profits and administrative expenses of the plans, the IHA average total cost of care does not. To adjust for this, we added 4 percent of premium to the IHA numbers. The benefits between gold plans on the exchange and those reporting total cost care data to IHA are essentially similar; however, the exchange plan data include mental health services while the IHA data do not, largely because of carve outs for mental health services. Given that mental health services are about 4.1 percent of all health care costs, we added these to the IHA average risk-adjusted total cost of care figure.

Finally, we added 3.75 percent of premium to the IHA numbers to account for the listing fee to offer products on the exchange.

These adjustments provide a close comparison between the exchange plan data on premiums and the IHA average risk-adjusted total cost of care data. The IHA plans are more comparable in terms of benefits to a gold plan than a silver plan. Thus, to compare our prototype’s regional premiums to silver premiums, we first subtracted the difference between average gold premiums and average silver premiums in each region from our prototype’s estimated premium in each region.

To help assess the feasibility of implementing a public option plan for the state, we conducted separate one-hour interviews with seven leaders of health plans and medical groups associated with restricted Knox–Keene plans that can assume risk for care provided. Enrollment in the plans of those we interviewed ranged from 43,432 at Canopy Health to 672,430 at Heritage Provider Network. We asked leaders to comment on the design features of the public option plan; their ability to provide care under the plan; and their concerns, challenges, and recommendations.

Additional details of our analyses are available in the full report on which this brief is based.


The analysis, conclusions, and views expressed in this issue brief are those of the authors only.


This brief is derived from a longer report, available here. We are grateful to the following individuals for their helpful review of the longer report:

  • Michael Chernew, Ph.D., Leonard D. Schaeffer Professor of Health Care Policy, Department of Health Care Policy, Harvard Medical School; Director, Healthcare Markets and Regulation Lab, Harvard Medical School
  • Matthew Fiedler, Ph.D., Fellow, USC–Brookings Schaeffer Initiative for Health Policy
  • Richard Frank, Ph.D., Director, USC–Brookings Schaeffer Initiative for Health Policy
  • Sherry Glied, Ph.D., Dean, Robert F. Wagner Graduate School of Public Service, New York University
  • Tom Rice, Ph.D., Distinguished Professor, UCLA Fielding School of Public Health
  • Gail Wilensky, Ph.D., Senior Fellow, Project HOPE.

In addition, we acknowledge data supplied by the Integrated Healthcare Association, California Public Employees’ Retirement System (CalPERS), and L.A. Care. We also thank the health plan and provider leaders who participated in the interviews.

Finally, we are grateful to Daniel Arnold for leading the empirical work and his significant overall contributions; to Arjun Teotia for his work on the L.A. Care empirical analysis; and to Crystal Haryanto, Anna Kirkland, Karissa Lin, and Maia Modjahedpour, undergraduate researchers at the Petris Center, for their outstanding research assistance.

  1. See Christine Monahan and Kevin Lucia, “Congressional Proposals for a Federal Public Health Insurance Option,” To the Point (blog), Commonwealth Fund, Nov. 3, 2022, for a discussion of recent federal public option proposals; and Gaby Galvin, “About 7 in 10 Voters Favor a Public Health Insurance Option. Medicare for All Remains Polarizing,” Morning Consult, Mar. 24, 2021.
  2. Several states have introduced or passed legislation to explore the public option or a Medicaid buy-in in the past, including Delaware, New Mexico, Massachusetts, New Jersey, Iowa, and Wyoming. More recently, Illinois, Wisconsin, Minnesota, Oregon, and California expressed renewed interest in the public option. Missouri, Maryland, New Hampshire, and Maine have also introduced legislation to research a public option or Medicaid buy-in; and Jaime S. King, Katherine L. Gudiksen, and Erin C. Fuse Brown, “Are State Public Option Health Plans Worth It?,” Harvard Journal on Legislation 59, no. 1 (Mar. 17, 2022): 145–221; and Grace Deng, “House Lawmakers Advance a Bill Creating a MinnesotaCare Public Option for All State Residents,” Minnesota Reformer, Feb. 8, 2023.
  3. James C. Capretta, “Washington State’s Quasi-Public Option,” Milbank Quarterly 98, no. 1 (Mar. 2020): 14–17; and Nevada Department of Health and Human Services, “Nevada Public Option — Launch Date: January 1, 2026,” n.d., accessed Feb. 21, 2023.
  4. Aditi P. Sen et al., “Participation, Pricing, and Enrollment in a Health Insurance ‘Public Option’: Evidence from Washington State’s Cascade Care Program,” Milbank Quarterly 100, no. 1 (Mar. 2022): 190–217.
  5. Commonwealth Fund, “New State-By-State Report: In 37 States, Workers’ Health Insurance Premiums and Deductibles Take Up 10 Percent or More of Median Income,” press release, Jan. 12, 2022.
  6. Lucy Rabinowitz Bailey et al., The 2023 CHCF California Health Policy Survey (California Health Care Foundation, Feb. 2023).
  7. U.S. Department of Justice and the Federal Trade Commission, “Horizontal Merger Guidelines,” Aug. 19, 2010.
  8. An independent practice association (IPA) refers to a network of independent physicians or organizations that contract with health insurance plans to deliver care to enrollees, often providing services on a discounted per capita rate or fee-for-service basis.
  9. John S. Toussaint et al., “How the Biden Administration Can Make a Public Option Work,” Harvard Business Review, Nov. 25, 2020; and George C. Halvorson et al., “‘Better Care Plan’: A Public Option Choice,” Health Affairs Forefront (blog), Nov. 16, 2020.
  10. We used 2019 data to avoid the impact of COVID-19 on total cost of care. Total cost of care is generally lower in 2020 because of COVID, but the same patterns apparent in Exhibit 2 hold in 2020. See the California Regional Health Care Cost & Quality Atlas for the 2020 total cost of care numbers.
  11. Purchaser Business Group on Health, “California Quality Collaborative,” n.d., accessed Feb. 21, 2023.
  12. The Knox–Keene Health Care Service Plan Act of 1975 is the set of laws that regulates health care service plans, including HMOs, within the state of California. See the California Department of Managed Health Care.
  13. Claire Marblestone, “Changes to California’s Knox–Keene Act Potentially Impact California Health Care Providers,” Foley & Lardner LLP, June 27, 2019.
  14. Because Kaiser is already listed on Covered California and is one of the dominant insurers in California, we focus on the other integrated plans to increase competition.
  15. A number of studies indicate low switching rates. See, for example, Benjamin R. Handel, “Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts,” American Economic Review 103, no. 7 (Dec. 2013): 2643–82.
  16. The complete economic evaluation of L.A. Care can be found in Arjun Teotia, Daniel R. Arnold, and Richard M. Scheffler, “Association Between a Capitated, Low-Cost, County-Based Public Health Insurance Option and Affordable Care Act Premium Growth in California,” JAMA Health Forum 4, no. 4 (Apr. 21, 2023): e230488.
  17. The lowest-cost plan was Health Net Salud y Más, which also utilizes providers in Mexico.
  18. State innovation waivers (also referred to as section 1332 waivers) are meant for states seeking to pursue innovative strategies that provide residents with access to high-quality and affordable health insurance that retains the basic protections outlined in the ACA. The waivers are subject to approval by the U.S. Department of Health and Human Services and the U.S. Department of the Treasury.
  19. Richard M. Scheffler and Thomas Rice, “Why the Biden Administration Should Help States Develop Capitated Public Options,” Milbank Quarterly Opinion, Dec. 8, 2020.

Publication Details



Richard M. Scheffler, Distinguished Professor Emeritus of Health Economics and Public Policy, University of California, Berkeley, School of Public Health

[email protected]


Richard M. Scheffler and Stephen M. Shortell, A Proposed Public Option Plan to Increase Competition and Lower Health Insurance Premiums in California (Commonwealth Fund, Apr. 2023).