Public option would drive premiums down, but increase enrollments only modestly, RAND says

Dive Brief:

  • A ​public option health plan on the state and federal insurance exchanges would have significantly lower premiums, and therefore draw a large number of enrollees, according to a simulation run by think tank RAND. However, only a public option off the exchanges would significantly increase the total number of insured Americans.

  • An on-exchange public option plan could also negatively impact lower-income individuals who obtain subsidized coverage from the exchanges, RAND found.

  • The California-based nonprofit explored four different scenarios in which a public option health plan could be introduced to the state and federal exchanges.

Dive Insight:

A public option health plan has been a topic of discussion since before the Affordable Care Act was signed into law a decade ago. It did not wind up a part of the landmark healthcare reform law, although its resurrection has been discussed if the Democrats take back the White House and the Senate this November. Ex-Vice President Joe Biden has promised a public option if he is elected President.

RAND researchers crunched the numbers to determine what such a plan would look like if implemented.

The think tank examined four potential scenarios:

  1. The plan is offered off-exchange, with payments to providers pegged at 79% of prevailing commercial rates.
  2. The plan is offered on the exchange at the same payment rate.
  3. The plan is offered on the exchange where providers are paid at 93% of commercial rates.
  4. The plan is offered on the exchange at 93% of payment rates with advanced premium tax credits raised to 500% of the federal poverty level, compared to the current cutoff at 400% of the FPL.

Under the first two scenarios, premiums for the public option plans were 26% and 27% lower, respectively. For the last two, they were 10% and 11% lower.

The public option plans would subsume much of the individual market. If offered off the exchanges, an estimated 13.9 million Americans would switch to the public option, leaving only 4.1 million people in the private market and growing total individual enrollment to roughly 17.9 million.

The other options swelled total individual enrollment too, but only slightly — between 200,000 and 1.7 million people — while leaving equal or fewer Americans in private plans.

By drawing individual enrollees off the exchange in huge numbers, federal spending on premium subsidies would drop between $7 billion and $24 billion a year. The second scenario would save the most money, while the scenario with expanded tax credits would save the least.

Importantly, all scenarios would save the government money.

However, millions of lower-income enrollees in the exchanges would likely pay higher premiums in any of the public option scenarios because the public option would lower the benchmark premium, causing their tax credit subsidies to shrink.

“Since higher-income people pay the full cost of insurance on the individual market, they could receive substantial savings under a public option,” Jodi Liu, the study’s lead author, said in a statement. “But policymakers should consider how the design of a public option could decrease the tax credits lower-income enrollees receive under the ACA.”

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