Last week, I reviewed what we know about the Biden campaign’s proposals to expand the ACA. Now I’ll discuss another plank in the Democrat’s health care platform: creating a public option plan. According to the campaign website, people covered in an employer plan would be able to choose the public option “if they could get a better deal.” From an employee’s perspective, how might coverage in a public option compare with the typical employer-sponsored plan today?
There are not many details to work with at this stage, and of course the details will make all the difference. The website suggests this option would be “similar to Medicare.” The big question: Similar in what way – coverage levels, cost, or both? Medicare is able to provide a relatively high level of coverage at a relatively low cost because the vast plan uses its leverage to reimburse providers at lower rates than private health plans. For a public option plan to be as attractive as employer-sponsored coverage, it likely would have to reimburse providers at Medicare-like rates. That’s the assumption in separate analyses of a public plan by The Urban Institute and RAND, although with important differences. One assumed the government would essentially force providers to participate in the public option by tying it to Medicare participation, while the other assumed that public option plans would use narrow networks of providers willing to accept lower rates – similar to what we’ve seen with public exchange plans -- decreasing the attractiveness to consumers.
How much less would you have to pay providers to make a public option plan competitive with employer plans? By moving all the way to Medicare rates, average inpatient prices would be cut by almost 60%, and physician prices by 16%. If the public option also benefited from prescription drug payment reforms that Biden is proposing for Medicare, premiums could be as much as 30% lower than premiums for plans currently offered on the public exchange.
Would that be enough of a better deal to draw employees out of employer plans? Let’s set aside differences in plan design - since we don’t know anything about what the public option would look like- and just focus on premium. Tax credits would need to be greatly expanded for most people in employer-sponsored insurance to be eligible for them. While Biden’s plans for the ACA do include tax credit expansion, it’s not certain that the same affordability provisions would prevail in the public option. From our survey, the average salary among large employers (500 or more employees) is $71,000 – well above 400% of the federal poverty limit. Given that these employers pick up on average about 80% of the cost of individual coverage and about 70% of the cost of dependent coverage, it seems unlikely (based on what we know now) that many employees working for large organizations would choose to migrate to a public option. Small employers tend to require higher contributions, particularly for dependent coverage, which, in conjunction with lower salaries (on average about $54K) could make the public option a better deal for some employees – but we’d need more information to say for sure.
If a public plan achieves lower premiums and allows for an employer buy-in, we could expect to see a wave of employers taking this option. That would likely create upward pressure on commercial prices – similar to that currently resulting from Medicare’s lower reimbursement rates -- which over time would lead more employers to take the buy-in option, adding still more pressure on commercial prices, and so on. This scenario could have long-term implications for employer-sponsored insurance.
We’ll soon be able to watch a real-life experiment with a public option plan -- Washington State’s Cascade Care program. Passed into law in 2019, this statewide public option – with lower provider reimbursement -- will roll out next year. Specifically, provider rates will be capped at 160% of Medicare (primary care has a floor of 135% of Medicare). Administration will be handled by carriers though a bidding process with the state. Should this pilot succeed, it could become a major talking point for national applications.
Healthcare policy is a hot topic that will only get hotter as we get closer to November. It’s important to keep in mind that as we move from rhetoric to reform, there are major hurdles to overcome, including adding critical details to the plan, winning the necessary legislative support, and tackling pushback from industry stakeholders invested in the status quo. Note that we have already seen a proposal to lower the Medicare eligibility age to 60 disappear from the Biden campaign website – perhaps an early casualty of these forces.
No matter what happens in November, we will keep working to ensure employer perspectives inform public policy debates on this critical topic.