Budget Office: Public Option Would Cost More than Private Plans

The government-run health insurance plan, or "public option," crafted by House Democrats would typically have higher premiums than comparable private insurance plans, according to a new budget estimate. Yet even though the public plan is weaker than liberals initially hoped -- thereby making it more expensive -- House Speaker Nancy Pelosi said in an interview with Politico Thursday that she does not want liberals to attempt to make it more "robust."

The analysis (PDF) submitted yesterday by the nonpartisan Congressional Budget Office bucks the liberal argument that a public plan would be cheaper for consumers than private insurance. While its administrative costs would be lower, the CBO reported, other factors would offset that.

A significant factor for the higher premiums would be the fact that House Democrats included in the legislation unveiled Thursday a public option that would negotiate its payment rates with medical providers. Liberals like Pelosi were inclined to include a public option that tied its payment rates to Medicare -- this would have made it cheaper, but moderate Democrats from rural areas complained that doctors and medical providers in their regions would not be paid enough.

If the government were to set up a national health insurance exchange -- or "marketplace" of insurance plans for small businesses and individuals -- about 30 million Americans would enroll in plans through it, the CBO estimates. Of those, about 6 million would choose to enroll in the public option.

Of the premium costs, the CBO writes:

"That estimate of enrollment reflects CBO's assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that 'adverse selection' on the public plan's premiums would be only partially offset by the 'risk adjustment' procedures that would apply to all plans operating in the exchanges.)."

By contrast, premiums for a "robust" public option -- one that offered Medicare rates plus 5 percent -- would be cheaper than private plans on the exchange, even taking "adverse selection" into account, according to a recent study by the Centers for Medicare and Medicaid Services.

"We estimate that the public plan would have costs that were 18 percent below the average level for private plans but that the public plan premiums would be roughly 11 percent lower than private as a result of antiselection enrollees," the CMS wrote.

Still, Pelosi told Politico she is not inclined to allow a floor vote on any amendments to make the public option more "robust"

"I'm not big on showing weakness. It's not my thing," she said. "I don't like to have predictable losses."

The health care bill could be introduced on the House floor as early as Thursday, Majority Leader Steny Hoyer said yesterday.

In the Senate, Democrats are also considering a public option with negotiated payment rates from which states could choose to opt out.