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A Public Option Primer

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As Senate Majority Leader Harry Reid prepares to bring a health care bill before the full Senate, Democrats' efforts to reform health care could seemingly implode over the so-called "public option," the proposal that has drummed up the most controversy over the course of the debate.

At least one member of the Democratic caucus -- Sen. Joe Lieberman (I-Conn.) -- has threatened to bring the bill down over the plan to create a government-run insurance plan, or "public option." Liberals, meanwhile, say it is an essential part of the legislation that is needed to give private insurers real marketplace competition.

The facts needed to keep the debate in perspective are easily forgotten. Here are a few points to keep in mind about the public option:

Very few Americans would sign up for the public option. In the Democrats' legislation, the public option would only be available to consumers who are eligible to shop in the "health insurance exchange" they would create. The exchange would only be open to people who buy individual health insurance plans or to people who work for small companies. The nonpartisan Congressional Budget Office estimated last week that only about 30 million people would join the exchange; of those 30 million, only about 6 million would choose to enroll in the public option.

"The public option is a significant issue, but its place in the debate is completely out of proportion to its actual importance to consumers," Drew Altman, president of the nonpartisan Kaiser Family Foundation, told the Associated Press. "It has sucked all the oxygen out of the room and diverted attention from bread-and-butter consumer issues, such as affordable coverage and comprehensive benefits."

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The public option would be paid for entirely by premiums. Lieberman and others have said they oppose the public option because of the burden it would impose on taxpayers. The measure should not add any additional taxpayer burden, however.

"The public plan would have to charge premiums that covered its costs, including the costs of paying back start-up funding that the government would provide," the CBO wrote (PDF) of the House health care bill.

The House bill also includes a "no bailouts" provision which states, "In no case shall the public health insurance option receive any Federal funds for purposes of insolvency in any manner similar to the manner in which entities receive Federal funding under the Troubled Assets Relief Program of the Secretary of the Treasury."

The public option impacts the government cost of the Democrats' health care plan. Even though the public option would be entirely financed by premiums, it will still impact how much of a financial burden health care reform imposes on the federal government, according to the CBO. That is because the level of subsidies the government would pay out to help Americans purchase insurance would be based on the price of health care plans on the market.

"Including a public plan would probably have two small effects on the premiums of the private plans against which it is competing, both of which would tend to lower federal subsidy payments through the exchanges to some degree," the CBO wrote in September. The CBO wrote the public plan could lower premiums of private plans by providing more competition and also by attracting "enrollees who, overall, are less healthy than average," thereby lowering the cost of covering consumers in the private market.

The CBO more recently concluded that a public option that negotiates payment rates with medical providers would have slightly higher premiums than private plans -- so it may not save the government as much money, in terms of how much would be spent on premiums. However, the CBO maintained their assertion that the public plan would "attract a less healthy pool of enrollees."

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