In May 2019, Washington became the first state to pass legislation to create a public option health plan. Other states are following a similar path, but are at different stages of the process. Several other states are planning to expand coverage options, reduce costs, and increase access to affordable healthcare options.
What is a public option health plan?
Public option plans are low-cost health plans that give consumers an option to purchase or buy into a government-run health insurance program like Medicare, Medicaid, or a state employee health plan. These plans can be offered by both federal and state governments, which gives states the freedom to set their own requirements. The plans can be implemented just like private health insurance.
The plans will have lower rates compared to private marketplace plans, which makes the plans more affordable to people who don’t qualify for ACA premium subsidies or who cannot afford ACA plans in general. It will also be available to people who do not receive employer-sponsored coverage and to people with pre-existing conditions.
Public option plans versus private plans
- Public option plans with lower administrative costs and low premiums could be more popular with consumers.
- Public option plans are government-sponsored or nonprofit, so they are exempt from tax requirements.
- Private insurers will be pressurized to reduce rates to compete with public option plans and maintain enrollment. This could, in-turn, drive down overall healthcare costs.
- Public option plans will be portable by guaranteeing people health insurance despite relocation or a new job.
States considering public option plans
Among the states that have already passed public option legislation, Washington was the first to enact a bill allowing private insurers to contract with the state and provide regulated, low-cost plans on the 2021 exchange. Provider reimbursements through the plans are capped at an average of 160 percent of Medicare reimbursement rates, which is quite lower than the commercial plan rate of 190 percent to 240 percent of Medicare rates (Rand and CBO data). Also, public option plans are expected to have individual premiums about 5 percent to 10 percent lower than commercial plans.
Many other states are also trying a public or Medicaid buy-in option. In order to be considered during the 2020 legislative sessions, states are required to submit proposals by November 2019.
Meanwhile, Colorado is exploring its options through various stakeholder meetings and plans to have proposals ready for public comments by the end of September. The state has already passed a section 1332 waiver with an aim to cut the premiums by 20 percent to 30 percent.
New Mexico passed legislation for a Medicaid buy-in plan study and is seeking federal funding to slash costs and increase coverage. As Medicaid is popular in the state, New Mexico is targeting individuals who do not qualify for premium subsidies under ACA.
The Connecticut legislature has suspended its own public option bill following massive opposition from Cigna. The bill estimated premium savings of up to 20 percent through public plans and state financial assistance for people who fail to qualify for ACA subsidies. Lawmakers plan to reconsider the bill in 2020.
Delaware, Massachusetts, and Oregon have completed studies evaluating public plan options that build upon existing state programs like Medicaid and state employee health plans. However, none have taken further action.
Finally, Nevada, Wyoming, California, Wisconsin, New Jersey, and Maine are still contemplating buy-in or public option legislation, while New Hampshire and Missouri are considering legislation to study these options.
Implications of marketing public option plans in a state
With public option plans being low-cost options, providers and private payers stand to be affected the most for the following reasons:
- Public option plans provide lower reimbursement to providers than private insurance plans. Private payers can be hit hard, as public option plans would cost less for consumers and have massive negotiating power.
- Reimbursement rates should be like those for Medicare, which could affect provider participation and the quality of care patients would receive.
Considering the reactions to public option insurance, very few states are considering these plans. Depending upon the outcomes of the public option plans in Washington or other states, more states may reconsider. Moreover, if implemented the public option might result in a single payer system across many states. For now, these plans are going to face much resistance from large payers and providers, and create a rocky path forward for public option insurance.