The Public Plan Endgame

In the face of rising premiums and carrier exodus from markets across the country, leading Democrats and presidential candidate Hillary Clinton have expressed support for a public plan option for health insurance. Supporters say that a government-run plan would provide stability to the fragile – many would say “failing” – state health insurance exchanges.

 Negative margins finally made it a no-brainer for insurers to step back from the exchanges. Several major issuers have exited Affordable Care Act markets across the country over the past 10 months. At least five states are now left with only one option for exchange customers. As of October 2016, few players were actually generating a profit (examples are Medicaid players Molina and Centene, and marketplace plans from BlueCross BlueShield Florida).

 Speaking of losing money, remember co-ops? During the passage of health reform in 2009-10, cooperatives were the public plan alternative Democratic leaders and the White House knew could muster votes. Today, only six of the 23 original co-ops have survived, most shuttering due to premium underpricing, risk corridor shortfalls, and problems with risk adjustment.

 Seven years later, Democratic leaders are once again touting the idea of a public option, an idea considered too far afield even in 2009 when Democrats controlled the House, the Senate and the White House.

A Democrat-led resolution in the Senate would push for a public option as a marketplace competitor to private carriers. Were a public option set up in a way that ties reimbursement to Medicare rates, it would have a competitive advantage over private plans.

The Democratic resolution points out that the public option could be implemented through the waiver process. Hillary Clinton, potentially working with states interested in creating a public option via the so-called Sec 1332 waiver process, is one way to also achieve a semi-public option. As a reminder, the final Democratic platform alludes to state innovation waivers that passed as a part of the ACA.

Public plans would be able to offer lower premiums than existing private ones. Many private insurers participating in 2017 are asking for 30-50 percent rate increases due to a sicker-than-anticipated population, pricey mid-year enrollees and other reasons, such as questionable third party payments. With a public option competitor, already-struggling insurers would have little incentive to stay in the game.

 Another important set of stakeholders — physicians and providers like hospitals — would likewise be displeased with the prospect of Medicare-level reimbursement rates for the ACA population. 

Proponents say a public plan option could be structured the same as its competitors, essentially becoming another choice for consumers. Without any special advantages, would the government option do a better job negotiating prices than private insurance companies?  Would it really be a more affordable option for consumers?  Skeptics say no. 

Not to mention vehement opposition from Republicans and moderate Democrats who brought down the original public option in the ACA.

And a potential President Clinton going alone — without industry support — could have the same result as Hillarycare in the 1990s.

Which begs the question – what’s the upside?

For Clinton, championing a public option could just be political savvy. Pushback from carriers is going to be met with the same response every time: if you don’t like it, participate competitively on the public exchanges. With broad participation and price competition, a public option becomes moot.

The idea can easily become a bargaining chip in compromising with Congress over some of the healthcare reform and innovation that’s grown out of Clinton’s own presidential campaign.

By pushing the public option, Clinton may have found a way to fix the exchanges — pressuring broad participation — while holding onto political capital to spend on her own agenda. Clinton may even be able to warm carriers more to her ideas such as opening Medicare to people over the age of 55 if she can dangle Medicare Advantage-like subsidies in front of them and promise to shelve the public option.

The greater question may be whether President Obama, Bernie Sanders, and the majority of the Senate Democratic conference embrace Clinton’s endgame. A public option on its face has few other paths to success.


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