Would the addition of a public option to the US health care system bring down costs for patients?
A public option could improve health care affordability with continued private insurance and better access to quality providers, but only if the design is set up in a way that provides more financial protection upfront. You could also push private insurers to do this, but a public option is a more plausible vehicle to make sure the cost-sharing terms are affordable for patients.
Many individuals who are currently insured in the marketplace have high deductibles — up to several thousand dollars in some cases. This leaves many people paying out of pocket for their care unless they get critically sick.
If the public option aggressively negotiates payment rates to providers, it will bring down the overall costs, as is the case with Medicare and Medicaid. There is a trade-off because it could possibly limit the number of providers but, on the other hand, it would save the whole system money.
There are a lot of varieties of public options. The proposal from the Biden campaign primarily focuses on low-income patients in states that did not expand Medicaid. This would help patients who are too rich for Medicaid but too poor for Marketplace subsidies. People in this group — and there are millions of them — have fallen through the cracks in the current law.
A public option could also help patients in places where there is limited competition, which leads to higher premiums. Creating more competition brings down the costs.
However, there probably isn’t any approach using just a public option that gets everyone covered. In a patchwork system like ours, there will always be some people who fall between the cracks and end up without coverage. The only way to guarantee that everyone is insured is through a universal coverage approach, such as a single-payer system. That being said, there doesn’t seem to be the political support to implement that right now.
Editor's note: On Nov. 11, we updated this article to remove multiple paragraphs that were added without the author's permission. The Editors regret this error.Benjamin Sommers, MD, PhD, is the Huntley Quelch professor of health care economics at Harvard University T.H. Chan School of Public Health. He can be reached at email@example.com.
As experience in the Medicare Advantage program shows, a public option insurer that doesn’t try to dodge unprofitable enrollees would, like the traditional Medicare program, be saddled with more than its share of sick, expensive patients and would become a de facto high-cost, high-risk pool. Although a public option can’t achieve universal coverage at an affordable cost, a single-payer system, usually referred to as Medicare for All, can.
CMS’s decades-long efforts to level the playing field for competition between Medicare Advantage plans and traditional Medicare have proven fruitless. Private insurers have, at every turn, circumvented those efforts, selectively recruiting profitable enrollees, encouraging unprofitable ones to disenroll, upcoding to game the risk-adjustment system that’s intended to level the playing field and, at times, outright cheating. Medicare Advantage insurers have also used their political muscle to sustain and increase their competitive advantage over traditional Medicare. The result is that a public plan and the taxpayers absorb the losses while private insurers skim off profits. This imbalance is so big that private plans can outcompete a public plan despite squandering vast sums on overhead costs, CEO salaries and shareholder profits.
The bottom line is that a public option is a far more expensive route to universal coverage than a single-payer system.
Private insurers currently take in $252 billion more than they pay out per year, which is equivalent to 12% of their premiums. A single-payer system with overhead costs comparable to Medicare’s could save about $220 billion of that overhead. A public option would save far less, or possibly nothing, if much of the new public coverage is channeled through Medicare Advantage plans, whose overhead, at 13.7%, is even higher than the average commercial insurer.
A single-payer system would put private insurance companies out of business. Drug companies and medical suppliers would also stand to lose billions because they would face a buyer that could drive down their prices.
The excess overhead inherent to multipayer systems imposes bureaucratic burdens on doctors and hospitals that drive up their costs by hundreds of billions of dollars annually, and amount to a hidden surcharge that must be passed on to patients. Because a public option reform would do nothing to lighten providers’ administrative burden, it would sacrifice about $350 billion annually of single payer’s potential savings on providers’ overhead costs, over and above the $220 billion in savings it could sacrifice annually on savings on insurers’ overhead.
Finally, a public option would undermine the rational health planning that is key to long-term savings under single payer. Each dollar that a hospital invests in new buildings or equipment increases its operating costs by 20 to 25 cents in every subsequent year. At present, hospitals that garner profits have the capital to expand money-making services and buy high-tech gadgets, whether they’re needed or not, while neglecting vital but unprofitable services. A single-payer program to direct new investments in facilities and equipment would be based on communities’ needs, not providers’ profitability.
Although some have charged that a single-payer reform would stifle innovation, there’re no data or reasonable arguments that backs up such assertions. Among insurers, Medicare has been much more innovative than private insurers. Most of the most important scientific innovations in medicine in the U.S. have come from the NIH, not commercial firms. And many countries with national health insurance have contributed important scientific breakthroughs. The CT scan, for example, was invented in Great Britain. Most of the money drug companies and insurers make goes to their shareholders; an astonishingly small amount goes to innovation. If we want to nourish innovation, we’d be much better taking the money from those profits and amping up funding to the NIH.
Because a public option would leave the current dysfunctional payment approach in place, it would sacrifice most of the savings available via single-payer reform. I’m not opposed to a public option reform, that might give some more people insurance, but it’s an inefficient way to expand coverage, and would fail to address most of the grave problems in our health care system. The bottom line is that a public option would either cost much more or deliver much less than single payer.
Editor's note: On Nov. 16, we updated this article to remove multiple paragraphs that were added without the author's permission. The Editors regret this error.
Cai C, et al. PLoS Med. 2020;doi:10.1371/journal.pmed.1003013.
David U. Himmelstein, MD, is a professor of health policy at City University of New York School of Public Health at Hunter College. He can be reached at firstname.lastname@example.org.