The Return of the Public Option

The CBO has analyzed a proposal forwarded by Representative Fortney Pete Stark (D-Cal), the chairman of the Ways and Means Committee's Health Subcommittee.

To quote the CBO report:

“Under the proposal, a public health insurance plan would be established and administered by the Secretary of Health and Human Services (HHS), and it would have to charge premiums that fully cover its costs for benefit payments and administrative expenses. The plan’s payment rates for physicians and other practitioners would be based on Medicare’s current rates but would not be subject to the future reductions required by Medicare’s sustainable growth rate formula; instead, those rates would initially increase by 5 percent and then would rise annually to reflect estimated increases in physicians’ costs. The plan would pay hospitals and other providers the same amounts that would be paid under Medicare, on average, and would establish payment rates for prescription drugs through negotiation. Health care providers would not be required to participate in the public plan in order to participate in Medicare.”

The CBO has estimated that the plan’s premiums would be 5% to 7% lower than private plans offered in the exchanges but some providers might decide not to participate in this plan due to its payment rates being lower than the private plans payment rates.

However, the CBO also believes that many providers would participate due to the expectation that a plan administered by HHS would have a very large number of participants.

The CBO estimates that the plan would REDUCE the federal deficit by $68 billion through 2020. Notice that’s “REDUCE.” There would be no need to raise taxes or cut other programs. So please ignore Rush Limbaugh when he starts telling you how this is going to raise your taxes.

What I don’t understand here is if the premiums are lower, and large numbers of providers choose to participate, why would this public option not tend to drive private insurers out of the health insurance exchange market? One has to believe that cost is going to be a critical consideration in that market.