While there is still some talk of "Medicare for All" as a solution for the nation's continued high rate of uninsured citizens — particularly as the COVID-19 pandemic revealed just how tenuous the health care safety net is for tens of millions of Americans — the majority of policymakers who embrace the idea of expanded health care often cite the need for a public option.

Four pieces of legislation promoting the creation of a federal public option were introduced in Congress in 2019, and Democratic presidential candidates, including presumptive nominee Joe Biden, have called for such a measure.

A new study by the Rand Corporation examining four possible variants of a public option finds that such an option could reduce rates by between 10% and 27%, depending on the payment rates adopted by the plans.

The report, "Public Options for Individual Health Insurance: Assessing the Effects of Four Public Option Alternatives," found that the number of uninsured Americans would drop, but only by 3% to 8%; one scenario only found a marginal increase in the number of those covered.

The study also said some lower-income people who currently purchase individual plans would likely see their costs rise as tax credits they're eligible for are no longer available.

"Since higher-income people pay the full cost of insurance on the individual market, they could receive substantial savings under a public option," said the study's lead author Jodi Liu, in a statement. "But policymakers should consider how the design of a public option could decrease the tax credits lower-income enrollees receive under the ACA."

Federal spending "fell under all of the scenarios, with savings ranging from $7 billion to $24 billion annually," according to the report.

The analysis was conducted before the COVID-19 outbreak and did not factor in health care costs and payment rates to its treatment.

As detailed in the report, the analysis considered four separate designs based on:

What rates providers are paid;
Whether the public option is considered "on-Marketplace" or "off-Marketplace" coverage that affects premium tax credit amounts under the ACA; and
Whether premium tax credits are available to higher-income individuals.

"Researchers assumed that the public option for individual market insurance would offer bronze, silver, gold, and platinum tiers of actuarial-based coverage," the report noted.

Payment rates for two plans were calculated at 79 percent of the current rate Medicaid and commercial plans; the other used 93 percent of that rate. The analyses also assumed that providers would agree to the lower payment rates and adequate provider networks would be available.

Researchers found that most people currently enrolled in the individual market would likely switch to public plans in all four scenarios, resulting in an increase in some individual market premiums.

"A relatively small pool of sicker and more-expensive people would remain enrolled on private plans … because of real or perceived access barriers related to lower payments to providers," the study said.

Researchers also tried to gauge who would be better off by becoming newly insured or paying less for a similar or better plan, and who would be worse off by losing coverage or paying more. According to their numbers, between 5.1 million and 12.1 million would be better off, while between 2.2 million and 6.8 million would be worse. The "worse off" cohort are those whose incomes are below 400 percent of the federal poverty level, which is currently $12,760.

"Because tax credits were tied to the public silver premium in most of the RAND scenarios, individuals' tax credits fell when the public plan was introduced," the authors said. "As a result, for many subsidized individuals, the introduction of the public option did not reduce out-of-pocket premiums."

The report suggested that one method to reduce that blow would be using the government's savings for programs aimed at lower-income people, such as raising tax credits for those who buy individual policies.

Read more:

Instant Insights /

Report: Public option could reduce premiums by up to 27%

More From HR Executive

Related Stories

Recommended For You