Some lower-income people whocurrently purchase individual plans would likely see their costsrise under a public option as tax credits they're eligible for areno longer available. (Image: Shutterstock)

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While there is still some talk of"Medicare for All" as a solution for thenation's continued high rate of uninsured citizens —particularly  as the COVID-19 pandemic revealed just howtenuous the health care safety net is for tens of millions ofAmericans — the majority of policymakers who embrace the idea ofexpanded health care often cite the need for a publicoption. 

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

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Related: States ready to take on health insurers in fightfor a public option

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A new study by theRandCorporation examiningfour possible variants of a public option finds that such an optioncould reduce rates by between 10% and 27%, depending on the paymentrates adopted  by the plans.

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The report, "Public Options for Individual Health Insurance: Assessing theEffects of Four Public Option Alternatives,"found that the number of uninsuredAmericans would drop, but only by 3% to 8%; one scenario only founda marginal increase in the number of thosecovered. 

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The study also said somelower-income people who currently purchase individual plans wouldlikely see their costs rise as tax credits they're eligible for areno longer available.

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"Since higher-income people paythe full cost of insurance on the individual market, they couldreceive substantial savings under a public option," said thestudy's lead author Jodi Liu, in a statement. "But policymakers shouldconsider how the design of a public option could decrease the taxcredits lower-income enrollees receive under the ACA."

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

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

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

  • Whatrates providers are paid;
  • Whetherthe public option is considered "on-Marketplace" or"off-Marketplace" coverage that affects premium tax credit amountsunder the ACA; and
  • Whetherpremium tax credits are available to higher-incomeindividuals.

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

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Payment rates for two plans werecalculated at 79 percent of the current rate Medicaid andcommercial plans; the other used 93 percent of that rate.The analyses also assumed thatproviders would agree to the lower payment rates and adequateprovider networks would be available. 

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Researchers found that mostpeople currently enrolled in the individual market would likelyswitch to public plans in all four scenarios, resulting in anincrease in some individual market premiums.

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

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Researchers also tried to gaugewho would be better off by becoming newly insured or paying lessfor a similar or better plan, and who would be worse off by losingcoverage or paying more. According to their numbers, between5.1 million and 12.1 million wouldbe better off, while between 2.2 million and 6.8million would be worse. The "worse off" cohort are those whose incomesare below 400 percent of the federal poverty level, which iscurrently $12,760. 

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"Because tax credits were tied tothe 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-pocketpremiums."

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

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Greg Land

Greg Land covers topics including verdicts and settlements and insurance-related litigation for the Daily Report in Atlanta.