I’ve always had trouble understanding the opt-out version of the public option. Or more specifically, I’ve had trouble understanding why any state would actually opt out of something that some might find ideologically objectionable, but that doesn’t actually cost them anything, gives their citizens a choice, and might actually bring in some government money down the line.
In that sense, the opt-out reminds me of all those Governors who made a lot of noise about rejecting the stimulus money, but then took it. As Doug Holtz-Eakin, a Republican and a former director of the Congressional Budget Office who is now a fellow at the Manhattan Institute, puts it: “If the default is, you’re in, the legislative momentum has to be found to get you out. … You have to make the case that eliminating a choice is a good thing.”
That’s why I’m a little puzzled at this passage in CBO’s preliminary analysis of the health bill that will go to the Senate floor in the next few days:
CBO’s analysis took into account the probability that some states would opt not to allow the public plan to be offered to their residents. Rather than trying to judge which states might opt out, CBO applied a probability recognizing that public opinion is divided regarding the desirability of a public plan and that some states might have difficulty enacting legislation to opt out. Overall, CBO’s assessment was that about two-thirds of the population would be expected to have a public plan available in their state.
Translation (I think): We’re plugging in a random number here, but we have no clue why anyone would opt out either.
Otherwise, their estimates are in line with earlier ones, which suggest that a relatively small number of people would actually choose the public plan, and that it would have somewhat higher premiums than the private ones participating in the exchanges. I think they do a little better job here explaining their rationale for that assumption:
Roughly one out of eight people purchasing coverage through the exchanges would enroll in the public plan, CBO estimates, meaning that total enrollment in that plan would be 3 million to 4 million. That estimate reflects two main components:
= CBO’s assessment is that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that were
somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average,
probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization for its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the risk adjustment procedures applicable to all plans operating in the exchanges.)
This, by the way, is also along the lines of reasoning that we heard in a recent analysis of the House bill by the actuaries at the Centers for Medicare and Medicaid Services:
The proposed legislation specifies that a Federally operated “public health insurance option” would also be available through the Exchange. This plan would meet the same benefit, cost-sharing, network, and other requirements applicable to private Exchange plans and would negotiate payment rates with providers (rather than paying based on Medicare rates, as under H.R. 3200). We estimate that the public plan would have costs that were 5 percent below the average level for private plans but that the public plan premiums would be roughly 4 percent higher than private as a result of antiselection by enrollees.
Translation: A public option that had to negotiate with health care providers (as opposed to having its reimbursement rates tied to Medicare’s) would be somewhat more efficient than private insurers, but also somewhat more expensive, because it would attract a sicker population of people who would be looking for more generous benefits and less hassle than they get from private insurers.