A few basic questions on the public health insurance option answered.

What is the public health insurance option?

The public health insurance option is an idea supported by President Barack Obama as part of his health reform plan. (It is modeled after Jacob Hacker’s original "public plan choice" paper [pdf].) In essence, it is a health insurance program run by or accountable to Congress and the voters, similar to Medicare. It would be national – available in every state in this country – and ready to use as soon as it gets built. It would be offered as a choice – and only a choice – to people who need insurance.

In the five health care bills currently being considered by congress, four of them include a public health insurance option – the bills in the House of Representatives and the bill that the late Senator Ted Kennedy wrote and passed out of his committee. The framework put forward by the "gang of six" in the Senate Finance Committee does not have a public health insurance option.

How does the public health insurance option work?

All health care reform bills would set up an "exchange," or marketplace, for health insurance that certain people could buy into. See the graphic below (click for a larger version, pdf warning):

The public health insurance option exists within the "health insurance exchange" shown at the bottom of the image. If you qualify for the exchange, you could choose the public health insurance option for your health insurance if you wanted to. You could also choose any of the other private insurance plans in the exchange, just like you do now when you buy insurance.

It’s your choice what insurance you buy – public or private – whichever plan meets your needs best. In this way, the public health insurance option competes directly with private insurance for customers like you within the exchange.

Why is a public health insurance option essential?

A public health insurance option increases competition, something that is sorely lacking in health insurance markets today. Today, 95% of insurance markets around the country considered "highly concentrated" by the Department of Justice, or at risk for monopoly. This causes increased premiums and worse service for customers, a phenomenon you’ve probably noticed. By introducing competition into the marketplace, the public health insurance option does two things.

First, it lowers cost for everyone. A recent non-partisan Congressional Budget Office letter concluded [pdf] that the public health insurance option would lower premiums for everyone through competition, even for people in private plans. And previous CBO letters have concluded that a public health insurance option will save money, even as much as $150 billion over 10 years. The Commonwealth Fund concluded that a public health insurance option would save each customer $2,000 per year. In short, a public health insurance option will save you money if you choose it, lower your premiums if you don’t, and save the government billions.

Second, a public health insurance option will keep the insurance industry honest.

Insurers have a thousand ways to get around regulations to deny care and other bad practices. (These bad practices are detailed in this report from Health Care for America Now [pdf].) Regulations are viewed by business in this country as obstacles to be overcome, not rules to be abided by. In even the best regulations, loopholes will be found, enforcement will be spotty, and fines will be chalked up to the cost of doing business. A study by Stuart H. Altman and Marc A. Rodwin of Brandies University concluded that this occurs today.

As an example, the practice of taking away your insurance policy when you become sick so your insurance company doesn’t have to pay for your expensive medical treatment is not allowed. And yet, the insurance companies admitted before Congress earlier this year that the practice is common.

A public health insurance option fixes this problem by providing people a choice. If your insurance company isn’t abiding by the rules, you will be able to take your business to an insurer that will. This will put pressure on all insurers to play by fair rules, and give people an out if the insurers refuse to obey.

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The "gang of six’s" idea to start co-ops, small non-profit insurers that could not survive, are not a substitute for a public health insurance option. They would not be accountable to voters or Congress, nor would they be national. Triggers, another "compromise" which would delay a public health insurance option until certain criteria are met, are not a public health insurance option either, because the public health insurance option would not be available on day one.

Without a public health insurance option, there will be no incentive to control costs or play by the rules because there will be no competition. If everyone is forced to by insurance, and the government gives people subsidies to help everyone pay for it, what incentive do insurers have to lower their prices or stop their abuses?

However, by increasing competition and giving people a true choice, a public health insurance option can lower your premiums and the cost to government, as well as make sure insurers play by the rules.

(also posted at the NOW! blog)

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