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March 29, 2021

Expanding Health Insurance through a Public Option—Choices and Trade-offs

Author Affiliations
  • 1Department of Health Care Policy, Harvard Medical School, Boston, Massachusetts
  • 2Harvard Business School, Boston, Massachusetts
  • 3Massachusetts General Hospital, Boston
JAMA Health Forum. 2021;2(3):e210305. doi:10.1001/jamahealthforum.2021.0305

Nearly 29 million people in the US lacked health insurance before the COVID-19 pandemic began. Disproportionately, they had lower incomes and were racial/ethnic minority members, socioeconomically disadvantaged, and less healthy than people with insurance.1 Between February and May 2020, 5.4 million more became uninsured because of job losses, the greatest increase in the uninsured rate on record.

Creating a public option—a Medicare-like insurance plan that people can choose alongside other plans—was a centerpiece of President Biden’s campaign platform.2 Compared with Medicare for All, a public option would represent an incremental coverage expansion but has maintained broader public support. During the 2020 campaign, 67% of voters favored a public option, compared with 57% for Medicare for All.3,4 A public option has also been endorsed by the American College of Physicians.5

Despite its popularity, key elements of the public option remain to be defined. Who is eligible, what it covers, and how it pays physicians and hospitals are critical policy choices that will shape its identity and effects on patients and the health care system.

Policy Choices in the Public Option

At its core, a public option is an insurance plan. The term public generally refers to public financing, usually through taxes and premiums determined by the government, akin to the Medicare program. Option refers to the choice that consumers have between selecting this plan or other options, such as private insurance. Because of this choice, the public option may compete for enrollees with private plans or even other public insurance programs, such as Medicaid.

At least 3 fundamental policy choices arise. First, who is eligible to enroll in the public option? Second, what does the public option cover, and how much would consumers pay in premiums and cost sharing? Third, how would physicians and hospitals be paid?

President Biden’s campaign proposed to offer the public option to populations with employer-sponsored insurance, those purchasing insurance on exchanges, adults who are eligible for Medicaid in states that did not expand Medicaid (free of premiums), and those without insurance. Through these rather inclusive criteria, the Biden public option aims to compete with private plans and provide a guaranteed safety net for many individuals who have lower incomes or socioeconomic disadvantages, enabling many US individuals to opt in. For consumers, the key to this choice will revolve around what and how much is covered.

A public option that mirrors traditional Medicare would cover hospital care after a deductible for up to 90 days per year, along with 80% of the cost of most physician services, with patients responsible for the remainder in the absence of supplemental coverage. A public option that mirrors most Medicaid plans, Medicare with supplemental coverage, or a generous private plan (typically from larger employers) would cover a larger share of health care expenditures. In contrast, a less generous public option could cover fewer services or require additional cost sharing.

The public option’s payment model (eg, fee for service, global budgets) and the underlying prices for each unit of service will help determine its support or opposition among physicians and hospitals. Given the higher prices paid by commercial insurers, physicians and hospitals may resist policies that increase public coverage at the expense of private coverage. Biden’s proposal has not yet specified a payment model or prices. If the public option retains a fee-for-service model with prices near Medicare levels and switching from commercial insurers is substantial, hospitals and physicians may respond to the effective fee cut by changing their practice patterns and investments in future capacity to deliver care.6 If the public option relies on global payment models, as in the Medicare Accountable Care Organization programs, the levels of the spending target or budget and financial risk on physician groups may determine their level of support.

Navigating the Trade-offs

How policymakers navigate key policy choices depends, in part, on the goals of the public option. Is the goal to insure those without insurance? Is it to introduce more competition into insurance markets?

A more expansive public option would cost the federal government more but protect more people, including those who have lost employer-sponsored insurance during the pandemic. It would also substantially help state governments, which are experiencing increasing Medicaid enrollment amidst shortfalls in tax revenue from pandemic-associated business closures. Because state governments are unable to maintain budget deficits, a federal public option could directly help states economically as well.

A more targeted public option could focus on improving insurer competition in less competitive markets and cost the federal government less, although more people would likely remain without insurance.1 Such an approach might vary benefit design and payment policy by local market conditions, although traditionally, federal policy has been less nimble at the local level.

A public option has 3 main advantages in competing with private plans. First, with federally administered pricing, it would effectively wield greater bargaining power with hospitals and physicians relative to most private insurers, enabling it to set lower prices and correspondingly lower cost-sharing and premiums to attract enrollees. Second, if the public option is financed through federal deficit spending, it could offer more generous benefits with lower premiums, pushing private insurers to compete on these dimensions. To the extent a public option financed by federal borrowing drives private insurers from the market, it could resemble a step towards a single-payer system, which is more contentious. Third, by conditioning traditional Medicare participation on participation in the public option, a government-run plan could compel physician participation without out-of-network restrictions for consumers.

A public option could also face unique challenges relative to its private counterparts. As a federal program, it may shoulder greater pressure to rein in ballooning deficits, while lacking use management levers that private insurers have. Slowing spending may prove difficult without cuts to benefits or prices, which could threaten access to care, especially among lower-margin rural hospitals and practices. Because of lower prices, physicians and hospitals may be more inclined to accept a patient with private insurance who is on the margin than one with the public option. Ultimately, the ability of a public option to attract enrollees and its sustainability will depend on how policy makers navigate the trade-offs between access to care, equity, and federal spending, which will likely continue beyond the initial implementation.

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Article Information

Corresponding Author: Zirui Song, MD, PhD, Department of Health Care Policy, Harvard Medical School, 180A Longwood Avenue, Boston, MA 02115 (song@hcp.med.harvard.edu).

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Gondi S et al. JAMA Health Forum.

Conflict of Interest Disclosures: Dr Song reported grants from National Institutes of Health and the Laura and John Arnold Foundation outside the submitted work and personal fees from the Research Triangle Institute for work on risk adjustment and the International Foundation of Employee Benefit Plans for a lecture outside of this work and providing consultation in legal cases. No other disclosures were reported.

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