In a step to help more Americans get health insurance, President Biden signed an executive order creating an additional opportunity for Americans to sign up for subsidized coverage on the health insurance marketplaces created by the Affordable Care Act.
But Biden has his eyes set on something bigger to fulfill his goals of expanding health coverage: creating a public option to compete with private insurance.
Under a public option, the federal government would administer an insurance plan that competes with private insurance. It would collect premiums from enrollees and directly reimburse doctors, nurses, and other clinicians for the care they provide.
Supporters of such a government-run plan argue that it will expand health insurance coverage while delivering lower premiums and reducing federal deficits.
But there is a problem: The public option would actually increase long-term federal deficits, especially during times of economic strain, much like the one being caused by the Covid-19 pandemic.
Basic assumptions about the long-term costs of a public option are flawed. Research we have done shows that a public option will mean soaring deficits and debts because politicians in Washington will eventually succumb to political pressure both to subsidize enrollee premiums and to pay doctors and hospitals closer to what they are paid by private insurance rather than by existing government programs like Medicare and Medicaid. According to our calculations, the public option would add $800 billion to deficits in the first 10 years and increase the federal debt by more than 30% of the gross domestic product by 2050 — the equivalent of $6 trillion in today’s economy.
The effects on the budget are even worse when the economy suffers or if health costs unexpectedly rise. How much worse? With support from the Partnership for America’s Health Care Future — a coalition of leading health care providers, insurers, biopharmaceutical companies and employers that oppose one-size-fits-all health care — we looked at a few ways policymakers might adjust the public option to respond to future economic shocks and the impact these changes would have on long-term deficits and debt.
First, if a public option was open to all Americans, its promise of cheap premiums would make it the largest government program in terms of enrollment. We estimate that more than 100 million Americans would enroll. Under current public option proposals, the government would be required to raise premiums annually on all enrollees. Congress is unlikely to allow premium hikes to occur during recessions or times of economic strain. We estimated that if Congress chose to suspend premium increases during subsequent recessions, the long-term federal debt would grow by more than $1.4 trillion adjusted for inflation by 2050 — and that is before accounting for other potential program liberalizations.
Second, unlike federal transfer programs such as Social Security, public option enrollees or their employers would generally have to write checks to the federal government, not the other way around. The federal government would be required to kick enrollees who lost their jobs off their insurance — unless Congress decided to give unemployed enrollees a reprieve.
There would be precedent for such action. During the 2007 recession, the federal government subsidized unemployed workers’ health premiums for COBRA continuation coverage so they could stay on their prior employers’ plans. Last year, during the Covid-19 crisis, some lawmakers proposed paying 100% of COBRA premiums for individuals who lost their jobs during the pandemic.
If Congress follows these precedents and allows unemployed individuals to stay on the public option for the first six months after they are laid off, that would add an extra $132 billion to 10-year deficits and increase the 2050 debt by an inflation-adjusted $800 billion.
And that’s nothing compared to how expensive a public option would be if health care costs grow unexpectedly, as they have in the past. In such an event, the government would have few good options. It might allow premiums to rise or cut provider reimbursement rates. But the more politically realistic outcome is obvious: Congress would forget about the promises made by today’s public option proponents and move to subsidize the program, ultimately adding trillions of dollars in federal debt.
If Congress limited premium growth to inflation and health care costs grew at their historical average, the long-term federal debt would grow by an inflation-adjusted $17.5 trillion dollars with more than half of all Americans enrolling in the heavily subsidized program. Or politicians could bite the bullet and pay for the higher costs with a broad-based payroll tax that would cost the typical American family an extra $4,150 per year in inflation-adjusted dollars.
Biden may be tempted to use the budget reconciliation process — a legislative maneuver that allows certain revenue and spending proposals to pass the Senate with a simple majority vote — to pass a public option. In fact, advocates called for doing just that during the debate over the ACA in 2010. These efforts were ultimately rebuffed by the Obama administration, which saw the public option as too controversial.
Democrats aren’t the only ones who have looked to reconciliation to pass their health policy priorities with a narrow, partisan majority. In 2017, Republicans considered using reconciliation to repeal and replace the Affordable Care Act. These efforts failed as moderates in both parties concluded that reconciliation was a poor legislative vehicle for dramatic changes to the nation’s health care system.
The reconciliation process requires that any permanent spending increase be matched with permanently higher taxes or other deficit-reducing policies. With a razor-thin majority, Democrats are poised to use the public option, which government scorekeepers have traditionally seen as deficit-reducing, to help offset their long-term spending proposals. But our research makes clear that the public option only increases deficits over time.
Supporters insist that the public option’s self-financing rules ensure that it won’t become a costly government program. But at the end of the day, its design makes liberalizations inevitable. When recessions or economic shocks occur, any limits that Congress may have placed on these programs are quickly abandoned. The public option would become yet another expensive line item on the federal budget — one that bears little resemblance to the proposal its supporters claim to want.
Lanhee J. Chen is a research fellow at the Hoover Institution, where Tom Church and Daniel L. Heil are policy fellows.
Disingenuous pap. Looks like DC elites are all now propping up the strawman of a public option for defeat, when the obvious solution that every other advanced nation arrived at decades ago: single-payer. Per Buffett, “medical costs are the tapeworm of American economic competitiveness” and the lowest-cost program by far is single-payer. But it’s a nice trick to shift the focus to the public option…
…Authors: Everyone is hip to this thinktank dreck by now, right? Who do you think you’re fooling? How much are you paid for this, and to what end – so that you can pay for “good schools” that will train your children to grow up to be credential-class, bald-faced industry shills like their parents? What a waste of what are likely fine minds. What a waste of these lives you’ve been given.
Check out his wikipedia page, the guy is 42 and the page is as long as someone who’s actually done something useful, versus a list of credentials:
And STAT, er, Boston Globe, would this get published in a legit newspaper? Why is STAT always bending over backwards to accommodate paid-placement drivel?
Can’t wait for the “analysis” from the American Enterprise Institute or Cato.
You’re absolutely right that a public option would be costly.
That’s exactly why the right solution is universal single-payer healthcare
I see some folks may think this is conservative propaganda. Name me one federal program that came in on budget / whose cost was not seriously underestimated? I also remember a president who said we could keep our doctor and our premiums would go down. BOTH WERE OUTRIGHT LIES. This article makes more sense than what comes out of the mouths of politicians.
I do have a friend who lives in Australia which has a national health care program. She loves it because it is all she has ever known. She does have a serious medical condition and because of the program her out of pocket expenses have been minimal. BUT…She has to kick and fight for everything. Example? Despite being in a wheel chair she had to fight for MONTHS to get approval to install a ramp so she could enter and exit her home. That would have been easily handled here. She had similar problems obtaining even the wheelchair itself. Tests can also take much longer to be approved and then completed. To summarize….Yes, she thinks it is great and from her cost perspective it is. From the perspective of a healthy person that may or may not be true. What IS true is that getting things handled…Even common sense items that would be for the most part easily handled by our private system are NOT easily handled by her government run system.
C’mon man. Hoover Institution? Knock it off with the wingnut welfare circuit posing as serious argument. Where’s the Rush Limbaugh op-ed?
What a load of b.s.
Guess it shouldn’t be a surprise given excrement is all that ever comes out of these right wing “think tanks.”
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