What is a public option?
A public option refers to a health insurance coverage program run by the state or federal government (although they can be administered by a private entity or private insurance company) and made available as an option alongside the existing private health insurance plans.
Public options are still mostly theoretical in the United States, although Washington State debuted a quazi-public option program in the fall of 2020, and Colorado has a quazi-public option program (the Colorado Option) that became available for purchase in the fall of 2022. Nevada has begun the process of creating a public option program with plans that will be available for purchase in the fall of 2025.
Does the ACA include a public option?
The Affordable Care Act legislation initially included a nationwide public option. But it was eliminated from the final bill amid opposition from Republicans and moderate Democrats, and also in an effort to win support from Sen. Joe Lieberman.
How would a public option work?
In the ensuing years, various public option proposals have been put forth by states and by federal lawmakers. Varying approaches to a public option were supported by several of the candidates who ran for the 2020 Democratic presidential nomination. The platform of then-candidate Joe Biden, who won the 2020 election, incorporated a proposal for a widely available public option that would be similar to Medicare but available for purchase by any American.
(Congress had a slim Democratic majority in 2021 and 2022, and the idea of a federally-run public option was considered. But the Biden administration and Congressional Democrats mostly focused on the American Rescue Plan’s temporary subsidy enhancements, which are driving record-high enrollment in the health insurance marketplace, and record-low after-subsidy premiums. And they successfully extended those subsidy enhancements through 2025 with the Inflation Reduction Act.)
Public option concepts run the gamut from a strictly government-run and administered program, to Medicaid buy-in (which would generally incorporate private insurers that have Medicaid managed care contracts), to a quasi public-private program in which the government sets some or all of the parameters and reimbursement rates, and contracts with private insurers to offer the coverage. Thus far, that third option has been the one that a few states have opted to pursue:
- Washington state rolled out the nation’s first public option in the fall of 2020. The plans, known as Cascade Care, are offered by private health insurers, with provider reimbursements capped at 160% of what Medicare pays.
- Colorado regulators and lawmakers spent much of 2019 working on a public option proposal that they hoped to make available by the fall of 2021. But the legislation to create the program was abandoned in May 2020 as a result of the COVID-19 pandemic. Lawmakers in Colorado revived the bill in 2021, and it was ultimately signed into law in June 2021. The plans, called the Colorado Option, became available in the fall of 2022 (for 2023 coverage). But due to amendments made during the legislative process, the program is essentially just standardized plans, offered by private health insurance companies, with premium reduction targets.
- Nevada also enacted legislation in 2021 that will create a public option program, although the plans won’t be available for purchase until the fall of 2025, for coverage effective in 2026.
Public option proposals often face an uphill battle to gain support and buy-in from private health insurers and hospital associations. Since the public option concept is based on a foundation of lower reimbursement rates for medical providers, hospitals and other providers worry that the plans will result in reduced revenue. And since the whole idea is to be able to offer health coverage with lower premiums, private insurers worry about the added competition.
In the three states where legislation has been enacted to create a “public option” program, substantial concessions have been made in the face of staunch hospital and insurer opposition to the idea of a true public option program.
Policymakers also have to be aware of the catch-22 that goes along with the introduction of a lower-cost health plan: If it takes over the benchmark spot in a given area, premium subsidies will drop for everyone in that area. That can result in higher after-subsidy premiums for people who enroll in any of the other available health plans.
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