Issue Brief: Public Plan – The Eye of the Storm  

The issue of whether to include a public health insurance option in health care reform legislation has emerged as one of the most contentious topics in the current debate about how to make affordable high-quality health insurance available to all. Proponents say that a public plan could provide a more affordable option because it would have lower administrative expenses and no profit motive. Opponents say that private plans would not be able to compete with these government-supported plans, leading to an expanded government role in health care and—eventually—to a single government payer. As the public plan debate takes shape, the emerging questions seem to be how a public plan would be designed and operated and whether it is necessary to provide a public plan choice.  

What Would a Public Option Look Like?  

There has been much talk about public plans but few details about how they would operate. Currently, there are several different kinds of public plans at the state, federal, and local level, including Medicare, Medicaid, and the State Children's Health Insurance Program. Under some proposals, eligibility criteria for these programs would be modified to cover a greater number of individuals. Under an alternative or additional approach, which has recently gained considerable popularity, a public plan option would function like a private insurance plan. Under this approach, a public plan would be offered as an alternative to private insurance and give all consumers another option for coverage.  

Several administrative structures have been proposed for a public plan option to compete directly with private insurance plans. The leading proposals appear to be:  

  • Medicare-Based Public Health Insurance Option. Under this option a public health insurance option would be offered through a health insurance exchange and would be subject to the same rules as private insurers. The program would be administered from within the Department of Health and Human Services (HHS) and would initially use the Medicare provider network and Medicare payment rates increased by five percent.1  
  • Community Health Insurance Option. Under this option a public health insurance option would be made available along with private insurance plans through a “gateway,” a mechanism that will facilitate the purchase of health insurance coverage and related insurance products. The program would be administered by HHS, which will negotiate rates and premiums.2
  • Consumer Health Cooperative Option. Under this option, consumer owned and oriented plans would fill the role suggested for the public plan. These plans would be established as non-profit mutual insurers governed by consumers and eligible for federal start-up capital grants and federal loans for planning and operating costs.3  
  • State-Run Public Options. Under another option, a public health insurance option could be developed to function similarly to state employee plans. Individual states could have primary financial and administration responsibility under this proposed structure.4  

Is a Public Health Insurance Option Necessary?  

Public opinion polls indicate that many consumers support a public option. Public support seems to reflect a belief that the current insurance market is not functioning properly. It is unclear whether proposed federal regulations governing health insurance, along with federal subsidies for premiums, would obviate the perceived need for a public plan.  

Political support and opposition for a public plan is largely split along party lines, with many Democrats generally in favor of some form of public plan and most Republicans opposed. However, even within the Democratic Party, there are differences of opinion regarding how a public plan should be structured. In hopes of obtaining bipartisan support, some have suggested introducing a public plan option only if private insurance companies do not provide meaningful, affordable coverage to all Americans within a specified time frame.  

Current Outlook  

As Congress enters its Independence Day recess, there is still a lack of agreement on if and how to include a public health insurance option in health care reform legislation. Although at the current moment there is increasing public sentiment for a public health insurance option, the idea of a public option still remains extremely controversial. Congressional Republicans continue to assert their opposition to a public option. And recent comments by President Obama and other Democrats are being interpreted by many to suggest that the President and other Democrats would not necessarily be opposed to signing a health care reform bill if it did not include a public plan. However, liberal House and Senate Democrats have become quite vocal in their support for a public option and have indicated that they will not approve a health care reform bill unless it includes a public option. In the most recent version of Senate Health, Education, Labor and Pensions (HELP) Committee legislation, competition from the public plan is the primary mechanism for controlling insurance costs.

The next few months are expected to be a busy time for health care reform, particularly the determination of whether a public plan will be included in health care reform legislation. The Senate Finance Committee is expected to release a version of a bill in the coming weeks; the HELP Committee has just released additional details of its proposed public plan option; and former Senate majority leaders recently suggested a “triggered” public plan option. With House and Senate leaders indicating that they would like to pass a health care reform bill prior to the congressional recess in August, there is likely to be intense debate within Congress regarding a public health insurance option in an effort to find common ground among the various stakeholders.