One key part of Democratic presidential candidate Joe Biden’s health care plan is the establishment of a public option, a proposal to create a government-run health insurance agency that would compete with other private health insurance companies.
Biden’s campaign website states that people covered under an employer-sponsored health plan would be able to choose the public option “if they could get a better deal.” But, for an employee, how would the public option compare with the typical workplace plan? Mercer took a closer look in a blog post released this week.
The details make the difference, according to Mason Shea, actuary with Mercer Health and Benefits, and Tracy Watts, Mercer senior partner for U.S. health policy. But there are not many details to work with right now, they added.
Biden’s website said his public option plan would be “similar to Medicare.” But Shea and Watts said the “big question” is how is it similar to Medicare – coverage levels, cost or both?
Medicare is able to provide a relatively high level of coverage at a relatively low cost, Shea and Watts said, because Medicare uses its leverage to reimburse providers at lower rates than private health plans do. If a public option plan would be as attractive to workers as their employer-sponsored coverage, it would likely have to reimburse providers at rates similar to Medicare.
Tied To Medicare Participation?
The Urban Institute and RAND made that same assumption in separate analyses they compiled on the public option. However their analyses included some important differences. One assumed the government would essentially force providers to participate in the public option by tying it to Medicare participation.
The other assumed that public option plans would use narrow networks of providers willing to accept lower rates – similar to the narrow network plans seen on the public exchange – which would make the option less attractive to consumers.
Shea and Watts also asked how much less you would have to pay providers to make a public option plan competitive with employer plans. By moving all the way to Medicare rates, they said, average inpatient prices would be cut by almost 60%, and physician prices by 16%.
If the public option also benefited from prescription drug payment reforms that Biden is proposing for Medicare, premiums could be as much as 30% lower than premiums for plans currently offered on the public exchange.
Since we don’t now anything about what the public option would look like right now, Shea and Watts decided to focus on premium. They said tax credits would need to be greatly expanded for most people in employer-sponsored insurance to be eligible for public option plans.
Although Biden’s plans to expand on the Affordable Care Act call for expansion of the tax credits that help pay for premiums, it’s not certain whether the same provisions would apply to the public option.
A Mercer survey of employer-sponsored health plans revealed the average salary among large employers (500 or more employees) is $71,000 – well above 400% of the federal poverty limit. Given that these employers pick up on average about 80% of the cost of individual coverage and about 70% of the cost of dependent coverage, Shea and Watts said it seems unlikely (based on what we know now) that many employees working for large organizations would choose a public option.
Small employers tend to require higher contributions, particularly for dependent coverage, which, in conjunction with lower salaries (on average about $54,000) could make the public option a better deal for some employees, Shea and Watts said, but added they would need more information to say for sure.
If a public plan achieves lower premiums and allows for an employer buy-in, Shea and Watts said a wave of employers could choose this option. That would likely create upward pressure on commercial prices – similar to that currently resulting from Medicare’s lower reimbursement rates -- which over time would lead more employers to take the buy-in option, adding still more pressure on commercial prices, and so on.
This scenario could have long-term implications for employer-sponsored insurance, Shea and Watts said.
“It’s important to keep in mind that as we move from rhetoric to reform, there are major hurdles to overcome, including adding critical details to the plan, winning the necessary legislative support, and tackling pushback from industry stakeholders invested in the status quo,” Shea and Watts said.
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.
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