CBO: 'Public Option for Health Insurance in Nongroup Marketplaces – Key Design Considerations & Implications' (Part 2 of 2)

WASHINGTON, April 8 -- The Congressional Budget Office issued the following report on April 7, 2021, entitled "A Public Option for Health Insurance in the Nongroup Marketplaces: Key Design Considerations and Implications":

(Continued from Part 1 of 2)

If some administrative activities were contracted to a private entity and others were handled by a federal agency, it might be difficult to track administrative costs that were dedicated to quality improvement, which would, in turn, make it difficult to correctly calculate the percentage of premiums spent on those expenses for MLR purposes.

An important implementation question policymakers would need to consider is how premiums would be determined in the public option's early years, before the plan accumulated any of the data on claims that would eventually be used to calculate expected medical expenses. In the first years of the marketplaces, insurers underpriced premiums, illustrating the difficulty of projecting the health care costs of a new population./41

Any concern that the public option's premiums might be similarly underpriced in its early years would be lessened if its entry into the nongroup market was not expected to significantly change the overall risk profile of that market. When setting premiums, policymakers could consider an approach that based the public option's premiums on the premiums of private plans in a given rating area, perhaps using the premium of the benchmark plan as a starting point. Such an approach could make the introduction of the public option less disruptive to the marketplaces. If the public option's premiums were based on private plans' premiums rather than the expected costs of the public option, choices about how excess revenues or shortfalls would be treated and whether the public option would conform with MLR requirements would have particular relevance.

Geographic Scope

Policymakers could decide to offer a public option in all geographic markets. Alternatively, they could choose to make the public option available only in those rating areas that have high premiums or that lack sufficient numbers of private insurers. In either case, policymakers would need to specify metrics for triggering the entry of the public option into different rating areas./42

Policymakers would also need to decide if the trigger mechanism would work in both directions: Would the public option exit a market if premiums moderated or additional private insurers entered the market? Or would the public option remain in a market indefinitely once it entered?

Implementing a trigger mechanism, especially a two-way trigger mechanism, would introduce significant challenges. Insurers decide whether to participate in the nongroup marketplaces and set their premiums only months before open enrollment. Using the current year's market conditions to determine whether the public option would enter a market would be administratively simpler than using the conditions anticipated in the upcoming year; but under that approach, the public option would not be as well matched to the plan offerings with which it would actually compete. To reduce the volatility associated with a two-way trigger mechanism, policymakers could base the public option's exit on insurer participation or premiums over multiple years rather than in a single year; they could also make the metric for exiting more stringent than the metric for entering. Similarly, policymakers could specify a minimum number of years that the public option would remain in a market after entering. The degree of administrative complexity associated with a trigger mechanism would depend, in part, on design choices related to other features of the public option. For example, if the public option negotiated provider payment rates and formed provider networks, significant lead time would be necessary for the public option to enter a marketplace.

If a trigger mechanism was used to determine which geographic markets to enter, private insurers might adjust their plan offerings and premiums to prevent the public option from entering a given rating area. The possibility that a public option might enter an area could affect private insurers' negotiations with health care providers by giving the insurers leverage to negotiate lower payment rates--which would allow them to lower premiums--especially if there was a one-way trigger.

If a two-way mechanism was implemented and the public option was not expected to remain in a given rating area, concerns about plan cancellations could discourage enrollment. Enrollees whose public plan was canceled could be automatically enrolled in another plan, or they could be required to make a new plan selection, which would lower the likelihood of their remaining covered./43

Chapter 3: Implications of Key Design Features for Premiums, Coverage, and Federal Outlays and Revenues

The choices that policymakers made about the design of the public option would affect the public option's premiums, private insurers' premiums and their participation in the marketplaces, and health insurance coverage in the United States. Those factors would, in turn, affect federal outlays and revenues.

The Public Option's Premiums

Provider payment rates and prescription drug prices are key determinants of the public option's premiums. The scope of covered benefits, the use of care management strategies, network breadth and access to care, and constraints on providers' billing practices are also important drivers of premiums through their impact on health care utilization. Other major factors affecting the public option's premiums are the health risk of enrollees, the risk-adjustment system, and the administrative costs of operating the plan.

Provider Payment Rates and Prescription Drug Pricing

The federal government could implement the public option in ways that would result in a relatively low premium or in ways that would result in a relatively high premium.

The public option could have relatively low premiums if providers were paid using the Medicare fee-for-service rate schedule and if pharmaceutical prices were set low by statute. Likewise, if the Secretary of Health and Human Services was granted considerable bargaining leverage--the authority to create tiered drug formularies and exclude higher-cost providers from the public option's network, for example--and used it effectively, the public option could negotiate relatively low provider payment rates and prescription drug prices. Tying provider participation to Medicare or Medicaid would increase the ability of the public option to offer relatively low payment rates while maintaining high levels of provider participation./1

If payment rates were negotiated, setting an upper limit on them would make the possibility of the HHS Secretary's walking away from negotiations more credible and could increase the Secretary's leverage. The negotiated payment rates--and thus the public option's premiums--would probably be lower if the upper limit on negotiated payment rates was lower, because prices might ultimately converge around that limit. Even if the HHS Secretary had significant leverage, the outcome of negotiations would still be highly uncertain, because as priorities changed from one Administration to the next, HHS Secretaries might not exercise that leverage to the same degree. By contrast, the public option's premiums would be relatively high if the HHS Secretary negotiated provider payment rates without a source of bargaining leverage and if a pharmacy benefit manager was unable to use restricted formularies and negotiated prescription drug prices under market conditions similar to those facing private insurers.

If, as a new entrant into the marketplaces, the public option had a small market share compared with those of private insurers and the HHS Secretary had no other source of leverage, negotiated rates could be higher than those of the private plans in that marketplace. If provider participation was not tied to Medicare or Medicaid, the public option's ability to form an adequate network would depend on the relative attractiveness of its provider payment rates, and its bargaining position in rate negotiations would thus be undermined. Attracting providers in certain specialties or in rural areas with few providers could be especially difficult./2

Specifications regarding coverage and payment rates for out-of-network care would also affect the HHS Secretary's leverage in negotiations with providers. The exact effect of out-of-network coverage and payment rates on negotiations would depend on the relative market shares of the public option and negotiating provider and on how much volume the provider could expect to attract when out of network. For example, if the public option included expansive out-of-network coverage and limited patients' out-of-pocket costs for such care, providers could remain out of network and still bill at high rates. Because providers would have little incentive to accept low in-network rates, the Secretary's negotiating leverage would be diminished.

Health Care Utilization

Health care utilization depends on the scope of covered benefits, the use of care management tools, network breadth and access to care, and constraints on providers' billing practices.3 If the benefit package of the public option covered a broader set of services or pharmaceuticals than competing private plans, the public option's utilization rate would be higher than that of private plans. Similarly, more generous coverage of and cost sharing for out-of-network care could increase health care utilization, which would tend to increase the public option's premiums. If the public option used fewer care management tools, the volume and intensity of care that patients would demand and that providers would recommend would be higher. If the public option imposed fewer constraints on pharmaceutical utilization, utilization of all drugs--particularly more expensive drugs--would be greater. Likewise, if the public option had a broader provider network and better access to care than private nongroup plans, health care utilization could increase, which would, in turn, push up premiums. Finally, if the public option imposed fewer constraints on providers' billing practices than private nongroup plans, providers might bill for more expensive care or indicate that the services they provide are more complex or intensive than they would if more constraints were in place, resulting in larger payments to providers.

Health Risk and the Risk-Adjustment System

The public option's premiums would depend on the health risk of enrollees, on whether the public option participated in the same risk pool as private insurers in the nongroup market, and on how well the risk-adjustment system controlled for risk selection. The health risk of enrollees would depend on how current nongroup market enrollees sorted themselves between private plans and the public option as well as on the health status of any new enrollees that the public option attracted to the nongroup market. If the public option's premiums were significantly lower than private plans' premiums, the public option could attract healthier people who currently forgo coverage into the nongroup market, causing the aggregate risk score in the market to decrease. If the public option's premiums were somewhat lower than private plans' premiums, the public option would attract relatively healthy people from other plans. In that case, the option's attractiveness to sicker and higher-cost people would depend on how other characteristics of the plan--including its network breadth, benefit package, and care management--compared with those of private plans. If the public option's premiums were higher than private plans' premiums but some of its other features were more attractive than those of other plans, such features would tend to encourage sicker and higher-cost people to enroll.

If the public option shared a risk pool with private insurers and participated in risk-adjustment transfers, the impact of favorable or adverse risk selection on premiums would be lessened but not eliminated, because risk adjustment is imperfect. The link between the health risk of enrollees and the public option's premiums would be significantly stronger if the public option did not share a risk pool with private insurers or participate in risk-adjustment transfers. In that case, if the public option attracted sicker enrollees, its premiums would be higher, and private insurers' premiums lower, than they would be otherwise. Conversely, if the public option attracted healthier enrollees and did not participate in risk adjustment, the public option's premiums would be lower, and private insurers' premiums higher, than they would be without such selection.

Administrative Costs

Depending on the design choices, the public option's administrative costs could be similar to those of private nongroup plans, or they could be substantially lower. If the public option used a single national benefit package and leveraged existing federal administrative activities--for example, by basing payment rates and provider participation on Medicare FFS--administrative costs would be relatively low. (As a share of total spending, administrative costs in the public option would be higher than administrative costs for Medicare FFS, mainly because the economies of scale of the public option would be smaller.) The lack of profit would also push down administrative costs in the public option. If the public option negotiated payment rates, set up provider networks, applied care management techniques, advertised, and paid state insurance taxes and marketplace user fees, its administrative costs could be similar to those of private nongroup plans.

Private Insurers' Premiums and Participation in the Marketplaces

The public option's effects on health insurance coverage and the federal budget would also depend on private insurers' response to the public option's entry into the market, including whether they changed their premiums and whether they continued to participate in the marketplaces or exited them. The effect that introducing a public option would have on the private insurers in a nongroup marketplace would depend on how the public option's premiums and plan characteristics compared with those of private insurers, the amount of competition in the marketplace before the public option's entry, the extent to which the public option affected private insurers' provider payment rates, and the health risk of the people selecting private plans.

Private insurers' decisions to exit or remain in each market would vary depending on the structure of the marketplace and on any competitive advantages the public option might have. Private insurers would remain in a given marketplace if they anticipated that the profits they would earn would justify the costs of remaining. If the public option offered particularly low premiums or other attractive features, some private insurers might exit the nongroup market. The larger the public option's competitive advantages, the more difficult it would be for private insurers to remain profitable. For example, if the public option was not required to conform with state benefit mandates or rating requirements and if it paid providers Medicare rates and required providers participating in other federal programs to join its network, private insurers would have difficulties retaining sufficient market share while keeping their premiums high enough to justify their participating in the marketplaces. Private insurers who remained in the marketplaces might respond to the public option's entry into the market by lowering their premiums or otherwise improving the quality of their plans, though some insurers might face constraints that limited their ability to compete in terms of premiums or quality. The entry of the public option might have a smaller effect on insurers in marketplaces that already have several private insurers competing on premiums and plan quality.

A key driver of how private insurers responded to the entry of the public option would be how the entry of the public option affected private insurers' negotiating dynamics with providers. A public option with in-network and out-of-network rates that were substantially lower than private insurers' in-network rates could put downward pressure on private insurers' negotiated rates. One reason providers might be more willing to agree to lower in-network rates with a private insurer after a public option entered a market is that if they did not, the public option's premiums might be lower than the private plan's, and some of the insurers' enrollees might switch from the private plan to the public option. The provider would then receive the public option's lower payment rate for those enrollees, whereas before the entry of the public option, the enrollees might have switched to another private insurer that also paid rates higher than the public option's rates. That possibility would reduce the provider's leverage in the negotiation, thus decreasing the rate that the provider could command from the private insurer.

Providers might also be willing to agree to lower in-network rates because if the private insurer needed to substantially reduce premiums to attract enough enrollees to remain in the market, it could use that necessity as additional leverage in its negotiations with providers to obtain reduced payment rates./4

Providers might accept lower rates from the private insurer if they concluded that doing so would be preferable to the insurer's leaving the market entirely. Providers are most likely to accept lower rates to prevent private insurers from exiting the market in markets with dominant hospital and physician systems, because an insurer's profitability in such markets can depend on the outcome of negotiations with a single health system. The entry of the public option could, however, have an offsetting effect. The loss of market share to the public option that private insurers would experience could decrease their bargaining power, so some private insurers' provider payment rates and premiums could increase.

Whether the public option attracted sicker enrollees--and the impact that any such health selection had on the private insurers' risk pool--would also affect the premiums of private plans. If the public option did not participate in risk-adjustment transfers and had plan characteristics that attracted sicker enrollees from private plans, the medical costs of private plans would tend to fall as the people in their risk pool became healthier; as a result, private insurers would probably lower their premiums. In addition, if the public option attracted sicker enrollees, in turn lowering private plans' medical costs, the entry of the public option could increase private insurers' profits per enrollee and encourage additional private insurers to enter the marketplace.

If, instead, the public option participated in risk-adjustment transfers, the effect of any health selection on private insurers' premiums would be significantly smaller because private insurers would make risk-adjustment transfers to the public option. If the public option participated in risk-adjustment transfers and it increased the nongroup market's average risk by drawing sicker enrollees into the market, private premiums would increase.

Premium Tax Credits and Net Premiums

Individuals and families who are eligible for a subsidy to purchase health insurance coverage through the marketplaces receive that subsidy in the form of a premium tax credit equal to the difference between the cap on their premium contribution--that is, the maximum amount (calculated as a share of their income) that they are required to pay to purchase the benchmark plan--and the premium of the benchmark plan. Together, the premiums of the public option and of the private plans remaining in a marketplace would determine the benchmark plan, which, in turn, would determine the premium tax credit and net premiums.

The effect that establishing a public option would have on premium tax credits would depend on how the public option's premiums compared with those of private plans as well as on how private insurers responded to the public option's entry into a given marketplace. If the public option entered a marketplace in the silver tier and offered the lowest or second-lowest premiums in that tier, the benchmark premium and subsidy would fall (see Figure 3-1). If the public option entered a marketplace with premiums that were higher than those of the second-lowest-cost silver plan, the subsidy would not change unless competition from the public option or the change in the mix of enrollees' health status caused the lower-premium private insurers to reduce their premiums.

Regardless of whether the public option's premiums were higher or lower than the private plans' premiums in a given marketplace, the net premium of the benchmark plan would remain unchanged for all subsidized individuals except those for whom the benchmark premium was below the cap on their premium contribution. However, if the benchmark premium and subsidy fell but the premiums of private plans did not fall by a corresponding amount, the net premium for plans other than the benchmark plan would increase.

In marketplaces with fewer insurers, where premiums tend to be higher, the public option would be more likely to enter with premiums that were lower than the private plans' premiums, and the benchmark premium would be more likely to fall. Conversely, in marketplaces with more robust competition, the public option would be less likely to enter with the lowest or second-lowest premiums, and even when it did enter with the lowest or second-lowest premiums, the effect on the benchmark premium and subsidy would be smaller.

Content omitted: Figure 3-1. Federal Subsidies and Net Premiums for Health Insurance Purchased in the Nongroup Marketplaces Under Four Different Scenarios for a Public Option

People with income above 400 percent of the FPL are ineligible for subsidies. Consequently, their net premiums do not depend on the benchmark premium; rather, those net premiums equal the premiums of the plan in which they are enrolled. Introducing the public option with premiums below those of private insurers would give people who are ineligible for subsidies access to a lower-cost plan.

Health Insurance Coverage

The effect of the public option on the number of people with health insurance coverage and their sources of coverage would depend on the geographic areas in which the plan was offered, the plan's premiums, its effects on the benchmark premium and tax credits, and how attractive it was compared with private plans. A plan's attractiveness is based on a number of factors, including the plan's net premium, the breadth of its provider network, the degree to which it employs care management tools, and other characteristics. If the public option was offered only in the nongroup market, enrollment in the plan would draw from the existing nongroup market, the uninsured, and those with employment-based insurance, the Congressional Budget Office anticipates. The effect on the total number of people without health insurance would be relatively small.

Effect on the Currently Uninsured Population

Among the currently uninsured population, the greatest potential for coverage gains would be among people who have income above the subsidy eligibility threshold of 400 percent of the FPL and who do not have access to employment-based coverage. In 2019, that group accounted for an estimated 9 percent of the uninsured population, or 2.6 million individuals./5

CBO expects that if the premiums of the public option were significantly lower than those of private plans in a geographic area, some of that group would enroll in the public option. The decision to purchase health insurance depends on the net premium, and because unsubsidized people are not shielded from any portion of premiums, they are especially sensitive to premium changes in the nongroup market./6

As nongroup market premiums have increased over time, the number of unsubsidized people enrolled has fallen, and the number of subsidized people enrolled has remained fairly steady./7

The magnitude of the public option's effect on coverage among that population would depend heavily on the plan's premiums. If the cost of cost-sharing reductions was embedded in the premiums of the public option offered in the marketplaces' silver tier rather than funded through a Congressional appropriation, unsubsidized enrollment would be higher if the public option was also offered outside the marketplaces with a lower premium.

Even if the public option offered lower premiums than private plans, its entry into the nongroup market would have only a limited effect on the coverage rate of people with income less than 400 percent of the FPL who are currently uninsured but eligible for subsidies. In 2019, that group accounted for an estimated 19 percent of the total uninsured population, or 5.5 million individuals./8

The structure of premium tax credits limits the share of income that a person or family must pay in net premiums for the benchmark plan and thus shields the subsidy-eligible population from high premiums (see Figure 3-1)./9

As a result of the subsidy structure, subsidized marketplace enrollment has remained steady, even as premiums have increased over time. Some of the currently uninsured subsidy-eligible population would enroll in the nongroup marketplaces if the net premiums of the plan were substantially lower than those of private plans currently in the marketplaces or if other features of the public option were more attractive than those of private plans.

Among other groups of uninsured people, the entry of a public option into the nongroup marketplaces would have only a small effect on coverage. In 2019, 11 percent of the uninsured population, or 3.2 million people, had income that was too low to qualify for marketplace subsidies and lived in states where Medicaid had not been expanded under the Affordable Care Act. In general, without a change in the eligibility criteria for subsidies, that group would find the public option unaffordable regardless of the plan's design choices./10

About half of the uninsured population in 2019 was eligible for Medicaid or had access to affordable employment-based coverage that made them ineligible for marketplace subsidies. (For a brief discussion of the effects of extending subsidy eligibility to those with offers of affordable employment-based coverage, see Box 3-1.) People who are not lawfully present in the United States--in 2019, an estimated 13 percent of the uninsured population, or 4.0 million individuals--are ineligible for marketplace coverage but could be eligible for nongroup coverage available outside the marketplaces.

If the public option was offered in limited geographic areas and a trigger mechanism was used to determine when it would enter a particular area, the public option's effect on overall coverage would be smaller. Although the public option could have a larger effect on coverage in marketplaces with high premiums or limited competition, the overall impact would be smaller because of the program's narrower scope.

Effect on the Currently Insured

The public option might have a larger effect on sources of coverage for the currently insured than the currently uninsured. If the benchmark premium fell but private premiums did not, subsidized enrollees who remained in their current plan would face a reduction in premium subsidies and an increase in net premiums. Some people would lose their eligibility for a subsidy altogether if the benchmark premium fell below their required premium contribution--an outcome that is more likely to occur among younger enrollees, whose premiums are lower. In that case, the second-lowest-cost silver plan would have a lower net premium, but those enrollees would no longer qualify for a premium tax credit that could be used to purchase other plans, such as a bronze plan or the lowest-cost silver plan. As a consequence, some enrollees might switch to a lower-tier plan, and some enrollees might choose to forgo coverage entirely. If the public option was also introduced in the bronze tier with premiums that were below those of private plans, enrollees who would otherwise forgo coverage might be more likely to remain enrolled. Although such a change is outside the scope of this report, several of the proposals for a public option that have been introduced would increase subsidies, which would offset that dynamic and increase federal spending.

A public option with a broader network and fewer care management tools in place than competing private plans in the nongroup marketplaces could draw enrollees from those plans. Many enrollees in the nongroup market might value plan attributes related to the provider network and care management enough that they would switch to a public option, even if the premium was similar or slightly higher than those of private plans. A plan with a broader provider network and fewer care management tools restricting utilization might also lead some people who currently have nongroup insurance offered outside the marketplaces (and who thus forgo premium tax credits) to enroll in the subsidized public option./11

Some employees, particularly those who pay relatively high premiums for employment-based insurance, might forgo coverage through their employer and enroll in the public option. The magnitude of that effect would depend on how attractive the public option was to employees compared with the health insurance plan their employer offered. Additionally, if the public option was seen as attractive, some employers might forgo offering coverage entirely, thereby further decreasing enrollment in employment-based coverage. That effect might be concentrated among small firms, which have lower offer rates, on average./12

If the public option was available outside the marketplaces, some employers might offer individual coverage health reimbursement arrangements to their employees rather than offering group health insurance or forgoing an offer of coverage altogether.

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Box 3-1. Extending Access to a Subsidized Nongroup Public Option to People With Employer Offers

A provision of the Affordable Care Act (ACA), which is commonly referred to as the employer firewall, does not allow people with offers of affordable health insurance through their employer to access the federal subsidies that are available for plans purchased in the nongroup marketplaces established by the ACA./1 If policymakers wanted to establish a federally administered public health insurance plan (or public option) in the nongroup market and extend access to the marketplace subsidies to those with employment-based coverage, they could remove that firewall.

Alternatively, policymakers could consider making changes to the firewall rather than removing it altogether. For example, the calculation used under current law to determine whether the plan being offered by an employer is affordable is based on the cost of an employee-only plan rather than a family plan./2 That leaves some families ineligible for premium subsidies because the employee's contribution for an employee-only plan does not exceed the affordability standard even though the employee's contribution for a family plan would exceed it. Policymakers could consider various approaches to addressing that issue, including basing the affordability calculation on the contribution for a family plan or extending marketplace subsidies to dependents of people with an offer of employee-only coverage that was affordable but an offer of family coverage that was not./3

In the Congressional Budget Office's assessment, removing the affordability firewall would lead to an increase in the number of people enrolled in subsidized marketplace plans, thereby driving up the costs of premium tax credits, which in turn would increase costs to the federal government. Even without a public option, removing the firewall would significantly increase the number of people eligible for nongroup subsidies. CBO estimated that about one-quarter of the 151 million people projected to have employment-based coverage in 2021 would become eligible for nongroup subsidies if the firewall was removed./4 Moreover, in 2019, 31 percent of uninsured people were eligible for subsidized employment-based coverage, and most of those people had employer offers that were affordable according to current standards./5 If the firewall was removed, some of the people who were made eligible for subsidized marketplace coverage would choose such coverage over employment-based coverage or going uninsured. The number of people who made that choice would depend on several factors, including the subsidized plan's cost sharing, scope of benefits, provider networks, and ease of enrollment. Maintaining the firewall but changing the affordability standard for family plans would result in a much smaller change in eligibility for subsidies in the nongroup market.

1. The ACA established marketplaces through which people could purchase subsidized insurance in the nongroup market. The nongroup market is the private market in which individuals and families purchase health insurance directly from an insurer, rather than obtaining it through an employer.

2. See HealthCare.gov, "Affordable Coverage" (accessed February 19, 2021), www.healthcare.gov/glossary/affordable-coverage/.

3. For example, the Patient Protection and Affordable Care Enhancement Act (H.R. 1425, 116th Cong.) proposes addressing this issue--often referred to as the family glitch--by basing the affordability calculation on the contribution for a family plan.

4. CBO based this estimate on subsidy eligibility rules in existence before enactment of the American Rescue Plan Act of 2021 (Public Law 117-2). For more information, see Congressional Budget Office, Answers to Questions for the Record Following a Hearing Conducted by the Senate Committee on the Budget on CBO's Budget Projections (December 2020), pp. 3-5, www.cbo.gov/publication/56908.

5. See Congressional Budget Office, Who Went Without Health Insurance in 2019, and Why? (September 2020), www.cbo.gov/publication/56504.

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Federal Outlays and Revenues

The effect that the establishment of a nongroup public option would have on federal spending and revenues would depend primarily on how it affected the premiums of the benchmark plan and on the number of people who were eligible for subsidies who ultimately purchased insurance through the marketplaces. If the entry of the public option into a marketplace lowered the benchmark premium, the average size of the premium tax credit would decrease, resulting in federal savings for existing enrollees. The effect on the number of subsidized enrollees is ambiguous but most likely would be small. The public option could increase federal costs by increasing enrollment among three main groups of people who would be eligible for subsidies:

* People who would otherwise have been uninsured,

* People who became eligible for subsidies because their employer dropped their offer of coverage after the public option entered the market, and

* People who would have enrolled in a nongroup plan outside the marketplaces despite being eligible for subsidized coverage.

That increase in subsidized enrollment would be offset by decreases in subsidized enrollment among people who became uninsured because the net premium for the private plan they were enrolled in increased and among people who became ineligible for subsidies because the premium of the benchmark plan fell below their required premium contribution.

In addition, the public option might slightly increase federal tax revenues collected from people whose employers stopped offering coverage. Premiums paid by employers and most employees are excluded from taxable compensation, and employers that dropped health insurance offers are expected to shift the savings associated with not offering health insurance into taxable wages and other benefits./13

If it offered a public option, the federal government would incur many start-up and administrative costs associated with operating the program. The budgetary effect of those expenses would depend on what portion of ongoing administrative costs was covered by premiums and what portion was funded through annual appropriations. It would also depend on whether those costs were to be repaid over time.

The budgetary effects of establishing a public option would depend on other design choices as well. If the public option was offered only in certain less-competitive markets rather than nationwide, the total effect on federal outlays and revenues would be smaller.

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About This Document

The Congressional Budget Office prepared this report at the request of the Chairman of the House Budget Committee. In keeping with CBO's mandate to provide objective, impartial analysis, the report makes no recommendations.

Caroline Hanson, Grace Hwang, and Rebecca Sachs wrote the report, with guidance from Chapin White. Christopher Adams, Alice Burns, Chad Chirico, Zhuang Hao, Tamara Hayford, Evan Herrnstadt, Sean Lyons, Sarah Masi, Alexandra Minicozzi, Lyle Nelson, Daria Pelech, Julie Topoleski, and Emily Vreeland provided comments. Christian Henry and Scott Laughery fact-checked the report.

James C. Capretta of American Enterprise Institute, Christine Eibner of RAND Corporation, Matthew Fiedler of the Brookings Institution, John Holahan of the Urban Institute, Chris Pope of the Manhattan Institute, and Cori Uccello of the American Academy of Actuaries also provided helpful comments. The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.

Mark Doms and Jeffrey Kling reviewed the report. The editors were Bo Peery and Loretta Lettner, and the graphics editor was R. L. Rebach. This report is available on CBO's website (www.cbo.gov/publication/57020).

CBO continually seeks feedback to make its work as useful as possible. Please send any comments to [email protected].

Phillip L. Swagel, Director, April 2021