A divided Congress has prevented "Medicare for All" from taking off. So progressive activists have turned their attention to the states. Several have launched "public options," health plans chartered by the state to compete against private insurers.
The results have not been impressive. People are not opting for public option plans, so state governments are beginning to rig insurance markets in their favor. Such intervention reveals that state officials intend for their public options to eventually become the only option for health insurance — at great cost to taxpayers and patients.
Washington and Colorado were among the earliest states to launch public option plans. They encountered roadblocks from the get-go. Washington's plan, Cascade Select, had fewer than 800 individuals sign up during its first year.
In its second year, Cascade Select attracted 6,335 enrollees — just 3% of all exchange enrollees in Washington. Though they were promised low prices, participants have faced monthly premiums of over $400 — almost 30% higher than private insurance premiums in some parts of the state.
Washington's public option initially struggled to gain traction because providers balked at joining its network. That's because the public plan pays providers no more than 160% of Medicare's rates. Private plans pay an average of 174% of Medicare's rates. In 2021, public option plans were only available in 19 of the state's 39 counties; a year later, that number was up to 25 of 39.
State officials were unsatisfied with these marks. So they started threatening providers and throwing taxpayer money at the problem. Hospitals are now required to accept at least one public option plan. The state also provides additional premium subsidies on top of those from the federal government for people making less than 250% of the federal poverty level — $75,000 for a family of four.
These state-enforced advantages have helped Cascade Select. Public plans are available in 34 of 39 counties, and 27,000 people have signed up — about 11% of exchange enrollees. But despite all this state backing, public plans are still not the lowest-cost option in nine counties where they're available.
More state aid may be coming Cascade Select's way. Some policymakers are floating lower reimbursement rates for providers to try to reduce premiums further. Given the requirement to participate, they may just have to take what the government gives them.
Colorado has also failed to meet expectations. Only 25,000 of the state's 5.8 million residents were enrolled in public option plans this year. And just one insurer will be able to meet the requirement that they reduce premiums 10% next year, relative to 2021 levels.
State officials and consumer advocates are hinting that more price caps may be coming for public option plans. Those may be politically popular. But they risk driving insurers out of the state's market.
Public-option enthusiasts in other states are ignoring Washington's and Colorado's cautionary tales — and forging ahead with doomed public plans of their own.
Nevada will just force hospitals and insurers to participate in their public option program, which starts in 2026. In Minnesota, legislators are considering letting people "buy in" to the state's Medicaid program. New Mexico is exploring something similar. Given that Medicaid pays providers much less than private plans do, this idea is a recipe for higher premiums in the private market.
Lawmakers in Connecticut are struggling with the failure of the Connecticut Partnership Plan, a public option that allowed municipal workers to join the health plan available to state employees. CPP ended fiscal 2022 with a shortfall of more than $54 million — not exactly an advertisement for putting the state in charge of yet more people's health insurance.
Two professors at the University of California, Berkeley, have been stumping for a new public option they call "Golden Choice." Healthcare providers would accept some level of risk for the costs associated with treating a group of patients. In exchange, they would receive a risk-adjusted monthly payment for each enrollee.
The professors claim the new offering would yield lower costs for patients and save the healthcare system hundreds of millions of dollars per year.
This model, of course, incentivizes providers to skimp on care. After all, the less they do for patients, the more of the monthly payments they keep as profits. Patients won't like that trade-off.
States appear willing to ruin their insurance markets in order to keep their public options from failing. In this way, a public option represents a stepping-stone approach to single-payer health care, where the government is the only provider.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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