Last week, Bill Wynne and I published a short piece at the Health Affairs blog on design considerations for a proposed public option. There are lots of details to be concerned about but only a few major take-aways:
- Policy makers must be aware of the actual problems that they are trying to solve
- Subsidized buyers care about price spreads
- Non-subsidized buyers care about price levels
The Colorado public option plan could have a single public option that is priced significantly below local competitors, or there could be multiple public option plans administered by different insurers that are all priced similarly but all are below the local, current competitors. This choice is critical.
Here is how we describe the Colorado market with a single public option. As context, Colorado has a “converged” market where there are multiple insurers with their cheapest silver plans all sort of close to each other in premium. There are, currently, small spreads between the cheapest silver plan and the benchmark:
The public option plan would provide a new low-cost option. Meanwhile, the original lowest-cost silver plan would become the new second-lowest cost (that is, benchmark) silver plan. Since the new benchmark plan’s premium would be similar to that of the previous benchmark plan, the differences between required personal contributions and premium—and thus APTC amounts—would remain similar. Subsidized buyers would thus retain their purchasing power and, given the large spread between the benchmark premium and the new public option plan premium, gain a new low-cost option.
A single plan that is significantly cheaper than all other silver plans would improve affordability for the most price sensitive subsidized buyers by increasing the silver spread between the new benchmark (previously the cheapest silver plan) and the public option compared to the narrow spread between the new benchmark and the old benchmark plan. At the same time, non-subsidized buyers see a cheaper option as well, so they are better off. People who want to buy plans that are priced over the benchmark are slightly worse off as the benchmark is now lower so their monthly net premiums will have increased.
Now the equation changes when there is a converged market with multiple new public options that are all tightly clustered:
Multiple public option plans recreate the tight clustering of premiums, just at a lower premium level. This would be attractive to non-subsidized buyers but would do little to improve, and might in fact decrease, the subsidized consumer’s buying power, while putting the price of existing non-public option plans out of reach.
Lowering premium levels is a great thing for non-subsidized buyers. It crushes the subsidized as the cheapest plans (usually Bronze) are now more expensive net of subsidy than they were before multiple public option silver plans are introduced. Multiple public option silvers that are all priced significantly below the current benchmark resets the benchmark. Silver buyers who want inexpensive CSR benefits most likely won’t see much of a change but everyone else who gets a premium tax credit subsidy will be paying more.
These are the intricacies of the ACA subsidy structure that should be driving policy choices. A public option is not a panacea. Instead, it is a tool that tilts the pricing table in a certain direction for a couple of years until the private options either converge in pricing to the public option or offers a superior value on a non-price axis to hold membership. State policy makers need to know who they are trying to help and what problem they are trying to solve as they vote for a public option concept; if the thinking is muddled or contradictory, weird and unintended results are highly likely to occur.
How is this as a change in writing formats?
I like it, it’s straight forward. This subject matter is still difficult for some of us who have been reading your posts since you came on to BJ. This post seems to get to the nubs of the issues without too much confusing details. I could follow it and understand the conclusions.
Is there any link between the cost structure of these plans and overall price reduction of service? For the legislator, is this simply a decision between helping the subsidized vs the non-subsidized? At what point do either of these models actually affect the costs of providing care? Is there a model design that can put a parachute on the rising costs of delivering care? Or is your post speaking fundamentally to the insurance premium costs?
@Eric Chapman: Good set of questions. Let me work backwards.
I assume that claims costs are highly correlated over the long run with premiums. So lower premiums for a given population will mean lower claims costs over time. The mechanism of change to lower premiums under public options schemes is to use the purchasing power of a major buyer (state government) to get one hell of a discount on what they pay doctors/hospitals/pharma compared to what private insurers typically pay. This works in Medicaid where lower prices paid leads to lower premiums AND narrower networks with lower appointment availabilithy as nothing is trade-off free.
From here, then figuring out who should be the recipient of state policy attention is a political/moral question that has significant technocratic i\nput.
@David Anderson: I understand that the public option works to limit costs based on imposing Medicaid/Medicare discounts on providers. I also believe that, based on your writing, you are conservative in regards to fully implementing a Medicare For All plan. Is there a way, in your estimation, to use pricing policy to slow cost-of-care increases?
Your assumption is that claims costs are highly correlated with premiums over the long run. I understand that if costs stay flat, premiums will also be flat. But I don’t see how premium pricing alone can work as a deterrent to cost increases. I believe the ACA chickened out when it came to keeping medical increases in check. Your response suggests that a large, broad public option could achieve that by using purchasing power. But you are reluctant to see that strategy pursued. So what is the alternative?
I guess I am missing out on the answer to this question: if you take Medicaid for All off the table, where is the mechanism to control costs?