Public Health Insurance Option Could Cut Costs, Boost Financial Assistance

A new bill from Senators Michael Bennet and Tim Kaine would leverage Medicare’s provider network and payment rates to create a lower-cost public health insurance plan (i.e., a “public option”) in the individual and small-group markets, and use the resulting federal savings to expand premium tax credits to help people afford coverage in the Affordable Care Act (ACA) marketplaces. Called the Medicare-X Choice Act, the bill shows how coupling a public plan with improvements in premium tax credits can reduce health care costs, increase plan choices, and make coverage more affordable for low- and middle-income people.

The public plan, “Medicare-X,” would be available starting in 2021 in areas with limited plan competition or provider shortages and nationwide in the individual market by 2024 and in the small-group market by 2025. The plan would meet ACA standards for individual market plans, including covering essential health benefits and capping enrollees’ out-of-pocket costs.

Medicare-X plans would be available in at least the silver and gold coverage tiers (where deductibles average about $4,000 and $1,500, respectively). Enrollee eligibility for premium tax credits and cost-sharing assistance would be the same under Medicare-X plans as under other marketplace plans. The Department of Health and Human Services (HHS) or an HHS contractor would administer the plan and set the premiums at the plan’s actuarial cost.

Because its payment rates would be tied to Medicare’s, Medicare-X would likely lower sticker price premiums by exerting competitive pressure on inflated prices, especially in areas dominated by a single insurer or with few hospitals or other providers. While most individual market consumers wouldn’t benefit from these lower prices directly, they would benefit from other features of the legislation.

Here’s why. Most consumers buying ACA individual market plans qualify for premium tax credits: they pay a specified share of their income toward benchmark health coverage, and premium tax credits adjust as needed to cover the rest of the sticker price for the premiums. This protects consumers from the high premiums that inflated provider charges or limited insurance competition can produce.

It also means that consumers don’t benefit when sticker price premiums fall; instead, if the public option lowers sticker price premiums, federal spending on the premium tax credits declines. The Bennet-Kaine bill reinvests those federal savings, using them to improve the premium tax credits. The bill would reduce the share of income that eligible people must pay toward premiums and extend the premium tax credits to more middle-class families (i.e., to people above 400 percent of the poverty line) who are struggling with high health costs in the individual and small-group markets.

Improving affordability is key to increasing coverage. Uninsured people at all income levels consistently cite cost as the greatest barrier to coverage. The bill would make up to 12 million uninsured people newly eligible for marketplace subsidies or eligible for larger subsidies, while lowering premiums for at least 13 million people who already have coverage. For example:

• A family of four with income of $75,000 (300 percent of the poverty line) would see its premium for benchmark coverage fall by more than $600 a year.
• A family of four with income of $101,000 (just above the current income cutoff for premium tax credits) would see its premium cut in half. Marketplace benchmark coverage costs an average of $18,352 for a typical family of four, or 18.17 percent of income for a family earning $101,000; under Bennet-Kaine, the family would become eligible for premium tax credits, limiting their cost to 9 percent of their income.

The Medicare-X Choice Act is only one of several federal proposals to create a public option by building on Medicare or Medicaid, and to strengthen financial assistance so that both the public plan and other coverage options become more affordable. Senator Ben Cardin’s bill, for example, would create a public option, expand subsidies to people with income up to 600 percent of the poverty line, and protect enrollees from owing large repayments if their annual income unexpectedly exceeds their earlier estimate. In the last Congress, Senators Jeff Merkley and Chris Murphy introduced legislation to establish a Medicare-based public plan and reduce marketplace premiums and cost-sharing by improving financial assistance. Reps. Rosa DeLauro and Jan Schakowsky have offered legislation to allow anyone to enroll in a Medicare-like plan or keep their current coverage (if from a large employer); low-income people would pay no premium and others would pay based on a sliding scale, with subsidies available to people up to 600 percent of the poverty line.

States have also shown an interest in expanding options and reducing costs through a public plan. Lawmakers in 12 states have introduced bills this year to study or create a Medicaid buy-in option. Meanwhile, several states provide or are considering providing additional financial assistance to marketplace consumers.