There is growing interest in a "public option" for individual market insurance to improve affordability and enrollment. The authors consider four public option alternatives that vary based on the rates providers are paid, whether the option is implemented on or off Health Insurance Marketplaces, and whether premium tax credits are available to higher-income individuals.

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Public Options for Individual Health Insurance

Assessing the Effects of Four Public Option Alternatives

by Jodi L. Liu, Asa Wilks, Sarah A. Nowak, Preethi Rao, Christine Eibner

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Research Question

  1. How might the addition of a federal public option for individual market insurance affect overall insurance coverage, individual market enrollment, premiums for individual market enrollees, and costs to individuals and to the federal government?

The Affordable Care Act (ACA) brought substantial changes to the individual health insurance market. However, health care remains unaffordable for many, and enrollment in individual health insurance plans has declined since 2016. There is growing interest at the state and federal levels in a "public option" for individual market insurance. In 2019, members of Congress introduced four bills that would create a federal public option, at least 18 states considered legislation for a public option or a Medicaid buy-in option, and several Democratic Party presidential candidates included public options in their platforms. Some proposals for a public option would create government-run insurance plans to compete with private insurance, and others would create plans administered by insurance carriers operating under government oversight and rate regulation.

The authors consider public option alternatives that vary based on the rates providers are paid, whether the option is implemented on or off Health Insurance Marketplaces, and whether premium tax credits are available to higher-income individuals. For each of the four scenarios, the authors use a microsimulation approach to estimate how adding a federal public option for individual market insurance could affect overall insurance coverage, individual market enrollment, premiums for individual market enrollees, and government spending. The trends and policy implications may be of interest to state and federal policymakers considering a public option.

Key Findings

  • In the four public option scenarios, public option premiums were substantially lower than private individual market premiums. Most of the difference was attributable to lower provider-payment rates in the public option.
  • There was little change in health insurance enrollment in most scenarios. When the public option was offered outside of the Health Insurance Marketplaces, the authors estimate the addition of the public option would decrease the number of uninsured people by 2.8 million. In the on-Marketplace scenarios, the addition of the public option had smaller effects, ranging from a marginal decrease to a 1.2 million decrease in uninsured people.
  • The authors estimate that most enrollees would switch from private individual market plans to public option plans. Preference for the public option was particularly large in scenarios with the larger provider-payment reduction.
  • Federal spending on advance premium tax credits fell in all scenarios. The reduction in federal spending was driven by decreases in the benchmark premium used to set tax credit amounts.
  • The addition of the public option could make some better off and some worse off. Those who were worse off tended to have incomes below 400 percent of the federal poverty level and received smaller tax credits. Federal savings from lower ACA tax credits could be used to enhance or provide additional tax credits.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Methods

  • Chapter Three

    Results

  • Chapter Four

    Limitations

  • Chapter Five

    Discussion and Conclusion

  • Appendix A

    COMPARE Overview

  • Appendix B

    Sensitivity Results Without Competition Effect

  • Appendix C

    Supplemental Results for Individuals Who Were Better or Worse Off

Research conducted by

This research was funded by a grant to Wakely Consulting Group from the Robert Wood Johnson Foundation and carried out within the Payment, Cost, and Coverage Program in RAND Health Care.

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