A public option plan is a health insurance plan created by the government that is sold alongside existing private insurance plans. A public option plan may be administered by a government agency or a private entity, like an insurance company, with constraints determined by the government, like coverage requirements and premium or provider rates. The public option is different from a single-payer system because the government is offering an alternative to private insurance. At the federal level, most public option proposals envision allowing U.S. residents under the age of 65 to buy into Medicare. Note that many of the Medicare for All bills introduced in Congress would create a single-payer system and are distinct from a public option.
Whether a public option can be effective at both reducing premiums and controlling healthcare costs depends on whether lawmakers are able to significantly reduce provider payment rates relative to commercial plans. If a public option plan sets prices for healthcare services at rates that are lower than existing commercial plans, the public option can likely set lower premiums or cost-sharing requirements than commercial plans. The cost savings from the public option can spillover into the private market if private plans reduce their provider rates to compete with the public option. In this way, the creation of a public option can apply competitive pressure to provider rates and serve as a soft cap to the provider rates in the private insurance market (see Fiedler 2020).
A state cannot pass a law allowing residents to buy-in to the federal Medicare program, so states have three options when implementing a state-level public option:
- Medicaid buy-in plan: As Medicaid programs are overseen by state agencies, a state may request a waiver from CMS to builds upon their Medicaid program to cover residents that are otherwise ineligible for Medicaid. However, federal law bars the use of federal Medicaid funds to pay for non-Medicaid program costs (including administrative costs) and states are unlikely to be able to fulfill the budget neutrality requirements to obtain a waiver to create a true Medicaid buy-in that shares risk with the current Medicaid program. Alternatively, states could require insurers contracting to sell Medicaid managed care plans OR require the state Medicaid agency to administer and offer a plan to individuals ineligible for Medicaid.
- Marketplace-based public option plan: Marketplace-based public options (MBPOs) are public options plans that satisfy ACA Marketplace specifications, including state qualified health plan (QHP) certification, and also conform to other requirements, like coverage, premium, and provider reimbursement restrictions, established by the state for the public option. MBPOs allow states to offer affordable, comprehensive coverage to large portions of the population and offering the public option on the state marketplace allows residents purchasing the public option to use federal premium tax credits and cost sharing reductions. Note that states may need to obtain a waiver from CMS if the design of their public option does not meet all of the ACA requirements for selling a plan on the marketplace.
- Comprehensive public option plan: Comprehensive plans are “comprehensive” in their target population, benefits, provider network, and anticipated disruption in the health insurance market. Typically, comprehensive public option proposals aim to unify the risk pools of large, small, and individual markets into one state-sponsored plan and consider ways for employers to purchase the public option. The most ambitious Comprehensive public option plans are closest to state single-payer plans, despite their acknowledgment that a multi-payer system will persist.
For more details on the states that have introduced bills in each of these categories and the legal restrictions of each type of public option, including a discussion of waivers from CMS, see Jaime S. King, Katherine L. Gudiksen, and Erin C. Fuse Brown, Are State Public Option Health Plans Worth It? (Harvard J on Legis., 2022).
Three states, Washington, Colorado, and Nevada, passed legislation to create quasi-public option plans. All three states require private insurers to offer plans that are subject to specific state-imposed, cost-containment requirements (either premium restrictions or caps on provider rates). These public-private partnerships barely meet a strict definition of a public option and may give state officials less control over cost-cutting measures, like provider rates. Nonetheless, they are much easier to implement since the state doesn’t have to set up infrastructure to process claims, establish reserves etc., and Nevada and Colorado established back-up plans if the private plans fail to realize the desired premium reductions (see “State Comparison” tab for overview chart).
- Tricia Neuman, Karen Pollitz, Jennifer Tolbert, Robin Rudowitz, and Wyatt Koma, 10 Key Questions on Public Option Proposals (Kaiser Family Foundation Dec. 2019)
- Margot Sanger-Katz, The Difference Between a ‘Public Option’ and ‘Medicare for All’? Let’s Define Our Terms (NY Times, Feb. 2019)
- Jacob S. Hacker, The Case for Public Plan Choice in National Health Reform: Key to Cost Control and Quality Coverage (UC Berkeley, 2008)
- Richard M. Scheffler & Taylor L. Wang, The Public Option: From Hacker to Biden (Petris Center, Sept. 2020)
- Matthew Fielder Capping Prices or Creating a Public Option: How Would They Change What We Pay for Health Care? (Brookings, Nov. 2020)
- Linda J. Blumberg, John Holahan, Stacey McMorrow, and Michael Simpson, Estimates of the Implications of Public Option and Capped Provider Payment Rate Reforms (Urban Institute, March 2020)
- Jodi L. Liu, Asa Wilks, Sarah A. Nowak, Preethi Rao, Christine Eibner, Public Options for Individual Health Insurance: Assessing the Effects of Four Public Option Alternatives (RAND 2020)
- Jaime S. King, Katherine L. Gudiksen, and Erin C. Fuse Brown, Are State Public Option Health Plans Worth It? (Harvard J on Legislation, 2022)
- Erin C. Fuse Brown, Katherine L. Gudiksen, and Jaime S. King, State Public Option Plans — Too Modest to Improve Affordability? (NEJM Sept. 2021)
- Christine Monahan, Kevin Lucia, Justin Giovannelli, State Public Option–Style Laws: What Policymakers Need to Know (The Commonwealth Fund, July 2021)
- Aditi P. Sen, Yashaswini Singh, Mark K. Meiselbach, Matthew D. Eisenberg, and Gerard F. Anderson, Participation, Pricing, and Enrollment in a Health Insurance “Public Option”: Evidence From Washington State’s Cascade Care Program (Milbank Q. March 2022)
- Michael S. Sparer Redefining the “Public Option”: Lessons from Washington State and New Mexico (Milbank Q., June 2020)
- Stephanie Carlton, Jessica Kahn, and Mike Lee, Cascade Select: Insights From Washington’s Public Option (Health Affairs Forefront Aug. 2021)