When competing on a level playing field, the public option offers no silver bullet for reducing health-care costs. So why is the left so enamored of it?
The left’s favorite idea for reforming Obamacare is a government-sponsored plan — a “public option” — that would compete against private insurers. Lawmakers introduced several public option bills earlier this year, and presidential candidate Joe Biden has embraced the concept.
Proponents claim that government-sponsored plans will charge lower premiums than private insurers. Yet, experience shows that, when competing on a level playing field, they don’t.
The United States already has some “public option” health plans, including a few available on the Obamacare exchanges.
One is MetroPlus Health Plan, a wholly owned subsidiary of the New York City Health and Hospitals Corporation. A “public benefit corporation,” the Legislature created it in 1969 to operate the city’s public hospitals and clinics. Similarly, Community Health Choice — a Houston, Texas, health insurer — is a wholly owned subsidiary of a government agency, the Harris County Hospital District.
The most instructive example is California’s “Local Initiative Health Authority for Los Angeles County,” which does business as “L.A. Care Health Plan.” When shifting its Medicaid program to managed care in the 1990s, California decided to experiment in Los Angeles County with a “two-plan model,” offering beneficiaries a choice between a commercial-managed care plan and a government-managed care plan. The Los Angeles County health authority was created explicitly to be a “public option” plan directly competing with private insurance.
L.A. Care launched its Medicaid plan in 1997. The following year it offered a plan for children enrolled in the state’s CHIP program, and in 2008 a Medicare Advantage plan for seniors. With the 2014 implementation of Obamacare, L.A. Care also started selling individual market plans on the new California health insurance exchange.
Currently, L.A. Care is one of seven insurers offering eight bronze plans and nine silver plans in Los Angeles County, America’s most populous county. Two of its competitors — Kaiser and California Blue Shield — are non-profits. The others — Anthem, Centene (through two HealthNet subsidiaries), Molina and Oscar — are for-profits.
For 2020, L.A. Care’s silver plan has the second lowest premiums in the northeast half of the county, but only the fourth lowest premiums in the southwest half. L.A. Care’s nearest price competitor for bronze plans is the for-profit company Oscar.
In the northeast half of the county, L.A. Care offers the lowest premiums, while Oscar’s premiums are 1.3 percent higher. Those positions are reversed in the southwest half of the county, where Oscar offers the lowest premiums and L.A. Care is the second cheapest, with premiums 5.5 percent higher than Oscar’s.
For the county as a whole, L.A. Care’s 2020 market share is 19.6 percent — in third place behind Kaiser and Centene, each of which have a 22.8 percent market share. L.A. Care’s performance relative to its competitors is respectable — premiums at the lower end of the range, and enrollment at the higher end of the range — but far from the kind of exceptional results that would justify touting it as major improvement over the status quo. Indeed, there is no reason to expect that, were L.A. Care to exit the market, there would be any measurable effect on premiums, enrollment or insurer competition in Los Angeles County.
The experiences of other public option insurers are similar.
While MetroPlus does offer the cheapest silver plan in New York City, the next cheapest plan is only $2.39 a month more. For bronze plans, MetroPlus’s two offerings are 11 percent and 14 percent more expensive than the cheapest plan.
In Houston, Community Health Choice’s bronze plans are also 11 percent and 15 percent higher than the lowest priced plan, while its two silver plans are among the most expensive of the 32 silver plans offered — with premiums 22 percent and 28 percent higher than the cheapest plan.
As these examples show, when competing on a level playing field, public option insurers offer little or no savings relative to private insurers. For a public option insurer to enjoy a significant price advantage the government would need to rig the market in its favor not only by requiring doctors and hospitals to participate, but also by forcing them to accept lower fees than those charged to its competitors. Indeed, such provisions are included in the public option bills sponsored by congressional liberals.
Yet all the benefits of competition begin to vanish if government tilts the scales in favor of one rival over another.
Some lawmakers tried to make a public option part of the original Affordable Care Act. Although they failed in that effort, they succeeded in including something similar: non-profit co-operative health plans with boards that did not include representatives from the conventional health-insurance industry.
The experience of the co-ops has been one failure after another, even though they initially received generous government subsidies not available to their competitors. Of the 23 co-op plans created under Obamacare, only four still survive — a 79 percent failure rate.
When competing on a level playing field, the public option offers no silver bullet for reducing health-care costs. So why is the left so enamored of it? We suspect that it’s because they like the idea of government-run health care and would eventually like to see everyone in a plan that would be called “public.”
Mr. Haislmaier is the Preston A. Wells, Jr. Senior Research Fellow at the Heritage Foundation. Mr. Goodman is the president of the Goodman Institute for Public Policy Research and author of Priceless (Independent Institute, 2012).