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.