A Public Option for Health Insurance in the Nongroup Marketplaces: Key Design Considerations and Implications

Some Members of Congress have proposed introducing a federally administered health insurance plan, or “public option,” to compete with private plans in the nongroup marketplaces established by the Affordable Care Act. In this report, the Congressional Budget Office describes the key design considerations of such a public option and some of their major implications.

Key Design Considerations. Among the key considerations that policymakers designing a public option would face are the following:

• Would the public option conform with state insurance regulations?
• Would it be offered in multiple metal tiers and available outside the marketplaces?
• How would payment rates for providers and prices for prescription drugs be determined?
• Would certain providers be required to participate?
• What administrative activities would the plan take on, and what administrative costs would it incur?
• Would the public option participate in risk-adjustment transfers?
• How would it be funded?
• Would it be offered everywhere or only in geographic markets with low insurer participation or high premiums?

Implications of Design Choices. Policymakers’ choices about design features of the public option would have implications for federal outlays and revenues, health insurance premiums, and health insurance coverage.

• Federal Outlays and Revenues. The budgetary impact of implementing a public option would depend largely on how the option affected the premium of the benchmark plan, which is used to determine marketplace subsidies. A public option with a premium similar to or higher than those of private plans would have little impact, whereas a public option with a relatively low premium would lower the benchmark premium and subsidies.
• Premiums. The public option’s premiums could be higher or lower than those of private nongroup plans, depending mostly on the characteristics of the option: how provider payment rates were determined, the health care utilization of enrollees in the public option compared with that of enrollees in private plans, whether the public option participated in risk-adjustment transfers, and whether the plan’s administrative expenses were more similar to those of Medicare or private insurers.
• Health Insurance Coverage. A public option would affect the total number of people in the United States with health insurance and their sources of coverage by attracting people currently enrolled in the nongroup market, the uninsured population, and people with employment-based coverage. The decrease in the uninsured rate would most likely be largest among those whose income is too high to receive marketplace subsidies. The net effect of implementing a public option on the number of people enrolled in subsidized marketplace coverage would probably be relatively small.