THE BIDEN PUBLIC OPTION: DEBATING ITS MERITS
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W H I T E PA P E R / S T R AT E G Y & T R A N S F O R M AT I O N THE BIDEN PUBLIC O P T I O N : D E BAT I N G ITS MERITS AND LIKELIHOOD In our latest non-partisan white paper, Doug Hervey outlines presidential candidate Joe Biden’s healthcare public option plan, presents the cases for and against the proposal, and discusses the likelihood of its legislative passage.
HEALTHCARE THE BIDEN PUBLIC OPTION: D E BAT I N G I T S M E R I T S A N D LIKELIHOOD D O U G L A S H E R V E Y, J D / M B A A public option healthcare plan remains one of presidential candidate Joe Biden’s top priorities despite the pandemic’s ongoing and massive public health and economic impact. Recent polls suggest substantial support for a public option relative to Medicare-for-All approval.i It is unclear, however, to what degree the general public—and even interested stakeholders—understand what a public option is.ii This paper attempts to define and then articulate the arguments for and against Joe Biden’s public option plan. As noted previously, Cicero Group does not endorse platforms or policies; nor does it endorse the positions individual authors cover. After defining Biden’s plan and discussing its merits, this article will evaluate the likelihood of a public option getting passed if the Democrats control the White House and Congress. W H AT B I D E N H AS P R O P O S E D Joe Biden has proposed a public option that would be available to nearly every non-Medicare beneficiary, including the uninsured.iii Several early public option proposals would have extended coverage only to individuals without access to employer-sponsored insurance. Biden’s plan aspires to expand—rather than replace—current insurance options. If employees do not like their employer’s plan, then they could shop for the public option. Low-cost premium eligibility and auto- enrollment would exist for the 4.9 million people living in states that have not expanded Medicaid. And those states which have already expanded Medicaid could move their beneficiaries to the premium-free public option if they continued to pay their cost share for those individuals.iv CG / 01
Biden has also promised that individuals making below 138 percent of the federal poverty level (FPL) would
receive coverage through automatic enrollment once those individuals interact with institutions such as
public schools or other low-income programs.v
Biden’s plan would cover essential health benefits, similar to marketplace qualified health plans (QHPs) and
most employer-sponsored plans.vi His plan, however, has not endorsed U.S. Senator Elizabeth Warren’s (D-
MA) plan to add a broader set of benefits such as long-term services and supports (LTSS), dental benefits,
and others.vii
As for other issues, Biden’s plan would leave Medicare as is by structuring the public option as a separate
program.viii It remains unclear whether the Biden public option would be publicly or privately administered.
Proposed provider reimbursement rates are still unknown. And while Medicare-for-All proposals would
achieve universal coverage, some U.S. citizens may still lack coverage during employment transitions or
other significant life events. Undocumented workers would not likely be covered. Near universal coverage
would also depend on the public option’s affordability and subsidy amounts.ix
Snapshot: The Biden Plan
• If an employer plan is not satisfying employees’ needs, they should have another, better choice public option like Medicare
• Available for anyone, including the uninsured, beneficiaries in ACA exchanges, and people not happy with employer
coverage
• The 4.8M people in states that have not expanded Medicaid who would otherwise be eligible can enroll in the public option
• Low or no premiums or co-pays for low-income Americans
Figure 1. Snapshot: The Biden Plan
THE CASE FOR THE PUBLIC OPTION
Proponents supporting Biden’s public option plan believe it will strengthen choice, improve coverage,
enhance benefits, and lower costs. Biden has declared that if employees dislike their coverage options,
they should have access to alternative and better choices. His proposal touts greater choice regardless
of whether someone is covered by their employer, they purchase health coverage on their own, or are not
currently covered.x
Biden would attempt to ensure greater coverage by offering premium-free plans to the 4.9 million people
who would be eligible for Medicaid if their states had expanded Medicaid. He has also promised these
beneficiaries would receive the full scope of Medicaid benefits. Biden aspires to 97 percent coverage of all
Americans.xi
As noted previously, beneficiaries would also have access to all the essential health benefits the Affordable
Care Act (ACA) allows.xii These benefits include doctor’s services, inpatient and outpatient hospital care,
prescription drug coverage, pregnancy and childbirth, and mental health benefits, among others.xiii
Biden also argues that the public option would reduce costs and lower premiums by negotiating lower
prices from hospitals and providers and by injecting more competition into the individual marketplaces.xiv
Medicare pays lower unit prices than private plans due to its size, so proponents believe a switch would
save the federal government significant money.
A Congressional Budget Office (CBO) report claimed that Medicare hospital payment rates were 47 percent
below those of commercial insurers.xv That partly explains why Medicare has slower spending growth than
private insurance.xvi Proponents believe costs could be reduced if a public option offered Medicare-like
rates or rates slightly above those Medicare uses today.
KNG Health recently prepared a report for the American Hospital Association (AHA) and stated that while
CG / 02hospital services account for 47 percent of total spending, these services would comprise ~67 percent of
total spending reductions under a Biden-like public option.xvii Overall, KNG Health believes hospitals would
experience a 10 percent reduction in payments among the relevant population.xviii
The report also projected seven percent healthcare spending reductions under a similar Biden-like plan
over a 10-year period.xix Even if spending on newly insured individuals is projected to increase, it would
allegedly be offset through reduced spending among those enrolling in the public plan but previously
insured through private insurance.xx Proponents also believe healthcare spending could be controlled
because a public option could mimic Medicare and keep overhead and administrative costs lower than
private plans do.xxi
Additionally, proponents believe the public option could reduce deductibles and cost-sharing requirements
for those with employer-based and marketplace coverage. The Kaiser Family Foundation recently stated
that over the past decade deductibles in employer plans rose six times faster than wages. In 2020, the
average silver-plan deductible is $4,544 per person, though cost-sharing reduction (CSR) subsidies, reduce
plan deductibles for nearly half of enrollees.xxii Biden’s plan would increase ACA subsidies and reduce
enrollee deductibles and out-of-pocket costs by setting the benchmark marketplace plan at the gold—
rather than the silver level—and by expanding subsidy eligibility for those with incomes up to 400 percent
of the federal poverty level.
It should be noted, however, that enrollee premiums could be higher or lower based on an enrollees’ risk
profile and income, and whether the public option experiences adverse selection.xxiii Even if the public
option attracts more high-risk individuals, premiums would be capped at 8.5 percent of income and low-
income people under 138 percent of the FPL could receive the plan with no premiums.xxiv
Lastly, Biden has argued the public option would lower employer costs if employees decided to purchase
insurance on the exchange. Reduced employer healthcare spend could free up capital for wage increases
and additional investment initiatives.
1 More Choice Private workforce employees can sign up if they dislike employer’s plans
2 Safety-Net Support Enables greater coverage options for low-income Americans
3 Benefit Coverage Preserves coverage for Essential Health Benefits, including mental health
Arguments For
4 Reduced Spending Potential to lower healthcare spending through negotiating leverage
Public Option
5 Lower Cost Sharing Opportunity for many to have lower premiums and deductibles
6 Reduced Employer Costs Potentially frees up more employer capital for wage increases
Figure 2. Arguments for Public Option
THE CASE AGAINST THE PUBLIC OPTION
Public option opposition largely focuses on preserving private sector access and profitability and
encouraging rather than handicapping competition. Several large industry associations such as the AHA
and America’s Health Insurance Plans (AHIP) argue that the public option would pose a serious threat to
the U.S. private healthcare system, which is nearly 20 percent of the U.S. economy. Insurers worry whether
they could effectively compete on a level playing field with a public plan. They argue that an inability to
compete could harm competition in the individual marketplace and ultimately put them out of business.xxv
Opponents also believe that Biden’s public option would hurt hospitals’ financials beyond what the
pandemic has done and could trigger additional closures. MedPac estimated that Medicare hospital
CG / 03margins were -11 percent in 2018.xxvi And hospital operating margins are down 96 percent since the start of
2020 and COVID’s onslaught.xxvii Additionally, the CBO has projected that 40 to 50 percent of hospitals could
have negative profitability by 2025—even without a public option.xxviii
Some argue that not only will there be fewer profitable hospitals, but fewer doctors will also enter or
remain in the practice of medicine. This could be especially true if reimbursement rates are cut or
significant numbers of people sign up for the public option and practices are required to accept them.xxix
And if providers are not required to take public option plan beneficiaries, then enrollees’ networks could be
much smaller and their access to care potentially undermined. If providers who participate in the current
Medicare and Medicaid programs were not required to accept public option enrollees, then the government
would have less leverage to negotiate lower rates.xxx
Concerns also abound that federal and state spending will increase significantly because there will be
fewer uninsured individuals. And if more people enroll in public option plans that subsidize premiums,
deductibles, and co-payments, then spending will increase even more. Increased spending could spur
federal and state tax increases.xxxi
While a public option will impact spending less than a Medicare-for-all plan, costs will depend on benefits,
subsidies, and the number of people who enroll, and how much cost-shifting between plans and individuals
occurs.xxxii Cost reduction will depend on provider rates and premium amounts.
Opponents also fear that lower premiums and subsidies would make the public option so appealing that
enrollment would dwarf private plan sign-ups and decrease competition over time. This process would
occur faster if the benefits and subsidies within a public-plan become richer than those typically offered
in employer-sponsored plans. And it is possible some employers would stop offering plans depending
on their average employee healthcare costs, how many employees would prefer to keep their plans, and
whether federal tax preferences for employers offering health benefits continue. Opponents believe less
competition could eventually secure a one-size-fits-all plan even though no one was forced into it.xxxiii
Similarly, some fear a public option could serve as an incremental measure and precursor to single-payer
Medicare-for-all legislation.xxxiv This scenario would become more plausible if a public-option succeeded in
enrolling large numbers of people who previously had employer-sponsored insurance.
Lastly, those opposing the public option fear it would be less effective in utilization and care management—
forces that could reduce costs and improve outcomes. Champions of private-sector competition believe
government programs suppress innovation, lower care quality, and reduce care delivery efficiencies.xxxv
1 Private Sector Threat Could undermine private plans’ ability to compete in the long run
2 Financial Impact Lower rates would negatively impact provider profitability
3 Adverse Supply Shock Some facilities might close or not accept public option patients
Arguments Against 4 Increased Spending Potential for dramatic increases in spending for newly insured
Public Option
5 Single Payer Gateway May be the forerunner to a single-payer system
6 Lower Care Quality Less competition could impact care quality and innovation
Figure 3. Arguments Against Public Option
CG / 04CHALLENGES TO OVERCOME
Even though healthcare is important to voters and the public option is relatively popular, COVID-19 and the
economic recovery will continue to consume a lot of political capital for most of 2021. The energy required
to address the pandemic, distribute a vaccine, and help rebuild the economy reduce the likelihood Biden
and a potential Democratic Congress would address this issue out of the gate.
Many providers and payers will also challenge any attempts to require acceptance of public-option
patients and any material reimbursement rate cuts compared with those rates they receive from private-
pay patients. Expect a significant battle to commence once either of those two issues gets debated with
proposed language and specific terms.xxxvi
Even if the Democrats carry the Senate in 2020 or in 2022, they will need creative maneuvering to avoid
the filibuster threat. Removing the filibuster or making it more difficult to invoke would be the only way the
Democrats could pass a public option given Republicans’ united opposition. It is unclear where U.S. Senate
Majority Leader, Chuck Schumer (D-NY), stands on the issue.xxxvii
Even filibuster avoidance would not be enough. Conservative Democrats such as U.S. Senator Joe Manchin
(D-WV) would face severe pressure to vote against a public option. Democrats would likely need 52 or 53
U.S. Senators to gather a majority vote.
Conservative voters will also spare no expense in attacking the proposal in media advertisements and town
hall events. They will work to persuade independent voters to oppose as well.
Lastly, healthcare reform would be one of multiple priorities for a potential Biden administration. Landmark
reform items within immigration, the environment, trade, and infrastructure will compete for bandwidth
and support. A Biden presidency would likely have one or two shots at major legislative reforms. No one
can guarantee what those efforts would be despite healthcare being a priority.
What to Watch
• Where the public option ranks in terms of priorities for a potential Biden Administration
• Senate makeup post Nov. 3rd
• Whether the Senate gets rid of the filibuster
• How much will the public option cost?
• How much will providers be paid? Will their participation be required?
Figure 4. What to Watch
CONCLUSION
Judging the impact and likelihood of Biden’s plan will ultimately depend on eligibility criteria, covered
benefits, subsidies allowed, and provider rates.xxxviii Biden’s current plan is light on details and avoids
addressing some of the most controversial issues around provider participation requirements and rates.
All the contingencies listed above underscore the difficulty of Congress passing public option legislation
during a hypothetical Biden first term. To be sure, it is a possibility. But today’s climate would not make
passage probable. Alternatively, Biden could invoke executive orders and pursue more incremental
legislation to support the ACA. Previous Cicero white papers have discussed various options. We hope
these insights provide valuable planning perspectives and risk exposure insights for those modeling
various scenarios that could impact their workforce and performance.
CG / 05ENDNOTES i Kaiser Family Foundation. “KFF Health Tracking Poll—November 2019: Health Care in the 2020 Election, Medicare-for-All, and The State of the ACA.” (November 20, 2019). https:// www.kff.org/health-reform/poll-finding/kff-health-tracking-poll-november-2019/ ii Ibid. iii Joe Biden Presidential Campaign Website. “Health Care.” (Accessed October 6, 2020). https://joebiden.com/healthcare/# iv Ibid. v Ibid. vi Ibid. vii Kaiser Family Foundation. “10 Key Questions on Public Option Proposals.” (December 2019). http://files.kff.org/attachment/Issue-Brief-10-Key-Questions-on-Public-Option-Pro- posals viii Joe Biden Presidential Campaign Website. “Health Care.” (Accessed October 6, 2020). https://joebiden.com/healthcare/# ix Kaiser Family Foundation. “10 Key Questions on Public Option Proposals.” (December 2019). http://files.kff.org/attachment/Issue-Brief-10-Key-Questions-on-Public-Option-Pro- posals x Joe Biden Presidential Campaign Website. “Health Care.” (Accessed October 6, 2020). https://joebiden.com/healthcare/# xi Ibid. xii Ibid. xiii HealthCare.Gov. “Essential Health Benefits.” (Accessed October 7, 2020). https://www.healthcare.gov/glossary/essential-health-benefits/ xiv Joe Biden Presidential Campaign Website. “Health Care.” (Accessed October 6, 2020). https://joebiden.com/healthcare/# xv Congressional Budget Office. “An Analysis of Private-Sector Prices for Hospital Admissions.” (April 2017). https://www.cbo.gov/system/files/115th-congress-2017-2018/workingpa- per/52567-hospitalprices.pdf xvi Axios. “Private Insurance’s Costs are Skyrocketing.” (December 16, 2019). https://www.axios.com/health-insurance-costs-private-medicare-medicaid-c40bb6f1-c638-4bc3- 9a71-c1787829e62e.html xvii Ibid. xviii Ibid. xix KNG Health Consulting LLC. “The Impact of Medicare-X Choice on Coverage, Healthcare Use, and Hospitals.” (March 12, 2019). https://impact.americashealthcarefuture.org/ wp-content/uploads/2019/03/KNG-Health-The-Impact-of-Medicare-X-Choice-Final-Report-03122019.pdf. xx Ibid. xxi Washington Post. “Medicare, Private Insurance and Administrative Costs: A Democratic Talking Point.” (September 19, 2017). https://www.washingtonpost.com/news/fact-check- er/wp/2017/09/19/medicare-private-insurance-and-administrative-costs-a-democratic-talking-point/ xxii Kaiser Family Foundation. “10 Key Questions on Public Option Proposals.” (December 2019). http://files.kff.org/attachment/Issue-Brief-10-Key-Questions-on-Public-Option-Pro- posals xxiii Rand Corporation. “Public Options for Individual Health Insurance: Assessing the Effects of Four Public Option Alternatives.” (May 28, 2020). https://www.rand.org/pubs/research_ reports/RR3153.html xxiv Kaiser Family Foundation. “10 Key Questions on Public Option Proposals.” (December 2019). http://files.kff.org/attachment/Issue-Brief-10-Key-Questions-on-Public-Option-Pro- posals xxv Ibid. xxvi KNG Health Consulting LLC. “The Impact of Medicare-X Choice on Coverage, Healthcare Use, and Hospitals.” (March 12, 2019). https://impact.americashealthcarefuture.org/ wp-content/uploads/2019/03/KNG-Health-The-Impact-of-Medicare-X-Choice-Final-Report-03122019.pdf. xxvii Kaufman Hall. “National Hall Flash Report.” (August 2020). https://kha-paywall.readz.com/executive-summary-august-2020?preview=139977 xxviii KNG Health Consulting LLC. “The Impact of Medicare-X Choice on Coverage, Healthcare Use, and Hospitals.” (March 12, 2019). https://impact.americashealthcarefuture.org/ wp-content/uploads/2019/03/KNG-Health-The-Impact-of-Medicare-X-Choice-Final-Report-03122019.pdf. xxix Cato Institute. “Fannie Med? Why a ‘Public Option’ is Hazardous to Your Health.” (August 6, 2009). https://www.cato.org/sites/cato.org/files/pubs/pdf/pa642.pdf xxx Ibid. xxxi Ibid. xxxii Kaiser Family Foundation. “10 Key Questions on Public Option Proposals.” (December 2019). http://files.kff.org/attachment/Issue-Brief-10-Key-Questions-on-Public-Option-Pro- posals xxxiii Cato Institute. “Fannie Med? Why a ‘Public Option’ is Hazardous to Your Health.” (August 6, 2009). https://www.cato.org/sites/cato.org/files/pubs/pdf/pa642.pdf xxxiv Kaiser Family Foundation. “10 Key Questions on Public Option Proposals.” (December 2019). http://files.kff.org/attachment/Issue-Brief-10-Key-Questions-on-Public-Option-Pro- posals xxxv Cato Institute. “Fannie Med? Why a ‘Public Option’ is Hazardous to Your Health.” (August 6, 2009). https://www.cato.org/sites/cato.org/files/pubs/pdf/pa642.pdf xxxvi KNG Health Consulting LLC. “The Impact of Medicare-X Choice on Coverage, Healthcare Use, and Hospitals.” (March 12, 2019). https://impact.americashealthcarefuture.org/ wp-content/uploads/2019/03/KNG-Health-The-Impact-of-Medicare-X-Choice-Final-Report-03122019.pdf. xxxvii Brookings Institute. “What is the Senate Filibuster, and what would it take to Eliminate It.” (September 9, 2020). https://www.brookings.edu/policy2020/votervital/what-is-the- senate-filibuster-and-what-would-it-take-to-eliminate-it/ xxxviii Ibid.
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