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Health Insurance Reform Mythbuster: 'Public Health Insurance Option Will Lead to Higher Premiums, Not Lower Premiums'

Posted on by Karina

Opponents of reform continue to spread myths — now spreading myths about the recently introduced Affordable Health Care for America Act, including saying that the public health insurance option will provide little benefit to American consumers — leading to higher premiums, not lower premiums. But the facts continue to knock these myths down.

MYTH: The public health insurance option, as included in the Affordable Health Care for America Act, will lead to higher premiums, not lower premiums.

FACT: There is currently little competition in the health insurance marketplace in most parts of the country. Indeed, in the vast majority of states, the top two insurers in the state currently control more than 50 percent of the market:

Top Two Insurers In State Control More Than 50 Percent Of the Market

The Affordable Health Care for America Act will create real competition — by creating a nationwide, public health insurance plan that will compete with private insurers in every area of the country. This nonprofit, public plan will have dramatically lower administrative costs than private plans (little marketing costs, lower general overhead, no high executive pay, no profits) and its competing with these private plans will have the effect of putting downward pressure on premiums in all health plans in the Exchange, a one-stop shopping marketplace where you can get lower rates like large groups.

The CBO estimates that including this public option in the bill will save taxpayers $25 billion over the next 10 years precisely because premiums will be somewhat lower than without a public option — thereby allowing the subsidies provided on the Exchange to be somewhat lower.

Furthermore, today, CBO released estimates on premiums for policies on the Exchange under the Affordable Health Care for America Act, showing them to be lower than projected premiums without reform. Specifically, CBO projects that, under the House bill, by 2016, premiums would be $5,300 for an individual and $15,000 for a family of four in the Exchange. This is well below premiums of over $8,000 for an individual and over $24,000 for a family of four in 2016 that have been projected if health reform is not enacted.

It is true that CBO estimates that premiums in the public option might end up being somewhat higher than the average premiums for the private plans in the Exchange (due to CBO projecting that the public option might attract a less healthy pool of enrollees). However, that does not contradict that the existence of the public option itself will put a downward pressure on premiums overall — in all plans on the Exchange.

In addition, the analyses of the public option have ranged widely — and the assumptions of the CBO analysis that lead to an estimate of somewhat higher premiums in the public plan could prove not to be the case when the plan is implemented and market forces are brought to bear.

For example, the HHS Secretary, who administers the public option, might well be able to negotiate much better rates than anticipated in many communities. Furthermore, the public option may also fulfill its mandate to be an innovative purchaser of care and actually end up doing better than many private plans in coordinating care and improving value — thereby lowering its premiums.

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