CBO Predicts Higher Public Option Costs in New House Bill

Janice Simmons, for HealthLeaders Media , November 2, 2009

The Congressional Budget Office (CBO), completing the scoring of the new House healthcare reform bill (HR 3962), predicted that those enrolled in a public plan might not necessarily save money as initially envisioned.

CBO said that the number of individuals enrolled in a health insurance exchange could be expected to number about 30 million. Of that number, only about one-fifth—or 6 million—would be expected to enroll in a public insurance plan.

A public plan paying negotiated rates would be expected to attract a broader network of providers, CBO said. However, the premiums are anticipated to be "somewhat higher than the average premiums for the private plans in the exchanges," CBO said.

The reason is that although administrative costs from the plan would be lower and "less management of utilization” would be expected, those enrollees would be a part of a less healthy pool of enrollees. Also, the public plan now would use the same formula in the revised House bill as private insurers.

Initially, the House had sought to have a more "robust" public option plan—with payment rates tied to Medicare plus 5%. That method had received opposition from many provider groups. Instead, a different option was selected in which the Health and Human Services (HHS) secretary would negotiate rates with healthcare providers as private insurers currently do.

In the long run, the effects of that "adverse selection" on the public plan's premiums would be only partially offset by the "risk adjustment" procedures that would apply to all plans operating in the exchanges, CBO said.

The public option is part of the bill that will cost a gross $1.055 trillion over 10 years. However, it will cost a net $894 billion and reduce the deficit by $104 billion over the same period, according to CBO. The entire bill is expected to be brought to the House floor this week where 218 votes will be needed to pass the measure.

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.

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