February 11, 2021 | Updates

ICYMI: ‘Public Option for health insurance could be a disaster, especially in times of crisis’

WASHINGTON – In a new op-ed for STAT, Lanhee J. Chen, Tom Church and Daniel L. Heil of the Hoover Institution explain that “[t]he public option would actually increase long-term federal deficits, especially during times of economic strain, much like the one being caused by the Covid-19 pandemic.”  They write:

Basic assumptions about the long-term costs of a public option are flawed.  Research we have done shows that a public option will mean soaring deficits and debts because politicians in Washington will eventually succumb to political pressure both to subsidize enrollee premiums and to pay doctors and hospitals closer to what they are paid by private insurance rather than by existing government programs like Medicare and Medicaid.  According to our calculations, the public option would add $800 billion to deficits in the first 10 years and increase the federal debt by more than 30% of the gross domestic product by 2050 — the equivalent of $6 trillion in today’s economy.

The effects on the budget are even worse when the economy suffers or if health costs unexpectedly rise.  How much worse?  With support from the Partnership for America’s Health Care Future — a coalition of leading health care providers, insurers, biopharmaceutical companies and employers that oppose one-size-fits-all health care — we looked at a few ways policymakers might adjust the public option to respond to future economic shocks and the impact these changes would have on long-term deficits and debt … If Congress follows [historical] precedents and allows unemployed individuals to stay on the public option for the first six months after they are laid off, that would add an extra $132 billion to 10-year deficits and increase the 2050 debt by an inflation-adjusted $800 billion.

And that’s nothing compared to how expensive a public option would be if health care costs grow unexpectedly, as they have in the past.  In such an event, the government would have few good options.  It might allow premiums to rise or cut provider reimbursement rates.  But the more politically realistic outcome is obvious: Congress would forget about the promises made by today’s public option proponents and move to subsidize the program, ultimately adding trillions of dollars in federal debt.

If Congress limited premium growth to inflation and health care costs grew at their historical average, the long-term federal debt would grow by an inflation-adjusted $17.5 trillion dollars with more than half of all Americans enrolling in the heavily subsidized program.  Or politicians could bite the bullet and pay for the higher costs with a broad-based payroll tax that would cost the typical American family an extra $4,150 per year in inflation-adjusted dollars.

 Their study’s key findings include:

  • The public option could be more expensive for working families than originally projected during economic recessions.  This builds on an earlier study which found that under the public option the average American family could eventually see their payroll taxes increase by more than $2,500 a year and 10-year deficits could increase by $800 billion due to a public health crisis. 
  • In the event of a future economic recession, the long-term cost of the public option could balloon by an additional $1.4 trillion, placing an even greater financial burden on working families.  As a result, Congress could force working families to pay an additional $300 per year, from $2,533 to $2,833 in 2050.
  • Further, providing premium relief for the unemployed during a recession could increase the cost of the public option by 18 percent over the first ten years, raising the cost of the public option to $932 billion from the original ten-year projections of $800 billion. 
  • And, if health care expenditures increase quicker than currently forecasted, working families could see their payroll taxes increase by an additional $1,600 a year under the public option.

To read the complete study by Chen, Church and Heil, CLICK HERE.
To read their full op-ed at STAT, CLICK HERE.
To learn more about the Partnership for America’s Health Care Future, CLICK HERE.


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