January 24, 2020 | Updates

ICYMI: The Myth of the ‘Moderate’ Public Option

WASHINGTON – In an op-ed published today by The Wall Street Journal, Tom Church, Daniel L. Heil and Lanhee J. Chen, Ph.D. of the Hoover Institution highlight a new study they conducted with support from the Partnership for America’s Health Care, which finds that a new government-controlled health insurance system known as the public option “would require tax hikes on most Americans, including middle-income families,” and “would increase the federal deficit dramatically and destabilize the market for private health insurance, threatening health-care quality and choice.”  They write:

… If Congress’s past behavior is a guide, a public option available to all individuals and employers would add more than $700 billion to the 10-year federal deficit.  The annual deficit increase would hit $100 billion within a few years. Some 123 million people—roughly 1 in 3 Americans—would be enrolled in the public option by 2025, broadly displacing existing insurance. 

… The fiscal effects are even more pronounced over the long run. We estimate that federal spending on the public option would exceed total military spending by 2042 and match combined spending on Medicaid, the Children’s Health Insurance Program and ACA subsidies by 2049. In the latter year the public option would become the third most expensive government program, behind only Medicare and Social Security. The public option alone would raise the federal debt by 30% of gross domestic product over the next 30 years.

While some, like Mr. Biden, claim their health reforms can be paid for by simply taxing the wealthy more, that seems unrealistic … If policy makers want to avoid a large increase in deficits, then, a public option would require tax hikes on most Americans, including middle-income families.  An across-the-board income-tax hike to support this policy would mean that taxpayers in the 28% and 33% tax brackets would see their marginal tax rates increase by about six percentage points by 2049, while the top tax bracket would rise above 47%.  Alternatively, Congress could enact a new broad-based tax similar to Medicare’s 2.9% Hospital Insurance payroll tax.  The new tax would be levied on all wage and salary income and would reach 4.8% in 2049.  These fiscal estimates may underestimate the cost of the public option, as they assume no changes in use of medical services. 

… Beyond fiscal considerations, the public option would quickly displace employer-based and other private insurance.  This would force some private insurers to exit the market and encourage greater consolidation among remaining insurers. Consumers seeking coverage would be left with fewer insurance options and higher premiums.

Meanwhile, many health-care providers would suffer a dramatic drop in income, while at the same time experiencing greater demand for their services.  Longer wait times and narrower provider networks would likely follow for those enrolled in the public option, harming patients’ health and reducing consumer choice.  Declines in provider payments would also affect investment decisions by hospitals and may lead to fewer new doctors and other medical providers.



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