The Public Option Could Lead To Unaffordable New Costs At Time When CBO Report Warns Of Insufficient Medicare Funds

WASHINGTON – As some continue to push for an unaffordable new government-controlled health insurance system called the public option, a new report from the Congressional Budget Office (CBO) reveals that “Medicare’s Hospital Insurance Trust Fund will have insufficient funds to cover all benefit costs beginning in 2024 – just four years from now, and sooner than last year’s projected depletion date of 2026,” the Kaiser Family Foundation reports.  

While some propose adding millions more Americans to a new government-controlled system, this new report draws renewed attention to the risks of forcing millions of Americans out of employer-provided and other private coverage and into a one-size-fits-all system controlled by politicians, further straining government finances.  

• As some proponents try to paint the public option as a “moderate” proposal, this new system would ultimately lead to the same one-size-fits-all system and negative consequences for seniors over time that Medicare for All would cause overnight.  As PolitiFact reported, “introducing a public option … could create more incentives for employers to drop private coverage and switch to the public Medicare plan – and, in some cases, for private carriers to exit the individual marketplace.”  The New York Times reported that the public option “could be plenty disruptive” and “tilt in the same direction” as Medicare for All.  And, as Eric Levitz of New York Magazine writes, the public option “would not allow all Americans to ‘keep their private insurance if they prefer it’” and “would guarantee massive disruptions to private coverage.”

With a study by Tom Church, Daniel L. Heil, and Lanhee J. Chen, Ph.D. of the Hoover Institution showing that “a politically realistic public option would add over $700 billion to 10-year deficits,” it is clear that this proposed new government-controlled system could strain government financing at a time when Medicare is already at risk, requiring higher taxes.  In fact, the study finds that the public option “could require tax increases on most Americans, including middle-income families.”  According to study author Lanhee Chen, “To pay for a politically realistic public option, policymakers could impose a new 4.8 percent payroll tax, which would eventually cost the average American worker about $2,300 per year in higher taxes.”

The study adds, “By 2049, the plan would increase long-run debt projections by 30 percent of GDP or require tax increases equal to nearly 20 percent of projected income tax revenue.  These tax increases may affect even middle-income taxpayers, raising their marginal income tax rates by several percentage points.”  This would make the public option “the third largest line item on the federal budget, behind only Medicare and Social Security.”

• The public option “could require tax increases on most Americans, including middle-income families” and could “add over $700 billion to the 10-year federal deficit, with dramatically larger losses in subsequent years.” (Tom Church, Daniel L. Heil & Lanhee J. Chen, Ph.D., Hoover Institution, 1/24/20)
• A politically realistic public option could lead to a new 4.8 percent payroll tax on American families, which would eventually cost the average American worker about $2,300 per year in higher taxes – far higher than the combined Medicare payroll tax Americans pay today. (Tom Church, Daniel L. Heil & Lanhee J. Chen, Ph.D., Hoover Institution, 1/24/20; “Usual Weekly Earnings Of Wage And Salary Workers,” Bureau Of Labor Statistics, U.S. Department Of Labor, Accessed 2/3/20)
• Over 30 years, the public option would become the third most expensive government program behind only Medicare and Social Security – both of which are at risk for the seniors who rely on them. (Tom Church, Daniel L. Heil & Lanhee J. Chen, Ph.D., Hoover Institution, 1/24/20)
• While proponents try to claim the public option could reduce costs by reimbursing providers at Medicare rates, recent history at both the federal and state levels demonstrates that putting politicians in charge of a new government-controlled health insurance system could lead to higher costs and tax burdens for American families. (Tom Church, Daniel L. Heil & Lanhee J. Chen, Ph.D., Hoover Institution, 1/24/20)

Economists agree that the public option would burden American families with unaffordable costs. 

• The public option “could also lead to a 10 percent increase in premiums for the remaining pool of insured people.” (Reed Abelson, “How A Medicare Buy-In Or Public Option Could Threaten Obamacare,” The New York Times, 7/29/19)
• “[A] government buy-in that attracted older Americans could indeed raise premiums for those who remained in the A.C.A. markets, especially if those consumers had high medical costs.” (Reed Abelson, “How A Medicare Buy-In Or Public Option Could Threaten Obamacare,” The New York Times, 7/29/19)
• “[A] government plan that attracted people with expensive conditions could prove costly.” (Reed Abelson, “How A Medicare Buy-In Or Public Option Could Threaten Obamacare,” The New York Times, 7/29/19)

As Chris Pope, a senior fellow at the Manhattan Institute sums up in National Review, “[t]he more a public option is able to achieve the increases in coverage and benefit generosity promised by single-payer, the more it is likely to yield the associated disadvantages of tax increases or cutbacks in access to quality medical services.”