California's Public Option Would Not Rescue Obamacare

(A version of this Health Alert was published by the Orange County Register.)

Dave Jones, California’s Insurance Commissioner, has lifted a page from Hillary Clinton’s playbook for the rescue of Obamacare – the so-called “public option.” The public option would probably look at lot like Medicaid. Its proponents give it a less pejorative name to lull people into a false sense of confidence that the market for private health insurance would not be harmed more than it already has by Obamacare. 

However, the public option would surely lead to more of the same problems Medi-Cal (California’s Medicaid program) has experienced – poor access to care and exploding costs to taxpayers.

The term, “public option,” first appeared back in 2008, when Barack Obama proposed it during the Democratic presidential primary. It was pulled out of the Obamacare bill as it wound through the Senate, because Democrats knew voters were wary of starting yet another government health bureaucracy on top of Medicare, Medicaid, and the Veterans Health Administration. The public option never made it into Obamacare, which its strongest proponents now admit needs “fixing” before every private health insurer bails out of its broken exchanges. Fast forward to 2016, and candidate Clinton has now lifted Obama’s 2008 public option as her preferred Obamacare “fix.”

It is extremely unlikely Congress would ever approve a public option. So, Mr. Jones proposes putting California taxpayers on the hook for a state-specific version. The wheels are falling off Obamacare in California. UnitedHealth Care, the nation’s largest health insurer, only participated in the state’s exchange, Covered California, for one year before deciding to bail out. Participants are much older and sicker than the Administration or health insurers expected. So, premiums are spiraling up, beyond people’s ability to pay.

Covered California’s average premium hike next year will be 13.2 percent. This month, beneficiaries are receiving individual notices about increases. For many, the hike will be much greater than 13.2 percent because of the way federal tax credits reduce net premiums. CaliforniaHealthline reports a 56-year old woman in Los Angeles just learned her premium will jump 57 percent next year.

Covered California is already responsible for a significant taxpayer-funded cash flow. Currently, only a very small share is borne by the state. That will change if a public option relieves beneficiaries of their sky-high premiums. Last March (after the dust had settled on Obamacare’s third open season), Covered California had just under one million policies in force, covering almost 1.4 million enrollees. Total annual 2016 premiums would amount to $6.8 billion.

However, nine of ten enrollees pay significantly discounted premiums, because the insurers who write the policies receive significant tax credits to induce them to participate. Only $2.4 billion of the estimated total 2016 premium will have been paid by enrollees. Fully $4.4 billion will have been funded by federal taxpayers. So, if the public option eliminates enrollees’ responsibility to pay premium, state taxpayers would be on the hook for $2.4 billion.

But wait, there’s more! The U.S. Department of Health & Human Services estimates there are 313,000 Californians who are eligible for subsidized health insurance in Covered California, but chose to buy unsubsidized individual policies outside the exchange. It is not clear why they forgo the subsidies. Perhaps they want access to more doctors and hospitals than are available in Covered California’s infamously narrow networks. If they were freed from the responsibility of paying for any part of their premium in Covered California, surely many would get onboard.

If they are similar to the current enrollees, they would add almost half a billion dollars to the state taxpayers’ tab (while federal taxpayers pick up almost $1.3 billion.) Now, we are up to $2.9 billion at 2016 rates. Next year’s rate increases would increase the taxpayer burden significantly. Recall a 13.2 percent rate increase translates into a higher increase in net premiums because of the design of the federal tax credits. Under California’s public option, those increases would be borne by the state. And after 2017 come 2018, and 2019. Those billions of dollars will add up pretty quickly.

And for what? Narrow networks that will shrink even further under these cost pressures, as the government and insurers squeeze doctors. Neither a federal or state public option can rescue Obamacare. Insurance Commissioners and other state politicians disappointed with Obamacare’s outcomes must demand Congress to start again, on a reform that puts patients first.