Summary of RAND’s Public Options for Individual Health Insurance
In Brief
The RAND Corporation (RAND) conducted an analysis of four public option program designs and their effects on the individual health insurance market. While the effects vary across the four scenarios, the analysis concluded that each would result in a mixed set of “winners and losers,” with the negative effects largely falling on the subsidized population (i.e., many of those who currently require financial assistance to afford health insurance would be less able to afford it under these programs). However, the analysis primarily focuses on the effects of premiums – themselves driven by provider reimbursement rates – offering the ultimate conclusion that individuals must consider additional design elements other than premium amounts when developing public option programs.
Overview
The analysis examined four potential arrangements of a public option program and their effects on premium amounts, affordability, enrollment, and federal government savings. These effects ultimately informed an assessment on how such arrangements might impact the public welfare. The four scenarios RAND examined are shown in the table below.
Note that Scenarios 3 and 4 resemble Washington State’s public option program approach.
Projected Effects
As stated, the analysis examined the differing effects of these plans across a variety of dimensions. We outline those effects below.
Public Welfare
RAND estimated sizeable numbers of those who would and would not benefit under each scenario. Individuals “better off,” as RAND defined it, are those who would become newly insured or pay less for at least the same level of insurance. Those who would be “worse off” are individuals that would become uninsured or pay more for coverage. A breakdown for each scenario follows.
As shown, the effects are largely centered around the subsidized population. The driving factor in each scenario is whether it lowers APTC amounts, and, if so, by how much. For example, Scenario 1 would not affect APTC amounts, which suggested a generally positive outlook for the subsidized population. Benefits would also accrue to 3 million individuals who do not receive federal subsidies.
Implications
The analysis suggests that provider reimbursement rates and the resulting premium amounts play a significant role in affordability, enrollment, and federal government savings. In a vacuum, decisions around rate and premium setting could mean the difference between an overall increase or decrease in the general welfare.
However, premium amounts are not the only factor in determining the overall impact of a public option program. As RAND indicates, its analysis does not speak to the effects of States reinvesting federal savings on affordability and enrollment. In fact, in its assessment, RAND states that “the number of people better off outweighs the number who are worse off,” likely drawing on the assumption that States would use any realized savings to improve coverage affordability. Moreover, additional elements such as benefit design; mandated versus voluntary provider participation; and, whether one or many carriers participate in a particular public option program all have affordability implications as well.
As such, it will be important for any designer of a public option program to consider these additional elements in tandem with rate setting decisions. In addition, public option program designers must also have a clear understanding upfront of the population they primarily wish to serve (e.g., subsidized versus unsubsidized individuals) and their program goals (e.g., expanded coverage, increased affordability, increased quality, and/or robust access to provider networks). Such a multi-variate understanding will then inform the decisions a designer must make, especially when trade-offs are involved.