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Health Insurance Reform Daily Mythbuster: The 'Cost' of the Public Health Insurance Option

Opponents of health insurance reform and some members of the news media continue to repeat a myth that the public health insurance option will cost $1 trillion.  In fact, the public option in America's Affordable Health Choices Act will cost U.S. taxpayers ZERO over the next 10 years...and beyond. 

Myth: The public health insurance option will cost U.S. taxpayers $1 trillion. 

Fact: Under America's Affordable Health Choices Act, the “price tag” to the American taxpayer of the public health insurance option will be ZERO over the next 10 years and into the future.  Under the bill, this public health insurance option is government-run, but it is not government-financed; it is financed by the premiums of those who choose to enroll in the option.  Section 222 of the bill stipulates that the costs of the public health insurance option MUST be covered entirely by premiums.  Furthermore, many analysts believe that a public health insurance option will actually result in savings to taxpayers because it will increase competition and put a downward pressure on premiums.

Here are the specifics:

  • America's Affordable Health Choices Act creates a public health insurance option to offer competition to private insurers on the Health Insurance Exchange.  The bill contains provisions to ensure that this competition will be on a level playing field - which is why Section 222 of the bill stipulates that the costs of administering the public health insurance option MUST be covered entirely by the premiums paid by those enrolled.  The bill states, “The Secretary shall establish  … premium rates for the public health insurance option …at a level sufficient to fully finance the costs of health benefits provided by the public health insurance option and administrative costs related to operating the public health insurance option.” 
  • The bill recognizes that there will be initial start-up expenses to get the public option up and running.  As a result, under Section 222 of the bill, the public health insurance option is appropriated $2 billion for expenses in starting up the plan - but the bill requires that this funding must be paid back over the first ten years through premiums. 
  • As a result, the cost of the public health insurance plan to U.S. taxpayers will be ZERO over the next 10 years and beyond.  However, families and businesses will see significant savings as increased competition brings premiums down.
  • The Congressional Budget Office found that the total cost of the health reform provisions in the bill as introduced - which achieve health care coverage of 97 percent of the population by 2019 - is $1.04 trillion over 10 years.  However, these costs are NOT for the public option.  Rather, about 60 percent of the cost of the bill is for providing subsidies to help Americans buy coverage on the Health Insurance Exchange (where numerous private plans, as well as a public option, will be offered); about 35 percent is for expanding eligibility for Medicaid to those with incomes up to 133 percent of poverty; and about 5 percent is for tax credits for small businesses that want to offer coverage to their employees.  Under the bill, the $1 trillion cost is fully paid for - and the health reform provisions of the bill are deficit-neutral.
  • Many analysts point out that there is far too little competition in the private health insurance market in many parts of the country.  Of the 43 states studied by the American Medical Association, the top two health insurers control 50 percent or more of the statewide health insurance market in all but four of those states.  These analysts predict that the existence of a public health insurance option will result in savings for families, businesses, and taxpayers -- by significantly increasing the competition in the health insurance marketplace and putting a downward pressure on premiums.