POLITICS

Two-Thirds Of States Would Offer Public Option: CBO

03/18/2010 05:12 am ET | Updated May 25, 2011

The Congressional Budget Office estimates that roughly 33 states -- or two out of every three -- would offer a national, government-run insurance option for consumers even if given the opportunity to opt out of such a system.

"Rather than trying to judge which states might opt out," the CBO wrote in a letter accompanying the Senate's forthcoming legislation, "CBO applied a probability recognizing that public opinion is divided regarding the desirability of a public plan and that some states might have difficulty enacting legislation to opt out. Overall, CBO's assessment was that about two-thirds of the population would be expected to have a public plan available in their state."

The calculation seems drawn entirely out of thin air, as Time magazine's Karen Tumulty notes. And there are reasons to believe it could be either higher or lower than 66.7 percent.

The CBO estimates that only one out of every eight consumers would likely choose the public option. It's a modest, if not low, number but it is large enough to make a governor or state legislature think long and hard about removing that choice of coverage from the state exchange.

On the flip side, however, is the likelihood that by the time the public option becomes operational, statehouses in the country won't lean as Democratic. The public plan, a Senate aide confirms, would not start until 2014. And once it does become operational, states could opt out immediately.

Finally, the CBO estimates that a public plan with negotiated reimbursement rates might end up charging higher premiums than private insurers. This, of course, would make it less attractive to consumers and, by extension, state governments. But the public plan would likely attract riskier consumers -- including those who are elderly or sick or have a pre-existing condition -- which would make it all the more cruel for a governor to upend.

FROM THE CBO:

Roughly one out of eight people purchasing coverage through the exchanges would enroll in the public plan, CBO estimates, meaning that total enrollment in that plan would be 3 million to 4 million. That estimate reflects two main components:

* CBO's assessment is that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that were somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization for its enrollees and attract a less healthy pool of enrollees. (The effects of that "adverse selection" on the public plan's premiums would be only partially offset by the risk adjustment procedures applicable to all plans operating in the exchanges.)

* CBO's analysis took into account the probability that some states would opt not to allow the public plan to be offered to their residents. Rather than trying to judge which states might opt out, CBO applied a probability recognizing that public opinion is divided regarding the desirability of a public plan and that some states might have difficulty enacting legislation to opt out. Overall, CBO's assessment was that about two-thirds of the population would be expected to have a public plan available in their state.

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