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The Public Option and Cheap Health Insurance Posted: December 9th, 2009

By Sanford Ellowitz

Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries.

For those seeking cheap insurance, the choice between the public and private options may come down to cost.

The Public Option or the Private Option.

When it comes to a health insurance comparison, weighing the merits of the public plan versus the private plan may come down to premiums for most people.

A Health Exchange with a Public Option

The health care overhaul bill passed by the House, in November 2009, provides for a national Health Insurance Exchange. The Exchange is meant to pool together individuals who do not have health insurance. This consortium model should allow individuals to purchase insurance at rates that are more competitive than premiums for individual policies.

How a Public Option Would Work

Under the proposed legislation, the plan would be administered by the Department of Health and Human Services. It would pay negotiated rates to health care providers and would have to be financially self-sufficient. 

A key feature of the Exchange is that it will offer both private plans and a public option.

Cheap Health Insurance As a Result of the Public Option?

The public option is meant to help lower insurance costs by providing competition to the private plans that would be in the Exchange. Having competition is especially important because many insurance markets are currently served by only a limited number of insurers. The Congressional Budget Office (CBO) estimates that the public plan would help provide competition because of the enrollment numbers it is estimated to attract.

In response, private plans may offer more coverage, different options or cut administrative and marketing costs in order to compete with a public plan, all of which may help to bring about cheap health insurance.

Support for the Public Option is Not Unanimous

Some industry groups that support the public plan want to make sure that government subsidies are not provided to the public plan, so that there is fair competition between public and private plans. Others feel that any public plan could bring more government intervention into the health care field and will do nothing to reduce costs.

Whether the public option ultimately becomes part of health care reform remains to be seen. The Senate must pass its own version of a bill, which may or may not have a public option.

Sanford Ellowitz