Disrupting employer health coverage: A new (low-cost) public option is in the works

With the open enrollment period in full bloom, this may be a good time for health plan sponsors to consider whether the proposed Choose Medicare option would fit into their insurance matrix going forward.

The Choose Medicare Act, introduced in the Senate by Chris Murphy (D-Conn.) and U.S. Senator Jeff Merkley (D-Ore.), would expand the federal government’s insurance programs by creating a new public option based on the Medicare model. Specifically, it is designed to extend affordable coverage to those in concentrated markets who currently either go without health coverage or are forced to take a costly version due to a lack of options.

For employers, it would represent another plan for employees seeking basic, affordable coverage. Small employers that previously didn’t offer coverage, or only offered coverage with multiple barriers to access, would be able to include it in a benefits package without adding to their cost structure.

But would it make sense for employers to include it? A recent analysis by the Urban Institute thinks it does, depending upon the employer.

The Act has been introduced into both chambers of Congress. While it is unlikely to be taken up this session, this is the bill’s second time around, and it appears to be gathering momentum.

Those in the general population who lack affordable and usable health insurance are the primary concern of the Act. But the Urban Institute study notes that it would also be relevant to employers. For instance, the option would induce more employers to offer coverage as a benefit, thus expanding workplace-based coverage.

“The Choose Medicare Act would increase coverage by 3.6 million [U.S. residents] relative to the baseline. Employer coverage increases by 1.0 million as more employers offer coverage and more employees take up the lower cost and, in some cases, more generous health insurance offers under the public option,” the report states. “Extending the public option to the small group market increases employer coverage by 1.4 million because the public option is attractive to small employers who face higher premiums than large employers in the current market. The increase in employers offering the public option results in some switching from subsidized and full-pay non-group coverage.”

However, in theory, about the same number of folks would drop employer coverage.

“This increase offsets the number of individuals leaving employer coverage to enter the Marketplace (from firms that do not offer the public option) where they are eligible for subsidies.”

In that way, the option benefits employers that did not previously offer credible coverage, and it relieves other employers by reducing the number of workers on company plans. Theoretically, employees benefit in either case with true insurance and improved health. As the Institute’s study explains:

“Employers face new choices. They can retain current coverage; in this case, the firewall facing their workers is lifted, and they can enter the Marketplace and have access to subsidies, either in the public option or another plan. If [employers] choose to offer coverage in the public option, many people will take up these offers because they are now lower cost than existing coverage. More firms also would offer coverage because the cost of offering insurance has been reduced.”

Overall, the study estimates, employer spending on premiums falls by $23.3 billion a year.

Lead researcher John Holahan, an Institute Fellow at the Institute, said the full impact of the Act on the employer market remains unclear because the details of the public option have yet to be determined. The act’s influence would be primarily felt in concentrated markets where small-to-mid-sized employers now have difficulty providing affordable coverage to employees. But since the mission of the legislation is to expand coverage without becoming too disruptive within the insurance industry, he suspects the option will be structured so that brokers can offer it alongside traditional products to employers.

“If the option is designed so that brokers can sell it, they should have more business,” he said. “I think it would be an easy way for employers to navigate this world.”

Brokers can play an important role in bringing the public option to the employer market, he said.

“They [brokers and the government] will have to do a sizable outreach so that employers and individuals know about it. It will take quite a bit of advertising,” he said, comparing it to the public awareness campaign that accompanied the unveiling of Obamacare.

The study observes that Choose Medicare is almost certain to encounter resistance from insurers and providers.

“A public option will be disruptive in many markets. There may be little effect in already competitive insurance markets, but in less competitive markets, the public option would introduce a new choice and could be opposed by insurers. Providers will also face lower payment rates, and there could be serious financial pressures in the markets with the greatest impacts. Reductions in payment rates will affect powerful providers, particularly hospitals in more concentrated markets, and could be strongly opposed.”

Related: Uninsured rate on the decline: But who goes without health insurance?

Holahan said the legislative process will doubtless be a difficult one. But, he said, it offers relief for millions of underinsured or uninsured Americans and seems to be moving ahead.

“It’s out there now so people can think about it and discuss it. We continue to see rising costs and that’s going to keep coming back. So what are we going to do? This is one option that appears to offer a solution.”