Ever since the CBO said that the public option based on negotiated rates will have higher premiums than the public option based on Medicare plus 5% rates, conservative politicians like Lieberman have used the CBO score against it. Here's why the public option based on negotiated rates will have higher premiums is because it'll function too well.
Per the CBO:
That estimate of enrollment reflects CBO’s assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are 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 by 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 that would apply to all plans operating in the exchanges.)
What the CBO is saying that the public option would likely cover a pool of sicker patients is because the patient pool will likely be comprised of people who have gone too long without insurance, thus having hidden medical problems, and people who are just plain tired of being jerked about by private insurance companies. Basically, the CBO is also saying that private insurers will continue to cherry-pick by selecting healthier people and having lower premiums as a result. The public option would be required to accept all comers, which means sick people would be one reason why the public option would have higher premiums based on negotiated rates since the public option isn't concerned with the profit margin and the need to deny claims as private insurers are.
As Jon Walker says about the public option having higher premiums is because of weak risk adjustment mechanisms within the House bill.
The public option would be one of the best health insurance providers on the new exchange (if not the only good one). As a result, it will attract the sicker customer base which has been screwed over by private insurance companies. This is called “adverse selection.” It would have slightly higher premiums, ironically, because it can provide health care at a lower cost. The public option’s problem is that it would be one of the only plans doing its job properly and not trying to get around the regulations at every turn.
This illustrates a serious, reform-crippling problem with the House’s bill. It has an insufficient “risk adjustment” procedure. The risk adjustment mechanism should be a re-insurance program that redistributes a large amount of money among the plans on the exchange based on the health of their different customer bases. Without a strong risk adjustment mechanism you are literally guaranteeing it will be impossible to get high-quality, low-hassle insurance on the new exchange.
This is why the Congressional Progressive Caucus should seek to address the issue of adverse selection through perhaps pressing for a re-insurance program, which is what is in the Senate Finance Committee bill, and working to strengthen possible loopholes in the bill like the fact that private insurers can still drop patients off the rolls with the "fraud" loophole. They will still have their team of investigators looking through your records to see if you've committed "fraud," thus driving you off their rolls, and to some other insurance company or to the public option.
That loophole should be gotten rid of, and if private insurers want to drop policyholders off their rolls, they should go to the government and present proof of "fraud" in court also before dropping the patient off their roll. Also, there should be a limited window for looking through a patient's policy to check for "fraud." They shouldn't go back six or seven years on your policy to see if you remembered what your doctor prescribed you, or if you forgot to submit a claim about the medicine to the insurance company. That's a huge loophole in the bill because it's what private insurance companies currently use to deny policies to sick patients by saying these sick patients have committed "fraud" so they can drop them off the rolls.
This is what is currently in the House bill according to jpmassar below for governmental review of "fraud" presented by the insurance company. This provision can only be helped by stronger risk adjustment management in the bill such as the re-insurance program in the Senate. There are a variety of other ways to manage adverse selection as seen in other countries' insurance programs.
15 (2) INDIVIDUAL HEALTH MARKET
18 ‘‘(f) RESCISSION.—A health insurance issuer may re
scind individual health insurance coverage only upon clear
20 and convincing evidence of fraud described in subsection
21 (b)(2), under procedures that provide for independent, ex22
ternal third-party review.’’.
23 (3) GUIDANCE.—The Secretary of Health and
24 Human Services, no later than 90 days after the
25 date of the enactment of this Act, shall issue guidance implementing the amendments made by paragraphs (1) and (2), including procedures for independent, external third-party review.
4 (c) OPPORTUNITY FOR INDEPENDENT, EXTERNAL
5 THIRD-PARTY REVIEW IN CERTAIN CASES.—
NOTICE AND REVIEW RIGHT.—If a health insurance issuer determines to rescind health insurance cov-
erage for an individual in the individual market, before such rescission may take effect the issuer shall provide the individual with notice of such proposed rescission and an opportunity for a review of such determination by an independent, external third-party under procedures specified by the Secretary under section 2742(f).
20 ‘‘(b) INDEPENDENT DETERMINATION.—If the individual requests such review by an independent, external
22 third-party of a rescission of health insurance coverage,
23 the coverage shall remain in effect until such third party
24 determines that the coverage may be rescinded under the
25 guidance issued by the Secretary under section 2742(f).
They should be pressing for a manager's amendment to address this issue of adverse selection. This is one of the many ways the Congressional Progressive Caucus can do to strengthen the public option besides pressing for a Medicare plus 5% amendment.