We’re about to learn a lot about how a public health insurance option actually works in the US.
Colorado Gov. Jared Polis on Wednesday signed into law a public health care option, making it the third state in the US to approve the creation of a government-run health insurance plan to be sold alongside commercial coverage on the Affordable Care Act’s insurance marketplaces.
More than a decade ago, a federal public option was cut out of the ACA, largely because of objections by centrist Senate Democrats. Now it’s enjoying a revival of sorts. President Joe Biden campaigned on a public option in 2020, and while the chances of his proposal (or something like it) passing at the federal level have faded, Democrats in Congress are seeking input on what a federal public option should look like.
But some states aren’t waiting for Congress to act. Their public options may be more limited than what a possible federal version could be, but they are still valuable experiments that will test the concept in the real world.
Washington state first approved its public option in 2019 and made it available to consumers for enrollment in 2020. The state now has a year of experience getting the Cascade Care program up and running, and it’s already starting to tinker with the policy design. It’s also offering lessons for Colorado and Nevada (the other state to pass a public option this year, one week before Colorado).
As these states have drawn up their plans, one thing has become clear: The potential value of a public option is in keeping health care costs in check by keeping rates lower than those of private insurance plans. But it still remains to be seen whether a public option can expand health coverage to more people.
Already, more than half of the uninsured in the US are eligible for either Medicaid enrollment or ACA subsidies for private coverage. Surveys have shown that price concerns often keep them from enrolling — so if these public options can help put a check on rising health care costs, perhaps they can also have an effect on coverage. But that is an open question at this point.
“The jury is very much still out on whether the public option will expand enrollment,” Sabrina Corlette, co-director of the Center on Health Insurance Reforms at Georgetown University’s McCourt School of Public Policy, told me.
“The unifying theme of these three bills is they try to reduce health care costs for consumers by tackling provider prices,” she said of the public options in Washington, Colorado, and Nevada. “Time will tell whether they also expand coverage as a result of lowering premiums.”
With three state-level public options now out in the wild, we’re getting a clearer idea of the traits they share and how they are distinct. Even if nothing happens in Congress, the coming years will be a natural experiment in how to run a public option.
What the Washington, Colorado, and Nevada public options have in common
None of the states offer a “public” option like the one Congress contemplated in 2009, where the government sets up and administers its own health insurance plan.
“None of them are true public options in that sense,” says Katie Keith, who writes about insurance reform for Health Affairs and consulted with states as they developed public option legislation.
Instead, she compares them with public-private partnerships. States are contracting with private companies to create new insurance options to be overseen, if not run, by the government. States would face practical challenges to doing a “true” public option — namely, building up the financial reserves they’d need to pay out claims — so they’re taking another approach wherein private insurance companies will run the public option under rules set by the government.
This isn’t unprecedented: Medicare and Medicaid already rely on private companies to administer benefits for some of their enrollees.
The plans will be sold on the ACA marketplaces, alongside ACA-compliant private insurance. Only people who are eligible for ACA coverage through the individual and small-group market can sign up; these plans aren’t the kind of public option contemplated by some Democrats during the 2020 presidential campaign, which would also have allowed people who have large-group coverage to enroll.
All of these states are also trying to save money for both the government and consumers. Nevada, for example, has established very specific goals: The public option should have premiums that are 5 percent lower than a benchmark plan in the short term; over the longer term, the goal is to bring premiums down to 15 percent below comparable private plans on the market. Similarly, Colorado will require public option plans to reduce premiums by 15 percent over three years.
Importantly, all three states are pursuing waivers from the federal government. (Washington didn’t originally, as the Trump administration was categorically opposed to state-level public options, but new legislation requires the state to do so.) Those waivers would allow the states to keep any savings achieved for the federal government through lowering premiums (and therefore ACA subsidies). That money can then be used to provide more financial aid to cover people’s premiums or otherwise decrease health care costs.
But these states are deploying different strategies to achieve their savings, as well as to make sure doctors and hospitals actually accept the public option so that patients can get the medical care they need.
How these three state-level public options are different
At first glance, these state public options look very similar. But in the details, they have several important distinctions.
How much to pay health care providers is the most important issue for any health insurance plan — those prices dictate the premiums charged to customers — and these states are taking divergent approaches in their calculations.
Washington has capped provider payments at 160 percent of Medicare payment rates. Colorado has dictated that provider rates can’t be lower than 155 percent of Medicare; however, if insurers fail to achieve a 15-percent premium reduction, the state insurance commissioner has the authority to mandate lower rates. Nevada has said its public option can’t pay providers less than Medicare, but it otherwise leaves flexibility for the plan to hit its own premium-reduction targets.
One challenge in trying to set lower provider rates is that doctors and hospitals might simply choose not to accept the public option plan. That was Washington’s experience in its first year: Some hospitals refused to contract with the public plan, and since an adequate provider network isn’t possible without a hospital, the plan has only been available in 19 of the state’s 39 counties.
Washington is trying to correct that issue through recently signed legislation that will, among other things, require hospitals in large systems to participate in at least one public option plan. Nevada and Colorado, having seen Washington’s network-adequacy issues, are setting up their own provider participation requirements from the start.
“Nevada and Colorado clearly took a page from Washington’s experience,” Georgetown’s Corlette said.
In Nevada, if a provider accepts the state employee health plan, workers’ compensation, or Medicaid, they must accept the public option. Meanwhile, hospitals in Colorado will be required to accept the public option — with the threat looming that if costs don’t come down quickly enough, the state could step in and mandate lower reimbursement rates.
For benefits, Colorado and Washington are establishing what’s called a standardized benefit plan through their public options. With standardized benefits, some services (primary care visits and generic prescription drugs, for example) are provided at either no cost or for a small copay, even if the policyholder has yet to meet their deductible. Other common medical services have clearly defined cost-sharing obligations for patients, designed to make it easier for customers to know what they’ll need to pay out of pocket for health care if they sign up for that plan.
Nevada, on the other hand, hasn’t said how benefits have to be structured under its public option, nor what the cost-sharing obligations for patients must be.
When you look under the hood, there are important differences in how these public options will operate. But they’re all striving toward the same goals: lower health care costs and, hopefully as a result, more coverage. The test now is whether they can achieve their objectives.
“It will be interesting to see if additional intervention is needed,” Keith said, “or if this can be successful.”
“An historic shift in U.S. housing policy.”
The Treasury Department is waving a warning flag to Congress and other policymakers about the housing market. Its message? The country is quickly running out of homes, and you need to do something about it.
Traditionally, the federal government’s housing policies have been demand-side interventions. Things like the mortgage interest deduction, which reduces homeowner’s taxes (stimulating demand) or the Fed buying up over a trillion dollars in mortgage bonds to help bring down mortgage rates (also stimulating demand). These types of policies are broadly popular since they help people afford something expensive. But they don’t do anything to reduce the cost of housing.
Now, in a memo authored by Deputy Secretary of the Treasury Wally Adeyemo, he makes the case for an increased focus on supply-side interventions. Simply put: We need to build more homes.
“Ultimately, the biggest driver of the lack of affordable housing today is a supply constraint that has existed before the COVID pandemic but has been exacerbated by the pandemic,” Adeyemo tells Vox.
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Erin Scott/Bloomberg via Getty Images
In the memo, he writes: “Critically, the Biden-Harris Administration is undertaking an historic shift in U.S. housing policy by focusing on supply constraints and the availability of affordable housing units, including multifamily rental units.”
Adeyemo is right: The supply problem is the biggest problem in the housing market. Not only is it the fundamental cause of skyrocketing prices over the last year, it was responsible for the burdensome cost of rent and homes before Covid-19 ever hit the United States and it opens the door to increased discrimination.
The memo outlines a few policies that Treasury believes will help alleviate the problem, all of which it would need Congress’s help to implement:
- Tax credits that make it “cost-effective to build new units of affordable housing and to rehabilitate existing homes in poor condition”
- Roughly $94 billion in additional subsidies to “build and preserve rental housing for the lowest-income renters”
- $40 billion to invest in America’s public housing stock
- $5 billion incentive program to “reward jurisdictions” that remove exclusionary zoning policies
Those policies themselves aren’t new proposals for Biden’s administration. Those four listed above are some of the housing policies in the American Jobs Plan, which Treasury estimates will “generate [the] production or preservation of more than 2 million affordable housing units.” What’s significant about the memo is its focus on supply. Adeyemo is making the case that the federal government cannot remain content with just helping people afford expensive housing — it has to do something to address the cost of housing itself.
The Treasury Department did not confirm with Vox how many units are going to be produced vs. preserved. While preserving existing affordable housing is important and ensures supply does not decrease, that only keeps the US at the status quo, which is a market with a roughly 4 million home shortage and where roughly 46 percent of renters are rent-burdened.
While this is a good signal of the Treasury’s and the Biden administration’s priorities, the proposed policies are unlikely to do enough to solve the supply crisis — and that’s if Congress gets on board.
What Biden’s plan will and won’t do
It’s hard to see how Biden’s current plan will substantially tackle the nation’s lack of housing. It’s a good first step, but at this point, federal policymakers remain unsure of how to effectively reduce local zoning measures that have suffocated the housing stock, in particular affordable housing in high-demand regions. So most of the housing plans are focused on measures that try and get at the problem in other ways.
Take the multi-billion investment in public housing, for instance. According to a 2019 report by the National Low Income Housing Coalition, there is a $70 billion backlog in public housing maintenance and repairs. So, it’s highly unlikely much of the $40 billion Biden’s team is proposing for public housing would go to increasing the nation’s housing stock. This doesn’t mean it’s not worth doing, it just doesn’t address the problem the memo is ostensibly about.
The policy in the memo that is the most likely to produce affordable housing is the investment in tax credits. One such tax credit is the low-income housing tax credit (LIHTC), which, according to 2018 research by the Urban Institute, is responsible for the creation or preservation of roughly 2.3 million housing units. Biden has proposed investing $55 billion in LIHTCs over 5 years.
More to the point, there is widespread agreement that the biggest cause of America’s supply crunch is local zoning rules, which have made it illegal to build many types of affordable housing, especially in the most job-rich regions.
These rules, things like minimum lot sizes which force developers to build large homes on large plots of land or parking minimums which make it inordinately expensive to build many affordable multi-family units, have driven up the cost in the most high-demand regions. In turn, that has forced many people who live in those regions to seek housing in more affordable places, thereby increasing demand in previously affordable communities and creating cascading supply issues throughout the country.
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Mandal Ngan/AFP via Getty Images
The $5 billion that the federal government is seeking to allocate is very small in the face of that problem. A senior Treasury official said that this was a moderate amount of money but that the current goal is primarily to learn from what localities do in response to these funds and see what works to see how the federal government can target the most harmful policies.
The official added that the $5 billion will likely be a mix of Sen. Amy Klobuchar’s proposal to provide localities with grant assistance to figure out how to re-do their zoning laws and the original White House proposal that would only grant localities funding once they have removed the harmful zoning laws.
There is widespread research on the harm of these policies both to the lives of working-class Americans and the general economy. The problem with eliminating exclusionary zoning laws isn’t technical or academic, it’s political.
Some local homeowners seek to block the development of new housing either out of concern for their own property values or a personal dislike of the kinds of people they assume will be able to live in their communities if more affordable housing units are built.
Over the last year, homeowners have accumulated over $1.5 trillion in home equity, according to research by CoreLogic. It’s likely that unless these exclusionary zoning laws are removed, the incentive to continue restricting the building of more housing will win out.
If the $5 billion measure to tackle exclusionary zoning laws passes, the Biden administration would be going further than any previous administration has in challenging exclusionary zoning — but it’s nowhere near enough to tackle the problem.
Memos are all well and good, but the real decision-maker is Congress
Historically, Congress hasn’t been interested in intervening on the supply-side. Why? Demand-side policies are fun! Policymakers get to help their constituents afford something without having to do the hard and often politically dicey work of making something cheaper. But it also means that the government often fails to tackle the root of the problem.
“One of the worst tendencies in American politics is to restrict supply and subsidize demand,” economist Tyler Cowen wrote in a 2019 Bloomberg column, crediting the phrase to economist Arnold Kling. “The likely result of such policies is high and rising prices, restricted access and often poor quality. If you limit the number of homes and apartments, for example, but give buyers subsidies, that is a formula for exorbitant prices.”
This is exactly the problem in the US housing market today. To be fair to Congress, it’s local governments that have restricted supply, while Congress has come behind them trying to subsidize the rising cost of housing and rent. But the national economic impact of these goes beyond the local level: Researchers have estimated that the nation lost a whopping 36 percent in economic growth from 1964 to 2009 due to these policies.
It’s a hard problem because many of the demand-side policies are worthwhile ones.
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Chris Delmas/AFP via Getty Images
For example, universalizing housing vouchers would provide an additional 11 million people with help affording their rent, reduce domestic violence, food insecurity, and child separations from their parents. But at a time when the supply of affordable housing is low, there’s evidence that landlords would be the beneficiaries of the policy as increased demand would lead to increased rents. Further, any low-income households that don’t participate in the program could see higher rents. The government should fully fund the voucher program anyway, but the bottom line is without more supply, there is a fixed amount of people that can be housed no matter how many subsidies are provided.
Congress is also considering passing a “down-payment assistance bill [that] would provide $25,000 to first-time homebuyers, but only those who are first-generation homebuyers and economically disadvantaged,” reports HousingWire. If the bill passes, there may be a few more low-income and first-generation Americans who are able to purchase a home. But it will predominantly be a giveaway to existing homeowners, who are on average wealthier than the general public, because it will raise the value of their homes.
Adeyemo argues in favor of doing both: “You’ve got to do things to make sure that even in a tight housing market, people of color and low-income people aren’t left out. But the place where we want the most resources at the moment is trying to stick with supply-side constraints. We need to make sure that renters don’t see rents go sky-high and ultimately the benefits of homeownership are accrued to the home-buyer rather than to the institution that owns the home.”
“Getting this balance right is going to be important,” he added. “Congress has largely focused on the demand side, providing vouchers, finding down-payment assistance. What we’re trying to signal with this piece is that we also want to work with them on the supply side because it’s often something that people haven’t emphasized.”
The FTC currently enforces federal privacy laws. Gillibrand doesn’t think it’s enough.
Sen. Kirsten Gillibrand (D-NY) is introducing a revamped version of her Data Protection Act, which would create a new government agency in charge of regulating and enforcing federal privacy laws — the ones we have now as well as any we might get in the future.
“Big Tech companies are free to sell individuals’ data to the highest bidder without fear of real consequences, posing a severe threat to modern-day privacy and civil rights,” Gillibrand said in a statement. “A data privacy crisis is looming over the everyday lives of Americans and we need to hold these bad actors accountable.”
The bill builds on her 2020 version in ways that seem to reflect the Biden administration’s agenda and the fact that Democrats now have control over both houses of Congress and are therefore more likely to be able to carry out that agenda. It also includes new sections addressing antitrust and civil rights.
The Data Protection Act isn’t a privacy bill in and of itself. Rather, it establishes a Data Protection Agency, whose job would be to regulate and enforce federal data privacy laws. The bill also spells out some prohibited data collection and usage practices, including those that are discriminatory or deceptive, and bans re-identifying users from de-identified data.
The agency would also, in this new version, review the privacy implications of any mergers that include transferring the data of at least 50,000 users — think Facebook and Instagram, but also those of data brokers like Oracle’s acquisition of BlueKai. That review would then be sent to the Federal Trade Commission (FTC) and the Department of Justice to be used in determining whether to allow the mergers to go through.
The Data Protection Agency would also have its own Office of Civil Rights that ensures data is not collected or used in a way that discriminates against protected classes. Facebook allowing users to place housing ads that exclude certain races and ethnicities is one example of this, but there are myriad ways that data you didn’t even know you were providing can be used against you — and there’s no one agency responsible for overseeing those violations.
Currently, enforcing federal privacy laws generally falls to the FTC and state attorneys general. This bill would take that out of the FTC’s purview, and opinions are divided on whether this is a good idea. Some believe the power should stay with an established agency that can be expanded to better take it on. The FTC recently said it needed more people and new units to properly tackle privacy issues. The agency currently only has about 40 people dedicated to privacy matters out of its roughly 1,100 full-time employees. Washington Rep. Suzan DelBene’s privacy bill, introduced in March, would give the FTC significantly more money and employees, which she told Recode she believes is a better way to regulate privacy than a new agency.
“There’s nothing wrong with the FTC that can’t be corrected with stronger legal authority and more resources,” Cameron Kerry, a fellow at the Brookings Institution’s Center for Technology Innovation, told Recode last March. “I think it’s got experience. You don’t just stand up a new agency. I think there are advantages to having an agency doing this that also has competition authority.”
But others point out that many countries have data protection authorities, and a dedicated body is needed considering the huge companies and ecosystem it would be regulating — data collection is, in many ways, the backbone of the internet and mobile apps. The FTC, many argue, has fallen short on data privacy and is frequently called “toothless” for levying fines against Big Tech companies that are essentially slaps on the wrist — first offenses often don’t even merit a fine. Even the enormous $5 billion fine the FTC handed down to Facebook for privacy violations didn’t seem to make a dent in the company’s bottom line, and only happened because Facebook violated a 2012 settlement that didn’t require it to pay a fine at all.
And Gillibrand isn’t the only lawmaker who wants an agency like this: California Reps. Anna Eshoo and Zoe Lofgren’s Online Privacy Act called for a Digital Privacy Agency, and that bill could also make a reappearance this Congress. Ohio Sen. Sherrod Brown’s draft version of his Data Accountability and Transparency Act included a provision establishing an independent agency, and his office told Recode he intends to introduce his bill this Congress. He’s a co-sponsor of Gillibrand’s bill. Meanwhile, California will soon have its own Privacy Protection Agency.
It’s also not yet known where data privacy will fall on the FTC’s docket, now that Lina Khan is the agency’s chair. Khan rose to prominence as a Big Tech critic and antitrust expert, and her appointment reflects that the Biden administration wants to prioritize those antitrust matters, as do lawmakers in both parties and both houses of Congress. Khan was a co-author of the House Democrats’ massive antitrust report, which blamed Big Tech’s perceived anti-competitive practices for eroding user privacy. Data privacy will likely be a part of her agenda, but it may not be the focus.
Perhaps the biggest issue with this bill is not the bill itself but what the agency it creates would be able to do. While the US does have data privacy laws, almost everyone — including the companies the laws target — agrees that existing regulations aren’t enough and don’t reflect the online-centric way many people live their lives now. They just don’t agree on how to address that problem, so federal privacy bills have historically gone nowhere. And that’s something this bill can’t fix.