Abstract: Supporters of a federal public option contend that a government-run health plan will reduce federal deficits. These projected deficit savings are predicated on two major, but unrealistic, assumptions. First, public option proposals assume that the government will reimburse hospitals and providers at rates lower than paid by private insurers. Second, the proposals require plan premiums to fully cover plan costs. But the historical evidence demonstrates that Congress has generally been unwilling to maintain similar program rules in the face of strong political pressures. If Congress follows its past behavior, a public option could add over $700 billion to the 10-year federal deficit, with dramatically larger losses in subsequent years. Furthermore, to avoid large increases in deficits, a politically realistic public option could require tax increases on most Americans, including middle-income families.
Read the paper: The Fiscal Effects Of The Public Option.pdf