Nov. 3 (Bloomberg) -- Economists skeptical about a U.S. government-run health-insurance plan have new evidence to support their argument that it won’t force private insurers to cut premiums.

The Congressional Budget Office says a version of the so- called public option backed by House Democrats would charge “somewhat higher” premiums than the average private insurance policy offered on a government-sponsored exchange to be set up to sell coverage to small businesses and individuals.

That counters claims by President Barack Obama and House Speaker Nancy Pelosi that the public option would charge lower premiums to “keep insurers honest.”

One reason premiums may be higher: Pelosi, seeking votes to pass a $1.055 trillion House health bill, decided against a “robust” public option, which would peg doctor reimbursements to Medicare rates to cut costs. Instead, she proposed that the new program negotiate fees it pays providers.

“The robust option had a lot more power to buy services from providers at much lower rates than private insurers paid,” said Paul Ginsburg, an economist who heads the nonpartisan Center for Studying Health System Change in Washington. “That would have been a big deal.”

Insurance Competition

The House and Senate are considering legislation to expand health coverage to tens of millions of uninsured Americans and try to rein in costs. The public option is among the most contentious issues, opposed by every Republican and some Democrats, who say it would offer unfair competition to insurers such as Indianapolis-based WellPoint Inc. and Hartford, Connecticut-based Aetna Inc.

House Democratic Leader Steny Hoyer told reporters today the House will start debating the measure later this week, with a vote on final passage possibly as early as Nov. 7 and no later than Nov. 10.

The Congressional Budget Office yesterday also reported that health-care costs would eat up as much as 20 percent of income for some families, even those getting subsidies, under legislation being considered by the House.

Families of four with annual incomes of $66,000 would be eligible for $10,500 in subsidies if they purchased insurance on health exchanges created in the bill and would still pay $10,000 to cover premiums, deductibles and co-payments, the CBO said.

MIT Analysis

Jonathan Gruber, an economist at the Massachusetts Institute of Technology in Cambridge, told reporters that his analysis of the House bill and CBO estimate suggests that families buying insurance on the non-group market would save $1,260 a year and individuals $470. Subsidies for low-income consumers would provide “better benefits at a lower price,” Gruber said.

Since Massachusetts set up such exchanges in 2007, the average individual premium in the non-group market has fallen 40 percent, while rising 14 percent nationwide, he said.

On the public option, the CBO said in an Oct. 29 letter to congressional leaders that rates paid by the program to doctors and hospitals would “on average, probably be comparable to those paid by private insurers” that sell on the exchange.

The public option wouldn’t curb benefit payouts as much as private insurers by managing how people use health care, the CBO said. It would also incur higher costs because it would draw a “a less healthy pool of enrollees.”

“Attracting sicker people” and doing less “utilization management than private plans” would “put the public plan in a weak competitive position,” Ginsburg said.

Unfair Advantage?

Some economists also say the public option would have the unfair advantage of not being taxed and, if it loses money, to ask Congress to make up the shortfall.

“I am skeptical of the ability of the public plan to deliver meaningful competition while keeping within a break-even budget constraint,” said Leemore Dafny, a health economist at Northwestern University’s Kellogg School of Management in Evanston, Illinois. “Sure, it will inject competition if they don’t have to break even.”

The CBO estimated the House public option would attract 6 million people. Some economists say that to dictate lower fees it pays to doctors and hospitals, the public option would need more enrollees.

Hoyer, of Maryland, said the CBO’s estimate rebuts the Republican argument that the public plan would “drive the private-sector insurance companies out of business.”

Curbing Costs

The public option would be included on the new online exchanges intended to extend insurance to individuals and small business owners. Top House Democrats said the CBO estimates on premiums confirm that their bill will curb costs.

“This underscores that this legislation will control health costs and lower health-care premiums for families and individuals,” Representatives Henry Waxman, Charles Rangel and George Miller said in a joint statement.

Waxman, a California Democrat, is chairman of the Energy and Commerce Committee. Rangel, of New York, heads the Ways and Means panel. Miller, a California Democrat, runs the House Education and Labor Committee.

The chairmen said under their bill premiums for a family making $102,100 would be $15,000 by 2016. “This is well below the $24,000 family premium expected if Congress fails to act and premiums grow as projected under current law,” they said.

‘A Risk’

Republican lawmakers, insurance industry officials and some economists contend that the advantage of government subsidies would eventually push private competitors out of the market, leaving only a government-sponsored health insurer.

“It’s a risk,” said Maine Senator Olympia Snowe, the only Republican in Congress to show willingness to support a Democratic health plan.

Snowe said she’s working with Democrats who oppose the public option, which is included in the proposal Democratic Leader Harry Reid says he will submit to the Senate for a vote.

House Republicans, meanwhile, say they are moving to introduce alternative legislation that focuses more on curbing the cost of premiums and medical care than on the Democrats’ goal of achieving universal coverage.

House Republican Leader John Boehner told reporters yesterday the legislation would allow small businesses to pool together to purchase group employee insurance at lower rates. It would also permit businesses and individuals to buy insurance across state lines to give consumers more choice.

“If you drive down costs you are going to expand access” to care and health-insurance, Boehner said. The legislation will also end “junk lawsuits” against doctors, he said.

Boehner said the legislation wouldn’t bar insurers from refusing to underwrite people with preexisting medical conditions, a centerpiece of the Democratic proposal. Instead, it would encourage the expansion of risk pools, now operated by 34 states, to help people to obtain insurance even if they were disqualified by private insurers, he said.

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

Last Updated: November 3, 2009 15:43 EST