The traditional media has really latched onto CBO prediction that only 6 million people would use the public option. It is important to remember that the CBO is not a health insurance market expert and is known these days for being highly conservative. For example, the CBO’s analysis made several assumptions about the public option in the House bill that are very conservative:

Under the proposal, certain employers could allow all of their workers to choose among the plans available in the exchanges, but those enrollees would not be eligible to receive subsidies via the exchanges. [...] CBO and JCT expect that approximately 9 million people would obtain coverage in that way in 2019, bringing the total number of people enrolled in exchange plans to about 30 million in that year. Roughly one-fifth of the people purchasing coverage through the exchanges would enroll in the public plan, meaning that total enrollment in that plan would be about 6 million.

One of the biggest “assumptions” the CBO was forced to make is that the exchange, the only place where you can select the public option, would be restricted to only businesses with 100 or fewer employees. They had to assume this because that is the letter of the law, but that is not necessarily how the law will be enforced. Starting in year three, the Secretary of HHS can, in theory, make all employers, regardless of size, eligible for the exchange. I don’t think the Secretary will go that far that quickly, but I do think access to the exchange would be noticeably broader than the CBO analysis was forced to assume.

Instead of 9 million people getting access to the exchange through their employer by 2019, I think 20-50 million is more reasonable. According the US Census Bureau, roughly 42 million individuals (not counting dependents) work for businesses with 99 or fewer employees, and another 17 million work for businesses with between 100 and 499 employees. While a lot depends on how well received the new exchange is, only 9 million employees being given insurance on the exchange seems extremely low. When it becomes very easy to provide your employees with a large number of health insurance options through a simple voucher system, I imagine that many business owners will quickly jump on the opportunity.

The other assumption made by the CBO is that only 20% of people using the exchange would choose the public option. The CBO has a history of underestimating the potential popularity of a public option. For example the CBO concluded that only 33% of people would have signed up for the robust (Medicare rates plus 5%) public option, while the CMS believed that number would be roughly 40%, but they said there is a high level of uncertainty in their estimation.

Both the CMS and CBO are assuming people would select a plan based purely on economic reasons, but do not take ideology into account. I suspect in at least the first few years there would be a strong effort by self-identified liberals, progressives, and/or Democrats to support the public option by signing up for it.

Quinnipiac polling on the subject done during the most heated part of the debate in August found that 25% of people would rather buy insurance from a public option, instead of a private company. Keep in mind the poll asked the question of all Americans. People who get employer-provided insurance through their large companies are the most likely to be happy with their private insurer. They also the people least likely to have the opportunity to use the new exchange. I assume if the question were asked of only the uninsured and people in the individual insurance market, desire to sign up for the public option would have been much higher.

For a variety for reasons, the estimate that only 20% of people in the exchange will use the public option is probably low. I think the public option would get at least 25-35% of the business on the exchange, and I would not be surprised if it got well over 50% of the customers in some markets.

The cumulative effect of these assumptions by the CBO is very important. My assumption, based on the legislation, is that at least 40-70 million Americans will be selecting coverage on the new exchange, and at least a third of them will choose the public option. I suspect the public option would have closer to 20 million customers by 2019, instead of the CBO projection of 6 million.

Of course, my estimates and the CBO estimates could both be way off. It is possible that the exchange will be a big success. By roughly year 4 or 5 (2016-2017), a large number of businesses (if not all) would start providing their employees with vouchers to purchase plans on the exchange. The low-hassle nature of the public option and larger provider network could make it very popular. It would not be surprising if it were selected by half the people using the exchange. In this scenario, the public option would have closer to 60 million customers, instead of 6 to 20 million.

This is what really scares the for-profit insurance companies, not the relatively worthless CBO estimatition of 6 million. The CBO uses very conservative modeling, and most importantly are not experts on health insurance marketplaces.  Their numbers are likely way off, and I don’t doubt some of the private analysis done by Humana or Aetna shows the possiblity of a very different senerio playing out. This is a real chance that even this weaker “negoitated rates” public option could grow to become serious competition, and one of the largest insurers in the country.