If a government health plan sells coverage through the new health insurance exchange system, the plan could end up with about 13 million enrollees, according to Congressional Budget Office Director Douglas Elmdendorf.

Government plan participation in the exchange system could reduce the federal budget deficit by about $53 billion through 2019, Elmendorf writes in a public option plan analysis prepared at the request of Rep. Pete Stark, D-Calif., chairman of the House Ways and Means Committee health subcommittee.

Stark is backing efforts by Reps. Lynn Woolsey, D-Calif., Jan Schakowsky, D-Ill., and others to introduce a bill that would create a new public option health plan program.

The proposed public option plan analyzed by CBO staffers would be managed by an arm of the U.S. Department of Health and Human Services (HHS) and support itself with premium revenue, Elmendorf says. The plan initially would pay providers as much as Medicare pays. Instead of applying the Medicare provider reimbursement cuts now in federal statutes, the public option plan would have to increase provider reimbursement rates to reflect increases in the providers’ costs.

The public option plan coverage probably would cost about 5% to 7% less than comparable coverage sold by private plans, in part because administrative costs probably would be lower, Elmendorf says.

The Affordable Care Act, the legislative package that includes the Patient Protection and Affordable Care Act (PPACA), calls for states to set up a health insurance exchange health coverage distribution system by 2014. Exchanges would allocate subsidies to individuals and small businesses and help match coverages with sellers of standard packages of coverage.

The ability of the public option plan to compete with the other plans would depend on the quality of the public option plan’s provider network, Elmendorf says.

“CBO expects that some providers would decline to participate in the public plan because its payment rates would be lower, on average, than private plans’ payment rates,” Elmendorf says. “Even so, many providers would be likely to participate, in part because they would expect a plan administered by HHS to attract a substantial number of enrollees.”

Chances are that about 38 million people will be buying coverage through the exchange system during the 2017-2019 period covered by the analysis, and chances are that about 13 million of those people would enroll in the public plan, Elmendorf says.

The public option plan could decrease the total cost of exchange subsidies, because private plans might lower their rates to compete better with the public option plan, Elmendorf says.

“Given all of the factors at work, however, those estimates are subject to an unusually high degree of uncertainty,” Elmendorf warns.

If the public option plan performs as CBO staffers expect, it would reduce exchange subsidies by $37 billion, increase tax revenue by $27 billion, and increase government administrative costs by $11 billion, Elmendorf says.