Colorado’s state option for health insurance made its long-awaited debut Monday, and it’s probably not what you were expecting.
In early 2019, Colorado became just the second state (behind Washington) to pursue a “public option” for health coverage. At the time, many advocates were talking about opening the Medicaid system to a greater number of Coloradans.
Instead, the state option will be a series of private insurance plans offered by companies already active in Colorado.
Legislators commissioned the Division of Insurance (DOI) and Department of Health Care Policy and Financing (HCPF) to develop a proposal for an “affordable health care option.” The proposal was released this week, and its authors call it the “state option” rather than a “public option.”
Under the plan, the state will set the general benefit design, which will meet standards set by the Affordable Care Act. Insurance companies will then sell the plans — including through Connect for Health Colorado, the state’s health insurance marketplace — administer them, and bear the financial risk.
Insurers of a certain size (just what that is has yet to be determined) would be required to offer state option plans. Consumers would see the choices that are currently available plus, for example, an Anthem State Option, Cigna State Option, Kaiser State Option, etc. Each would have its own benefits and provider network.
Crucially, payment rates for hospitals would be capped at somewhere between 175 percent and 225 percent of the prices Medicare pays. This is quite a bit below the 289 percent average that carriers in the individual market pay hospitals today, according to the DOI.
The DOI estimates that cutting reimbursement to hospitals would lead monthly premiums to drop somewhere between 9 and 18 percent compared to current prices. This could make health insurance significantly more affordable for people who are currently ineligible for Medicaid, but who struggle to afford health insurance now.
This state option would also make more insurance plans available to people living in regions of the state that currently have just a few (usually very expensive) choices.
This plan is a draft, and the public has a chance to comment through October 25. (See this page for both the plan and public comment link.)
Answers to Pressing Questions
In February, CHI published a brief titled Public Option, Pressing Questions, in which we posed questions that designers of the public option would have to answer.
The draft released this week provides answers.
- Who would be allowed to use the state option? Any Colorado resident. It will be offered on the individual market, so most people who have coverage through their jobs will likely want to keep that coverage because it tends to cost less out of pocket. The Colorado Sun reports that immigrants without documentation would be eligible for the state option plan.
- How many people (and who) would we expect to use the state option? According to the Colorado Health Access Survey, about 390,000 Coloradans are insured through the individual market. If prices are indeed cut by 18 percent, we would expect many of those people to buy a state option plan. We might also expect to see some of the 6.5 percent of Coloradans who are currently uninsured buying in – especially if cost was the reason they opted out of insurance in the first place.
- How would this affect the state’s bottom line? Insurance companies would bear all the risk for high medical costs. The state would have marginal new costs for administration. The state also plans to apply for an Affordable Care Act waiver that could finance more generous tax credits or a richer set of benefits.
- Will provider reimbursement be sufficient? This question promises to be the heart of the debate. State officials say their proposed rates still allow hospitals to make healthy profits. Expect to hear hospitals argue the opposite.
There is good reason to be skeptical of the value of price transparency in health care. Right now, it’s too hard for consumers to figure out the real price they will pay even when hospitals and providers have to disclose their official price lists. (Think copays, coinsurance, deductibles, in- and out-of-network providers.)
But the state option could make price transparency more useful. The state would publish the prices that the state option plan pays to hospitals. This data would be very useful for large employers and insurance companies in their own negotiations with hospitals. If businesses seize the opportunity, they could drive down insurance prices for a much larger group of Coloradans.
Carrots and Sticks
Insurance Commissioner Michael Conway characterized the state option as a public-private partnership. As such, it depends on the private sector to be willing partners. Conway and HCPF Executive Director Kim Bimestefer said in an October 8 forum that they want hospitals and insurers to participate willingly.
And if they don’t? If an insurer doesn’t want to offer a state option plan, or a hospital doesn’t want to accept lower prices? Conway and Bimestefer said they have “tools” available to require participation, but they did not want to go into specifics. Yet.
Scalpels and Sledgehammers
The state option‘s goal is to reduce costs by cutting payments to Colorado’s most profitable hospitals. Bimestefer stressed that the state would protect struggling rural hospitals, but she also noted that rural hospitals in well-to-do resort towns are making handsome profits.
Targeting the most profitable hospitals without hurting struggling facilities in the process will require some finesse on the part of the plan’s designers.
A Different Way
In national politics, we’re watching a debate among several prominent options. These include the status quo: The Affordable Care Act, currently weakened by several Trump Administration policies. There's also Medicare for All, or a national single-payer health system, championed by Vermont Sen. Bernie Sanders. There's also a Medicare public option, advanced by Colorado Sen. Michael Bennet and other Democrats, which would allow people of any age to buy health coverage via Medicare
The idea that Bimestefer and Conway have unveiled could represent a new option, if they can make it work. While Medicare for All would toss out the private insurance market, and a Medicare public option would whittle it down, the Colorado state option places its bets on the private market.
Medicare for All supporters probably won’t like this idea one bit. But for people who like the structure of the current system but think the prices are unsustainable, the state option might be the last, best chance to preserve private health coverage.
It’s a Big Deal
While this state option is rooted in the current system, it is a big deal — to paraphrase former Vice President Joe Biden’s words about the Affordable Care Act. After years of fighting about the price of insurance plans, this plan tackles the underlying cost of care, which is what drives insurance prices. No other state has tried an idea quite like this, and only Washington State has anything similar.
Expect some serious conversation about this idea during the public comment period in the weeks ahead and as the plan is finalized in the last months of the year. And expect to see this plan or something similar on the table during the 2020 legislative session, which begins in January.
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