Colorado unveils hospital rates for its public-option plan

Colorado officials on Monday unveiled the state’s formula for hospital reimbursement rates under the state’s proposed public-option insurance program.

The Colorado Health Insurance Option formula’s base rate is 155% of Medicare rates, but hospitals’ individual rates would vary based on hospital type, payer mix and how efficiently they deliver care. Colorado hospitals could cover the costs of providing care at 143% of Medicare rates, according to a state analysis of 2018 Medicare payment data collected by the Colorado Hospital Association and the Colorado Healthcare Affordability Sustainability Enterprise board from the state’s hospitals.

The proposed reimbursement formula ensures that hospitals can cover the costs of delivering care to patients, according to Colorado’s Department of Health Care Policy & Financing. The state claims that the reimbursement rates will enable large hospitals to remain profitable and ensure that independent hospitals will get paid enough to stay independent, rather than encourage them to consolidate.

“The recognition that certain hospitals have different requirements in terms of costs is baked into the Medicare system, and I think it’s similarly baked into the Colorado (system),” said Aditi Sen, an assistant professor at Johns Hopkins University and a member of the research team that helped Colorado develop the formula.

Colorado residents would save an average of 12% on their premiums through the individual market if the state moves forward with the plan, according to an analysis conducted for the state by Wakely, an actuarial consulting firm. The same report showed that reimbursement rates for the individual market average 280% of Medicare rates. Under the public option, reimbursements would average 168% of Medicare rates across the state.

“We do think that people will migrate to this,” said Julie Lonborg, senior vice president of communications and media relations for the Colorado Hospital Association. “It’ll likely be the cheapest plan in the marketplace.”

The state’s hospital association is steadfastly opposed to Colorado’s reimbursement formula for the forthcoming public option. The group also opposes mandatory provider participation in the program.

“We always like to see what it looks like in black and white before we pass judgment,” Katherine Mulready, senior vice president and chief strategy officer for the Colorado Hospital Association, told Colorado Public Radio News. “However, what we have heard directly from the sponsors and certainly from the governor’s office is that the proposal will include hospital rate-setting with pretty significant cuts to hospital reimbursement that are not acceptable to Colorado hospitals and really shouldn’t be acceptable to Colorado consumers, either.”

The state’s hospitals are concerned that officials haven’t analyzed the effects of the proposed rate formula on a hospital-by-hospital basis, Lonborg said. That’s driving provider uncertainty and stoking their fears.

Instead of a public option, the Colorado Hospital Association is pitching a total-cost-of-care plan that would establish a statewide healthcare budget that aims to slow the growth of healthcare spending overall. It’s similar to policies already underway in Massachusetts and Oregon. Insurers, providers and other healthcare organizations would share the burden of reducing healthcare costs. But unlike the public option, it wouldn’t immediately reduce how much people pay for health insurance on the individual market.

Colorado’s march toward a public option grew out of a draft January 2019 report from the state government that showed hospital costs climbed nearly 60% from 2009 to 2017, even as the state’s uninsured rate fell by more than half. Hospitals have opposed the plan because it would require them to provide care to enrollees at lower reimbursement rates than other plans on the individual market.

“There’s a fair amount of data to show that when hospital payments are reduced that, in general, hospitals have room to adjust and that they can lower their costs,” Sen said.

The public-option framework is similar to the plans proposed by moderate candidates in the Democratic presidential primary. But the state’s legislature has yet to introduce a bill that lays out the specifics of the program. That will happen within the next couple of weeks, according to State Rep. Dylan Roberts’ office.

The Partnership for America’s Health Care Future, an industry-backed group that opposes Medicare for All, bankrolled an ad blitz opposing Colorado’s plan late last year. It’s part of a broader effort to stop public-option health insurance programs at the state and federal levels. Some industry stakeholders and conservative politicians see those plans as stalking horses for Medicare for All.

But policymakers throughout the country will continue to monitor states’ efforts to get healthcare costs under control.

“The role of these early states and how these public options play out in terms of hospital and insurer markets is going to be really important,” Sen said. “All of these (design details) are going to be important to evaluate going forward.”