Colorado’s proposed public option uses lower hospital pay to cut premiums

Colorado state agencies unveiled a draft proposal of a public insurance option on Monday that they say could reduce residents’ average monthly premiums, largely by paying hospitals less.

The draft report on the so-called state option released by the Colorado Division of Insurance and the Department of Health Care Policy & Financing projected that people who enroll could save at least 9% to 18% on their monthly premiums compared to expected individual market rates in 2022, the year the public plans would launch.

The lower premiums reflect state-set hospital reimbursement rates of 175% to 225% of Medicare rates, according to an analysis by actuarial firm Wakely, which was included in the draft report. Insurers selling plans on the individual market in the state currently pay providers about 289% of Medicare.

The reimbursement cuts are sure to be a hard sell for hospitals, who are already sounding the alarm.

“Colorado hospitals fully recognize that there is much work that needs to be done to address healthcare affordability. But embarking on a path that adds further uncertainty by destabilizing Colorado’s insurance market, on top of instituting government price controls, will likely cause consequences on the state’s health care system beyond what is intended,” the Colorado Hospital Association said in an emailed statement.

The draft report is the result of a bill signed by Colorado Gov. Jared Polis in May directing state agencies to study and recommend a public plan for the state legislature’s consideration in 2020. The bill, which was opposed by Republican lawmakers, directs the state agencies to deliver a final proposal by Nov. 15 after a comment period on the draft report.

According to the draft report, the public option plans would be administered by private insurance companies and sold on the Connect for Health Colorado exchange and the off-exchange individual market starting in 2022. The plans would be available to all Colorado residents.

While actuaries said the lower premiums would primarily come from lower provider facility reimbursement rates, Colorado Insurance Commissioner Michael Conway said in an interview that savings could also result from value-based insurance designs and ensuring that pharmacy benefit managers pass drug rebates onto consumers.

“We’re really hopeful that we’re going to have partnerships from our hospitals throughout the state. We’re also committed to making sure that we don’t negatively impact any of our rural hospitals as well,” Conway said. “We would be surprised if there weren’t difficult conversations in front of us, but that’s OK. This is a tough topic.”

He explained that the public plan proposal would also lift the medical-loss ratio threshold to 85% from 80% — meaning insurers would have to spend 85% of the premiums they take in on medical care.

In a bid to boost competition in the individual market, the state would mandate that insurers with a certain market share participate in the state option. The Colorado Association of Health Plans said in a statement that it is reviewing the proposal to ensure it does not jeopardize the employer-sponsored insurance market.

The actuarial analysis of the draft report estimated that enrollment in the individual market would increase by 4,600 and 9,200 members in the first year. It assumed that the new members would be previously uninsured and not individuals with employer coverage. There’s no danger of disrupting the existing on and off-exchange individual insurance market because the public option plan members would be part of the same risk pool, Conway explained.

The plans would provide all essential health benefits and cover many services, including preventive, primary and behavioral healthcare, before the enrollee meets the deductible.

The state agencies also recommend applying for a 1332 waiver that, if approved, would allow the state to use premium tax credit pass through funding to help lower out-of-pocket costs for people enrolled in the public option by another $69.7 million to $133.6 million, according to the analysis.

Other states are also eying a public or Medicaid buy-in plan option.

Washington Gov. Jay Inslee and state Democrats enacted a bill earlier this year to have the state contract with private insurers to offer lower-cost, tightly regulated plans on the ACA exchange for 2021. The plans would pay providers no more than an average of 160% of Medicare rates.

New Mexico’s Legislature also recently passed a bill to study and develop a Medicaid buy-in plan option. Other interested states include Connecticut, Delaware, Illinois, Massachusetts, Minnesota, Nevada and Oregon.

Correction: This story has been updated to reflect that Colorado has not yet applied for the 1332 waiver.