Shortly after the presidential election, the biggest (non-Covid) questions on health care executives' minds centered around a public option. Can the United States establish a government-run insurance program that would compete with commercial plans? Is that politically viable? What would reimbursement rates look like? Who would administer a public option?
Well, as my Advisory Board colleagues and I discussed in our predictions of President Biden's first 100 days, it quickly became clear that Democrats' razor-thin majority in the Senate meant a public option was unlikely to pass at the federal level. But we also saw new energy around public option proposals in the states. Washington, Nevada, and Colorado each took steps to either modify existing public option plans or create new ones.
How are states approaching the public option
While the overall goal of a public option is generally the same (lower health care costs and increase coverage rates), there are several ways to create a public option plan.
A traditional public option would entail the government, either state or federal, creating and administering its own health plan. But what we've seen in the states so far is more akin to public-private partnerships—states are contracting with private health insurers to create public option health plans similar to how we've seen some states approach Medicaid. And each state is taking a slightly different approach, establishing individual goals for their public options plans, as well as rules to encourage providers and consumers to participate.
In 2019, Washington became the first state to approve a public option, called the Cascade Care program. Consumers began purchasing coverage on the exchange for the 2021 coverage year. However, the first year was not as impactful as state policymakers had hoped: public option plans were available in just 19 of the state's 39 counties and fewer than 2,000 people enrolled. Most of those enrollees chose the state's standardized health plans but premiums for those plans were 4% higher than 2020 premiums, on average. With nearly a year of experience running a public option, the state recently enacted new legislation that aims to increase insurer and provider participation rates and better control premiums.
- Public option setup: Washington officials contracted with private insurers to both create and administer the public option plan. Insurers and providers that choose to participate must comply with state-mandated requirements on payment rates, benefit design, and more.
- Provider reimbursement rate: State officials capped reimbursement rates at 160% of Medicare. However, the cap can be waived if an insurer is unable to meet provider network access standards because of the cap. In addition, the insurer can set premiums at least 10% lower than the previous plan year.
- Provider participation requirements: In the program's first year, Washington did not have any requirement for hospitals to participate. However, a newly passed law requires certain hospitals to contract with public option plans if an insurer makes an offer in an area with no public option plans. The law, which takes effect for coverage year 2022, exempts hospitals owned and operated by a health maintenance organization, such as those owned by Kaiser Permanente. Hospitals that do not adhere to this "tie-in" requirement can face fines.
- Benefits package: Washington established a so-called standardized benefit plan that offers some services, such as primary care visits, at either no cost or a small copay. Beginning in 2023, insurers participating in the public option will be required to offer a standardized silver and gold plan in every county where they offer exchange plans, and a standardized bronze plan in exchanges where they offer a bronze plan.
- Premiums: The newly passed legislation creates a state premium subsidy beginning in 2023 that will be available to those with incomes up to 250% of the federal poverty level who enroll in a silver or gold standard plan.
In June 2021, Nevada became the second state to enact public option legislation. The public option is set to begin in 2026.
- Public option setup: State officials will contract with private insurers to create and administer public options. Nevada is planning to rely on Medicaid managed care organizations for the first plan year.
- Provider reimbursement rate: State officials did not set a cap on rates for the public option. However, they did specify that rates must not be lower than Medicare.
- Provider participation requirements: Providers who accept either the state employee health plan, workers' compensation, or Medicaid must also participate in the public option.
- Benefits package: State officials did not specify benefit design or structure. Officials also are allowing insurers to set cost-sharing obligations for consumers.
- Premiums: Nevada lawmakers specified that public option plans should have premiums that are 5% lower than the average exchange plan. Officials said by the fourth year of the program, premiums should be 15% lower than comparable exchange plans. However, there is not yet an enforcement mechanism for insurers to meet those premium goals.
Colorado passed a public option in June 2021, becoming the third state to do so. The program is set to begin in 2023.
- Public option setup: Colorado's public option requires private insurers to offer the Colorado Health Benefit Option in all 64 counties by January 1, 2023. Private insurers will be tasked with creating and administering the plans, while state officials will set rules and requirements for premiums, benefits benchmarks, and more.
- Provider reimbursement rate: State officials did not set a cap on rates. However, they did specify that rates must not be lower than 155% of Medicare. The state insurance commissioner also has the authority to mandate lower rates if insurers so not meet premium-reduction goals.
- Provider participation requirements: Hospitals in Colorado will be required to accept the public option, but there is no financial penalty for not accepting the plan. The state insurance commissioner has the authority to compel providers to participate if networks are inadequate.
- Benefits package: Colorado lawmakers established a standardized benefit plan that offers some services, such as primary care visits, at either no cost or a small copay. The state insurance commissioner will release more details on benchmarks in coming weeks.
- Premiums: Colorado will require public option plans to reduce premiums by 15% between 2021 and 2025.
The value of a state-first approach
Each of these state public options takes a different approach to engaging health care stakeholders while striving to keep costs low for consumers and it will be several years before we begin to see the outcomes of each approach. But that is the value of the public option conversation shifting from the federal to state level. Yes, it does mean more patchwork policies where coverage and rates differ based on where you live. But it also means policymakers can simultaneously test different options—and as we just saw in Washington state, adjust those approaches as needed—to see if any approach produces the desired results, and could therefore, be used as a model for a national policy.
These state-run efforts should produce a clearer picture as to how a public option could impact the health care industry—and even possibly shape a future federal option. After all, the 2006 health care reform law enacted in Massachusetts provided much of the background for the Affordable Care Act.