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October 11, 2019

Colorado unveils its plan for a state public option—and it could cut provider payments dramatically

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    Colorado officials on Monday released a draft report outlining a proposed state public health insurance option, but the plan is drawing criticism from health care providers who would receive lower reimbursements under the proposal.

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    Colorado Gov. Jared Polis (D) in May signed into law a bill (HB19-1004) that directs state officials to create a public health insurance option. The bill directed the state's Department of Health Care Policy and Financing (HCPF) and Department and Department of Regulatory Agencies to develop a plan to create a public health insurance option that would compete with plans offered both on and off of Colorado's health insurance exchange, which it created under the Affordable Care Act (ACA).

    The bill gives the departments until November to submit the plan, which would "assess costs, funding sources, necessary federal permissions and funding, consumer eligibility, and who in government would run the program."

    Proposal details

    The 196-page proposal released Monday outlines the state's plan to implement a public health insurance option designed by the state but administered by private insurers by January 2022.

    The state would require all private insurers over a certain size to sell the state option health plan. The plans would be offered both on and off the state's ACA exchange, and the draft report states that the plans would be available to "all Colorado residents who buy their own individual health insurance." Individuals who qualify for federal subsidies to purchase exchange plans would be able to apply those subsidies to the public option plans.

    Private insurers under the proposal would determine the structure of premiums and deductibles, but would have to meet a set of requirements. For example, the proposal would set new requirements for the medical loss ratio (MLR). Under the ACA's MLR requirement, insurers must issue refunds to customers if they spend less than 80% of the premiums they collect for individual and small group plans on medical care and quality improvements. In comparison, the proposal would raise the MLR threshold in the state to 85% for insurers administering the plans.

    In addition, the plans would have to cover all of the ACA's essential health benefits, and many services would have to be covered pre-deductible, including behavioral, preventive, and primary care. Private insurers also would have to apply all rebates received on prescription drugs to reduce the prices of state option health plans.

    Private insurers administering the state option health plans would contract with providers, but state officials would set provider payment rates. Under the proposal, the state would set reimbursement rates at 175% to 225% of Medicare's charges for the same services. Colorado providers on average currently charge private insured patients 269% of Medicare's charges, according to a report from RAND.

    State officials said the lower payment rates would drive the majority of the state option's savings. For instance, state officials estimated the lower payment rates would save state residents at least 9% to 18% on their monthly premiums compared with individual market rates. State officials predict the lower monthly premiums will reduce the government's spending on subsidies for individuals to purchase health plans on the exchange market, according to the Colorado Sun.

    State officials are accepting public comments on the draft proposal until Oct. 25. They plan to submit the final report to the state Legislature by Nov. 15.

    Officials separately are working on a so-called "state innovation waiver" request to ask CMS' permission to keep a share of the savings the federal government would generate from the proposal's lower monthly premiums to further lower costs for individuals enrolled in the state option. State officials said they believe they could use premium tax credit pass through funding to help lower out-of-pocket costs for individuals enrolled in the public option by another $69.7 million to $133.6 million. Officials plan to submit the waiver for federal approval in the summer of 2020, Inside Health Policy reports.


    Colorado's proposal would increase the number of enrollees on the individual market by an estimated 4,600 to 9,200 in the first year if the proposal is approved, according to an actuarial analysis from the firm Wakely. Further, the state's limited involvement in managing the proposal would mean taxes for state residents would not increase if medical claims exceeded the amount brought in through premiums.

    According to the Colorado Sun, if approved, the state's proposal could become a national model for states seeking to provide their residents with a public health option.


    However, providers are raising concerns about the proposal.

    Chris Tholen, executive vice president of the Colorado Hospital Association, said, "By opening this public option to all Coloradans, there is the potential to significantly damage the health insurance market in our state." He added, "The way the plan is drafted, patients could choose to leave their current coverage to choose the public option, which could destabilize the current health insurance market." Tholen also said he is "skeptical about what appears to be the first step toward price control or rate setting as well as an intent to make provider participation mandatory."

    Kim Bimestefer, head of HCPF and one of the plan's chief architects, said officials hope providers will accept the payment rates, but she said, "If we feel that the hospitals are not going to participate, we will require their participation."

    Others have expressed optimism over the proposal.

    Colorado Consumer Health Initiative Executive Director Adela Flores-Brennan said, "Colorado needs to do more to control the enormous costs consumers are paying for health care when hospitals, drug corporations, and insurers are raking in profits and excess revenues. This plan is a starting point to do just that" (Seaman, The Denver Post, 10/7; Ingold, Colorado Sun, 10/7; Pifer, Healthcare DIVE, 10/9; Livingston, Modern Healthcare, 10/8; Cohen, Inside Health Policy, 10/9 [subscription required]; Colorado's Draft Report for State Option, 10/7).

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