November 21, 2019

Colorado officials on Friday released their final proposal for a state public health insurance option, but the Colorado Hospital Association (CHA) is raising concerns.

Slide decks: Health Insurance 101

Colorado Gov. Jared Polis (D) in May signed into law a bill (HB19-1004) that directed state officials to create a public health insurance option. Under the bill, the state's Department of Health Care Policy and Financing (HCPF) and Department of Regulatory Agencies developed a plan to create a public health insurance option. The bill gave 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."

Final proposal details

State regulators released the 102-page proposal last week. Under the proposal, the public health insurance option, structured as a public-private partnership, would be available by January 2022 on the individual market and later expanded to the small group market.

The final proposal would require all insurers selling individual health plans both on and off Colorado's health insurance exchange to offer a public health insurance option. The proposal states that the plans would be available to "all Colorado residents who buy their own individual health insurance," and individuals who qualify for federal subsidies to purchase exchange plans would be able to apply those subsidies to the public option plans.

Further, the proposal would grant Colorado's insurance commissioner the authority to require a health insurance company to enter the market and sell the public option in counties where only one insurer is selling the plans in the individual market—a requirement that state regulators said would increase competition by ensuring that at least two insurers offer plans in the individual market of each county. However, the proposal does not indicate how the state would decide which insurer should enter a county's market. Colorado Insurance Commissioner Michael Conway said he expects the state's Legislature would develop guidelines for how to make the decision.

Private insurers under the proposal would determine the structure of premiums and deductibles provided they meet certain requirements. For instance, under the proposal, affected plans would have to cover all of the Affordable Care Act's (ACA) essential health benefits, and many services would have to be covered pre-deductible, including "a greater set of high-value primary and preventive care services," as well as behavioral health care. According to the proposal, HCPF and the Department of Insurance will also encourage innovatively designed plans by incentivizing "the provision, reimbursement, and utilization of high-value care," while "disincentiviz[ing] low-value care."

Under the proposal, private insurers administering the state option health plans would contract with providers. However, while the proposal would require all hospitals to participate, the proposal does not indicate what would happen if a hospital does not participate.

Savings

According to the proposal, consumers using the public option plan should expect to spend between 9% and 18% less on their monthly premiums than they would for comparable plans. In turn, 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 proposal, these savings will be driven by three key factors. First, 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.

Second, under the proposal, insurers would have to ensure that all rebates received on prescription drugs are passed along to consumers, rather than to the insurers themselves or to pharmacy benefit managers, to reduce the prices of state option health plans.

Third, participating providers would be reimbursed at a rate set by a "clear, public, and transparent formula" established by regulators, lawmakers, and members of a yet-to-be-formed advisory board. According to the proposal, this formula would factor in key variables to establish hospital-specific rates, such as whether a hospital is located in a rural or metropolitan area, whether a hospital is independent or part of a large system, and whether a hospital serves mostly lower-income or higher-income patients. Certain facilities, including free-standing psychiatric hospitals, "institutions for mental disease," rehabilitation hospitals, and acute long-term hospitals would not be subject to the formula, according to the proposal.

Costs

If the proposal is implemented, the state during the first two years would spend about $750,000 to launch the public health insurance option. The state would spend less than $1 million a year to oversee and manage the health plans—"a tiny fraction of the projected savings for consumers," according to the proposal.

Colorado officials do not need the federal government's permission to implement the public option plan. However, officials are working on a so-called "state innovation waiver" request to help cover some of the costs. The waiver would ask CMS' permission to keep a share of the savings the federal government would generate from the proposal's lower monthly premiums, since those lower premiums would reduce the amount the federal government spends on tax credits for higher-premium plans. Overall, the state estimates it could pass on an additional $89 million in savings to consumers via the waiver. Officials plan to submit the waiver for federal approval in the winter of 2021.

Comments

Many observers applauded the proposal.

Colorado Rep. Dylan Roberts (D), who during the last legislative session sponsored a public option bill, said the proposal is "a really great start" and does not appear to feature anything provocative. He said, "What they got to us is a proposal. And we look forward to working with all interested parties."

Adam Fox, director of strategic engagement for the Colorado Consumer Health Initiative, said, "This final proposal for the public option plan creates an innovative opportunity for Colorado to bring more affordable health coverage to our state and start addressing underlying health care costs."

The Small Business Majority said the proposal would control health care costs and ensure small-business owners and their employees have access to lower-cost health plans.

Kim Bimestefer, head of HCPF and one of the plan's chief architects, said the state intends to work with hospitals to get them to voluntarily participate in the program. She said, "I think our hospitals are going to step up. We just have to give them a little bit of time and a little bit of maneuverability." Bimestefer suggested some hospitals have voiced their support for the proposal.

But hospital groups have voiced concerns.

Katherine Mulready, the CHA's chief strategy officer, said, "The proposal, in its current state, is not acceptable." Mulready said CHA fundamentally opposes price-setting and she is unaware of any hospitals "wholeheartedly" supporting the state's proposal. Mulready said CHA plans to develop a proposal for how the state can reduce health care spending.

Julie Lonborg, a spokesperson for the CHA, said, "By establishing government price controls and forcing insurers and hospitals to participate, the proposal as submitted has the potential to undermine other affordability efforts underway, especially community-based solutions and value-based care" (Haefner, Becker's Payer Issues, 11/19; Ingold, Colorado Sun, 11/18; Goodland, Colorado Politics, 11/15; Seaman, Denver Post, 11/16).

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