IV Drip

A public option for the individual health insurance market made its way to state lawmakers Friday.

The final proposal calls for a public option that is structured as a public-private partnership, beginning with the 2022 plan year. The partnership would allow for at least two health insurance carriers in every county. Currently, 22 of the state's 64 counties  have only one health insurance provider.

The Colorado Division of Insurance and the Colorado Department of Health Care Policy and Financing put together the proposal after taking input in 20 listening sessions around the state in the past month. State lawmakers approved a bill in the 2019 session — House Bill 1004 — to set up a study of a public option. The first draft was released on Oct. 8.

According to an actuarial analysis contained in the draft, a public option plan would be 9% to 18% cheaper than other plans.

The proposal recommends the plan be administered by private-sector carriers, be available statewide to any resident seeking coverage in the individual market, and that people could utilize federal subsidies if applicable.

The public option would be offered throughout all tiers of Connect for Health Colorado, the state's health exchange: catastrophic, bronze, silver and gold. It would also be available outside of the exchange, although those who are on Medicare, Medicaid, VA and Tricare (which also serves the military), as well as employer-sponsored coverage, would likely be better off staying with those plans, the final report stated.

Savings would be achieved through three strategies:

  • Raise the health insurance carrier medical loss ratio from 80% to 85%, which would match the ratio in the large group market. That means that carriers would be held accountable for spending 85 cents on the dollar for health care costs, in effect limiting profit margins and other non-health care expenses;
  • Hospital reimbursement rates -- what hospitals are paid for health services and which are negotiated with insurance companies -- would be set through a "public and transparent formula that ensures sustainability and helps to stabilize our rural hospitals, while preventing the price inflation currently taking place in some markets." The formula would be set individually for each hospital and based on a percentage of Medicare reimbursements.
  • Carriers also would be required to ensure that rebates from prescription drug manufacturers that are currently paid to insurance carriers or pharmacy benefit managers are passed along to consumers. That was contained in a bill in the 2019 session that did not pass.

The public option proposal will have to be approved by state lawmakers, and it's likely to find its way into legislation with the 2020 session that starts Jan. 8.

Consumer health groups cheered the final proposal.

The Small Business Majority, a nationwide network of small business owners, said in a statement that they were pleased that the two state agencies incorporated many of their recommendations. The public option plan will ensure small business owners and their employees will have access to more affordable health coverage while controlling costs, the organization said Friday. However, the plan doesn't address the small business market; it's only intended for the individual market — those who purchase their own health insurance through the exchange.

According to Division of Insurance Commissioner Michael Conway, the public option will likely be offered to small and mid-size businesses at some point.

Adam Fox of the Colorado Consumer Health Initiative said in a statement that the "public-private partnership structure proposed will make use [of] existing infrastructure and add new insurance options that have additional affordability, transparency and accountability standards." The reimbursement rate proposed in the plan — it recommends a "benchmark" of 175% to 225% of Medicare — will account for the needs of vulnerable rural and critical access hospitals, Fox said.

“Hospitals, insurers and the pharmaceutical industry will be held to higher accountability and cost standards under this plan. This is a starting point to control the profit-taking and excess revenues the health care industry currently squeezes from consumers."

But hospitals and insurance carriers, who had concerns with the draft proposal last month, aren't exactly pleased with the final plan, and that could lead to a big fight at the General Assembly next January.

The Colorado Hospital Association said that "despite receiving hundreds of public comments requesting substantive changes, the Polis administration’s final proposal continues to miss the mark and is unacceptable in its current form. We acknowledge the Polis administration's efforts in developing this initial proposal pursuant to HB 19-1004, and CHA looks forward to working in partnership with legislators and the administration as they vigorously debate this plan, and seek answers to the many unanswered questions raised." 

Chief among their concerns: that the plan should identify solutions that provide health care affordability to all Coloradans, not just those in the individual market, which represents only 7% of the state population. That leaves 375,000 Coloradans without any coverage, the CHA said. 

The CHA also took issue with what it called "government price controls," which it warned would undermine other affordability efforts, especially community-based solutions such as Summit County's Peak Health Alliance, which has been touted by the Polis administration as the next step in reining in health care costs. The Peak Alliance is a nonprofit cooperative that negotiates health care costs directly with hospitals and other health care providers and is available to individuals and employers in Summit County. It begins operations on Jan. 1. 

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