Medical Team Performing Surgical Operation in Modern Operating Room

A bill hailed as a landmark way to lower health insurance costs, especially for rural Coloradans, cleared the House Monday on a bipartisan 47-15 vote. But it's different from the version that Gov. Jared Polis touted when it was introduced in February.

House Bill 1168, which now heads to the Senate, would set up a short-term reinsurance program -- think of it as insurance for health insurers -- that rural lawmakers hope will drive down the cost of health insurance premiums. 

It works like this: Insurance companies set their rates based on claims paid. Those claims are based on rates negotiated by health insurance companies with the health care providers.

As introduced, HB 1168 would garner cost savings by requiring that providers -- hospitals, primarily -- be paid a lower rate for their services based on the Medicare payment rate, although the amount paid would be higher than what Medicare pays.

Because provider rates will be lower for a portion of some claims, insurance companies won’t have to charge as much for premiums. That means consumers pay less for their insurance, supporters claim.

The reinsurance program would tap into federal funds available for innovation through the Affordable Care Act. Seven states have already obtained federal waivers for their reinsurance programs, notably, Minnesota, where health insurance costs decreased by 11.3 percent, and Alaska, which saw a decline of 26 percent.

The program contained within HB 1168, however, is unlike programs approved by the federal government for those other states, which have tapped their general funds or levied fees on the business community. Gov. Jared Polis said during a Feb. 27 press conference announcing the bill that it could be accomplished without fees or taxes.

> RELATED: Colorado House committee approves 'reinsurance' bill intended to lower health premiums

But between then and now, word came down from the Center for Medicare and Medicaid Services (CMS), the federal agency that grants states a waiver to enter into reinsurance programs, that the model originally contained in HB 1168 wouldn't fly in Washington. And hospitals weren't happy about being forced to reduce their rates, either. 

So lawmakers in the House, including the bill's sponsors, Democratic Rep. Julie McCluskie of Dillon and Republican Rep. Janice Rich of Grand Junction, went back to work, and the solution is one that more closely mirrors what other states have done.

McCluskie told Colorado Politics that she wanted to ensure Colorado had the strongest application possible for the feds, so "we switched from the cost-savings" approach to a more-traditional fee-based approach.

McCluskie said an actuarial analysis showed the original approach would have worked, but the feedback from Washington was that it wouldn't be approved. 

"It was difficult to let go" of the original approach and settle for something that may not have the same long-lasting impacts, she said. But it will help achieve the goal of bringing down the cost of health insurance, particularly on the Western Slope.

The agreement negotiated with the hospitals, McCluskie said, is for a special provider fee, possibly based on the number of inpatients and outpatient visits, and on a hospital's net patient revenue.

McCluskie said this would allow each hospital to pay its fair share and still protect rural hospitals that are critical to community health.

The bill says hospitals would pay a special fee of up to $150 million per year, with a cap of $500 million over the life of the reinsurance program, and rulemaking will determine how those fees are assessed.

McCluskie explained to the House during second-reading debate that no one hospital system would pay for more than 25 percent of the program's cost in a given year. And some hospitals will be exempted from the special fee altogether, McCluskie said, based on criteria such as geographical location, hospital size, Medicaid and Medicare payer mix, their rate of uninsured care compared to the state average and financial health.

The bill takes those provider payments and puts them into an enterprise -- a state-owned business -- for purposes of TABOR revenue, similar to the enterprise set up for the hospital provider fee in 2017 that covers uninsured and underinsured patient costs for hospitals, matched with federal dollars.

Rich said Mesa County could realize a 25 percent reduction in health insurance premiums under the bill. 

On the opposing side, Republican state Rep. Mark Baisley of Roxborough Park, whose district is in one of the wealthiest counties in the nation -- Douglas County -- said he believed the reinsurance program is an unnecessary government intrusion. And Rep. Colin Larson, Republican of Littleton, said even as amended, the reinsurance program is novel in its approach that seeks fees from providers.

But rural Republicans -- such as Rep. Matt Soper of Delta -- stood up in support, stating reinsurance will take the federal dollars and backfill the highest costs of health care, a savings to all Coloradans, he said. 

McCluskie didn't rule out the possibility of changes to the bill once it hits the Senate. "I think at this point, we've reached an agreement with hospitals" and other providers who are now neutral on the bill, she said. It was previously opposed by the Colorado Hospital Association and a host of health care provider groups, such as the Colorado Medical Society.

"They agree that bringing down health insurance premiums serves everyone in the state," she added. "They deserve a tremendous amount of credit for being willing to work with us and figure out something that at least for the next five years brings down health insurance premiums" while a longer-term solution can be explored. 

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