Elected officials in Colorado have made their state the third to adopt legislation mandating tightly-regulated health insurance offerings. As was the case in Washington and Nevada, the push came from advocates of a “public option,” although the final bill (HB21-1232) leverages private coverage, not public insurance.
None of the three states have enacted a pure version of the public option because of the operational and political challenges of standing up a publicly-administered plan. Instead, they have required the state’s existing private insurers to comply with various requirements. In Colorado’s case, state officials tasked carriers with offering a new “standardized health benefit” alongside their other policies under terms written up by the insurance commissioner.
The Colorado law is controversial because of the wide latitude granted to state officials to intervene in the plan. The general approach was to impose a series of general (and politically appealing) requirements without being prescriptive about the methods for achieving them. The state is then given substantial new authority to step in if the private insurers fail to deliver on the law’s commitments.
The state’s health insurers argue the scheme is designed to fail because it is not possible for the numbers to add up. The law requires insurers to offer a generous benefit package, include many providers in their networks, and pay minimum fees for hospital services, all while also lowering their premiums.
The hospital association was neutral on the final bill after it was amended to place floors on their reimbursement levels. The state medical society was also neutral after the Senate removed the requirement that physicians participate in the plan.
The following is a brief summary of HB21-1232’s key provisions:
- Beginning in 2023, health insurers are required to offer standardized health plans in the same markets in which they sell individual and small-group policies. The new plans are to be offered both on and off the Affordable Care Act (ACA) exchange.
- The benefit design will be uniform across the industry, and will build upon the metal tiers of the ACA with an expansion in covered pediatric services. The precise benefit requirements will be written by the state’s insurance regulator after a consultation process with the industry and advocates. Primary care and behavioral health are to be covered fully even before annual deductibles have been satisfied.
- Premiums for the new plans are capped. In 2023, the insurers must offer coverage that is at least 5 percent less expensive than the average premium they charged in 2021 (after accounting for medical inflation in 2022 and 2023). In 2024, the premium savings must be at least 10 percent, and, in 2025, 15 percent. In 2026 and later, premiums cannot rise faster than medical inflation.
- Insurers must meet extensive network adequacy rules to ensure ready access to care, including for populations that historically have faced barriers when seeking services.
- Insurers failing to meet the state’s objectives must identify the obstacles preventing compliance. The commissioner is then authorized to hold a public inquiry and impose a solution, which may involve forcing hospitals to participate and to accept as payment in full whatever reimbursement level the state determines is appropriate.
- Insurers must pay various categories of hospitals minimum fees tied to Medicare’s rates. The base floor for all hospitals is 155 percent of Medicare. Essential access hospitals get at least 175 percent of Medicare, while pediatric facilities get a minimum of 210 percent. Hospitals serving an above average number of Medicare and Medicaid patients are to be paid at least 185 percent of Medicare’s rates.
- Participating practitioners, including physicians, are to be paid a minimum of 135 percent of Medicare’s rates.
- Hospitals refusing to join the standardized plan can be fined up to $10,000 per day for the first 30 days of noncompliance, and $40,000 per day thereafter.
- State officials are authorized to submit a section 1332 waiver to the federal government to secure whatever additional federal funding might be available to support the plan.
- The governor is to appoint an advisory board with a diverse membership to provide input on the emerging plan.
With three states now pursuing similar plans, there is a pattern emerging. Creating a new, publicly-administered insurance plan — a true public option — is not possible at the moment. A more achievable goal is imposition of strict cost-cutting requirements on existing private insurers.
The challenge will come when the objectives come into open conflict. State officials want more generous coverage, wide access to providers (with payment rates well above what Medicare pays), and lower premiums. Insurers say it is not possible to have all three, and something must give. The only sure bet is that the debate will continue.
James C. Capretta is a columnist for State of Reform and is a senior fellow at the American Enterprise Institute.