‘Public Option’ Compromise Would Require Health Insurers To Offer Price-Controlled Plans

The sponsors of Colorado’s “public option” bill have announced a deal they say could guarantee the proposal passes the state’s Democrat-run legislature.

The most influential health industry groups in the state will move to a “neutral” stance after significant changes to the bill, state Rep. Dylan Roberts, a Democrat, said on Monday.

The change will “bring some of our largest industry partners to neutral on the bill … all while still getting us to our end goal of lowering health insurance costs on the individual and small-group market, starting in 2023,” Roberts announced in a virtual press conference.

The Colorado Hospital Association and the Colorado Association of Health Plans have agreed to remain neutral on the new proposal, he said.

The Colorado Association of Health Plans emphasized in a statement that it is still seeking further amendments to the bill. "While the sponsors have listened to some of our concerns on certain issues, we continue to discuss other outstanding concerns related to the heavy reliance on government mandates in the new proposal." The organization added that some of its members are still opposed to the overall bill.

The amended bill would not pave the way for a government-run insurance option, as an earlier version proposed. Instead, the new proposal would force insurance companies to sell a plan with benefits that are defined and regulated by the state government — kind of like a “public-private option.”

The state of Washington recently created a similar new standardized insurance plan.

Significantly, the bill would also give the state the power to regulate how much hospitals and doctors can charge people enrolled in the new plans, something that only Washington has embraced in this way.

“The health care industry has really come to the table and has really been a partner throughout this process,” said state Rep. Iman Jodeh, a Democratic cosponsor.

Influencing the current system, not fundamentally changing it

The proposal attempts to use a complex series of regulations and rules to influence insurance prices and benefits in the health care market — without changing the fundamental design of the system.

“I’ve always said all options are on the table, as long as we are achieving the goal for our constituents of lowering costs and increasing choice,” said state Sen. Kerry Donovan, a Democratic cosponsor. 

But despite the deal with industry, the proposal likely faces stiff political opposition. Republican lawmakers described the earlier bill as a step toward socialized medicine. And on the left, some progressives may be disappointed that the plan doesn't challenge the supremacy of existing private players, as a government-run option would do.

Jodeh said that industry groups compromised in part because the plan would deliver them new customers. Earlier versions of the bill attracted millions of dollars in opposition spending, with Coloradans seeing TV ads and mailers against the “state government option.” But Roberts said the deal rested on a shared belief that costs are too high.

“The affordability improvements intended by this bill are dependent on the sacrifice and management of Colorado’s hospitals,” the Colorado Hospital Association said in a written statement.

The deal could represent a breakthrough in how state lawmakers negotiate with the health industry, experts said, but it will be some time before the true effects are clear. Washington insurers started selling a similar public-private option late in 2020; the initial results have been disappointing for the sponsors, with little change to premiums and limited availability, but analysts said that it can take years for the effects of major regulation to settle out.

How the sort of public-private option would work

Insurance companies would be required to sell the Colorado plan starting in 2023. 

The carriers would be limited in how much they could charge for the plans and those premiums would ratchet down over time. By 2025, the bill says, the cost of the new insurance plan should be 18 percent lower than the current average premiums for an area. 

If an insurance company fails to lower premiums or cover the required geographic area, the company would enter a legal process with the state. State authorities would review the company’s financials and regulators could then potentially set limits on the reimbursements that the insurance company pays to hospitals and other providers.

Right now, that kind of “rate setting” is rare in the health system, outside of Medicare and Medicaid, and it’s been staunchly opposed by the industry.

“At least nationally, the position of the health plans and the hospitals is just to draw a line in the (sand) over any government rate setting,” said Sabrina Corlette, co-founder of the Center on Health Insurance Reforms at Georgetown University.

The state of Washington also uses rate setting in its plan, although with significant differences in the details from what sponsors here are proposing.

Colorado’s version could give more opportunities for insurers and hospitals to argue over reimbursement rates, and Roberts said the hope was that the industry could ultimately avoid government rate-setting by driving down costs itself.

Under the new proposal, any new reimbursement rates for hospitals would have to be at least 155 percent of those paid by Medicare, the government insurance program for older people. The proposal would grant higher payments to various types of hospitals, including “safety net” facilities, independent hospitals and those that are efficient in managing their costs.

The new standardized plan would likely be designed to minimize deductibles and other out-of-pocket costs, which can drive up expenses for people who frequently use medical services. The plan is aimed at the individual and small-group markets, so it wouldn’t directly affect employer-provided insurance.

Editor's Note: This story has been updated to clarify the position of the Colorado Association of Health Plans.