Colorado Could Get A ‘Public Option.’ How’s That Working For The Only Other State To Try It?

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Colorado’s state Capitol building was quiet New Year’s Eve except for scattered tour groups, selfie-snapping visitors and a few staffers preparing for House members to return.

Colorado could be one of the first states in the U.S. to create what’s being called a “public option” for health insurance — so advocates and opponents are looking closely at the only state so far to try this new model.

In Washington, private insurers began selling policies under the state’s new public option late in 2020. The early results have been mixed, with the “Cascade Select” policies selling in low numbers and delivering little change to premiums.

In Colorado, critics of the new health insurance bill have argued that Washington’s example is proof that a similar policy here could backfire for consumers.

Other advocates and analysts see a different message: These new state-level health proposals might represent a smaller, incremental change, rather than the sweeping reforms described by both sides.

Rep. Eileen Cody, a sponsor of the Washington law, said that the public option’s debut has been disappointing, but she pointed out that other parts of the legislation have delivered improved benefits to tens of thousands of people.

“I would easily say I was disappointed in this year,” Cody said. “But there were reasons for it, and we’re making corrections.”

How the states’ plans compare

First, a clarification: Both states’ plans are being referred to “public options,” but that term is confusing. Washington isn’t offering insurance through a truly “public” government-run program, and Colorado’s not proposing that either.

Instead, the states are embracing a kind of public-private model.

Under Washington’s law, the state government pushes private insurers to sell a specific insurance plan with certain benefits. It also tries to lower costs by setting limits on how much hospitals can charge for services under that plan — a practice known as rate-setting.

Colorado would similarly force insurance companies to sell a “Colorado option” plan, and it would also use rate-setting to help insurers hit cost-reduction goals, although there are some important differences between how the two states approach that idea.

Finally, both states’ legislation is aimed at relatively few people. Washington’s law covers the individual market, while Colorado’s new plans would be offered to individuals and small businesses.

What happened in Washington?

Under the new law, Washington insurance companies now offer two new types of plans on the insurance exchange:

  • Cascade Plans, also known as “standard” plans. They include additional benefits over a regular private plan, which are set by the state with the goal of reducing patients’ out-of-pocket costs. They’re a response to the fact that deductibles for many plans are getting higher. 
  • Cascade Select Plans, also known as the “public option.” These are basically the regular Cascade Plans with some extra government involvement. The state uses “rate setting” to limit the prices that the insurance companies pay to hospitals under these plans. The goal is to lower the premiums paid by customers whale still offering low out-of-pocket costs.

Those new plans hit the market in November 2020, with mixed results. The public option — Cascade Select -- has been particularly underwhelming.

Some of the state’s largest insurers have declined to participate in Cascade Select. And so far, the Select plans are available in fewer than half of Washington’s counties, according to a recent state report. That’s contributed to low enrollment, with fewer than 2,000 people choosing the public option.

“Washington has ended up creating a public option that’s just basically irrelevant,” said Matt Fiedler, a fellow with the USC-Brookings Schaeffer Initiative for Health Policy.

But he doesn’t see that as a sign of a fundamental problem in the underlying idea. It’s a lesson that when it comes to execution, “details matter tremendously.” 

Colorado lawmakers hope to avoid the availability problem with additional requirements on insurance companies.

There’s another problem, too: The Washington law has yet to deliver on its price goals. Instead of driving down premiums, Washington’s public option in its first year has sometimes been pricier than other plans in the same tier.

“There are some (Washington counties) where the public option plan is the lowest-price plan -- but that’s the exception, not the rule,” said Billy Wynne, chairman of the Wynne Health Group, which is conducting a grant-funded study of Colorado and Washington’s legislation.

In most counties, the price difference was small, but a Bloomberg Law analysis found one county where the public option was 29 percent more expensive. Conservatives and industry interests have pointed to those premiums as evidence that a public option means higher costs.

More benefits, more costs

There are a few possible explanations for the disappointing premiums. The first is that Washington’s new law doesn’t just deal with premiums. 

Like Colorado’s proposal, it’s also designed to deliver other benefits, like lower deductibles — the out-of-pocket expenses that patients must pay before insurance kicks in. The average Cascade Care plan had a deductible $1,000 below other comparable plans.

“They made the benefit package richer at the same time that they were saying to providers and hospitals that they needed to be paid less,” said Chelene Whiteaker, senior vice president for government affairs at the Washington State Hospital Association.

The market needs more time to settle out and absorb the reforms, she said.

But reform advocates also want to push further. Rep. Cody, the sponsor, said the plan might need to pay lower rates to health care providers — cutting deeper into hospital revenues — to really lower premiums.

“We didn’t have strong enough rate limits on it,” said Cody, a retired nurse. “ … The real key to all of this is, we’ve got to come up with a way to regulate the prices.”

She hoped that subsequent bills would give lawmakers better insight into provider prices, and also push more of the industry to participate in the plans.

Meanwhile, there is a bright spot for the new Washington law, she said. While its “Cascade Select” public option plans aren’t very popular so far, the other new category — “Cascade” — has been successful, she said.

Those Cascade plans share many of the same benefits as Cascade Select, including a design that is focused on lowering deductibles and the other out-of-pocket costs that can sneak up on patients. But the Cascade plans don’t rely on government rate-setting to lower costs, and they are available in every Washington county.

So far, those Cascade plans have made up about 40 percent of new enrollments on the individual market, according to the state health exchange. “That was a big win, even without the public option,” Cody said.

What should Colorado expect?

Like Washington, Colorado’s public option would be a standardized plan that is sold by private insurers and reinforced by government price regulation.

But there are some differences that could affect the market. 

Colorado’s plan doesn’t use rate-setting as strongly -- at least not at first. Instead, it sets targets for insurance companies to reduce premiums over time. The law calls for an 18 percent overall reduction by 2025.

If the insurers fail to hit those targets, then state regulators would consider stepping in to set limits on the rates that hospitals and doctors can charge for patients on the plan. The sponsors hope that the bill will prompt the industry to lower costs on its own, to avoid government intervention.

If it does come to rate-setting, the Colorado bill could take a slightly bigger bite out of hospital revenue than the Washington law. As proposed, it would allow the plan to pay hospitals as little as 155 percent of the Medicare reimbursement rate, compared to 160 percent in Washington. (Individual doctors in Colorado could get less.)

Colorado’s “public option” also could avoid some of the Washington version’s problems with limited availability. The new bill would effectively require insurers to offer the new policy statewide.

“I think there’s some major differences between our bill and Washington’s bill,” said Rep. Dylan Roberts, a sponsor of the Colorado bill. “But at a high level, we have been able to learn a lot from Washington, and have been able to write the bill in a way that will prevent some of the unintended consequences that Washington’s been going through.”

In the end, it’s hard to predict the effects of either states’ plan. Both are complex pieces of legislation that try to find savings by changing the constraints on the current market — rather than introducing a dramatic new factor, like a government-run insurance company.

Govind Persad, an assistant professor teaching health law at the DU Sturm College of Law, said that he doesn’t anticipate immediate, sweeping changes from the new state laws, despite the heated rhetoric.

“I don’t see any harm in trying it. I think it will be interesting to see. My guess is that the benefit’s not going to be huge. And my prediction is it might be more useful to people in areas where they don’t have a lot of other (health insurance) options,” he said.