UPDATE x4: So Washington State just passed an ACA Public Option...

Back in January, 2nd-term Washington Governor and Democratic Presidential candidate Jay Inslee jumped fully onboard the Public Option train:

Inslee proposes ‘public option’ health-insurance plan for Washington

The proposal, which Inslee said is the first step toward universal health care, is geared in part to help stabilize the exchange, which has wrestled with double-digit premium increases and attempts by Republicans in Congress and President Donald Trump to dismantle the Affordable Care Act.

...The proposal would have the state Health Care Authority contract with at least one health-insurance carrier to offer qualified health coverage on the Washington Health Benefit Exchange, according to a summary of the proposal.

The plan would be designed with transparent and consistent deductibles, copays and coinsurance, according to the summary, and would “compete on premium price, provider networks, customer service, and quality.”

...Washington state Insurance Commissioner Mike Kreidler said getting the legislation passed will be difficult, but is necessary, especially for people buying health insurance on the individual market who don’t qualify for a subsidy.

...Cody said insurance companies know about the proposed legislation and are not “overjoyed” about the plan.

As I noted at the time:

Well no, they wouldn't be, would they (except for whichever carrier wins the state contract, I presume).

Since January, however, I haven't really written much about Inslee's proposal. I obviously hoped it would be serious, but figured it was mostly just meant to bolster his progressive street cred for his Presidential run.

Well, guess what just happened?

Democrats in Olympia push through governor’s 'green' agenda and public healthcare coverage bills

...Another key item on the governor’s agenda is the so-called “public option” socialized health care coverage measure, SB 5526. This bill would create subsidized state-funded public health plans managed by regulated insurance companies. It would require the State Insurance Commissioner and the Health Care Authority to set up the socialized plans by 2021.

Side note: The term "socialized" is being misused here in my opinion, since the proposal would be neither socialized medicine (i.e., the healthcare providers wouldn't actually work for the government), nor would it be single payer (since enrollees would still be paying premiums, deductibles & co-pays).

These plans would be available through the state’s health care exchange to all residents, but the state would pay subsidies to individuals with incomes of up to five times the poverty level. Premiums would be limited to no more than ten percent of adjusted gross income, and payments to doctors and other health care providers would be restricted to Medicare-level limits.

That's like a trifecta of what progressives were dreaming of a decade ago when the ACA itself was originally being developed and voted on: A true public option, more subsidies available to more people and perhaps most significantly, Medicare-level rate setting. I didn't even know about the "bumping up subsidies to 500% FPL" part, but that's obviously welcome as well! For comparison California is hoping to bump APTC assistance up to 600% FPL, and the federal House Dems ACA 2.0 bill would remove the upper-threshold cap altogether...but 500% would still be better than 400%, especially if the policies were priced based on Medicare-level reimbursement rates.

In other words, if this actually goes into effect, it would be huge.

So, what actually happened this week?

The bill passed the Senate last month by a 36-13 vote, after a House version of the proposal, HB 1523, passed the House on a 57-41 party-line vote. The final proposal of the bill was incorporated in SB 5526 and passed the House on Wednesday by a 54-38 vote, with six members excused.

Changes to the bill made by the House will have to be approved by the Senate before it goes to the governor for his signature.

Holy crap on a stick! How did I not hear about any of these developments over the past month?? If I'm understanding this correctly, all that stands between Washington State and a full-blown, robust Public Option being added to their ACA Healthcare Exchange is for Gov. Jay Inslee a final vote in the state Senate and a signature by Gov. Inslee...and voila???

Well, ok, as noted above, it wouldn't go into effect until 2021, but still...this seems like a potentially massive healthcare development.

Here's the actual text of the bill itself (or at least of the "original" version...there's also a "Substitute" version and an "Engrossed Substitute"...I have no idea which one actually passed, but they're alll about the same length. It's surprisingly brief, actually...just four pages:

AN ACT Relating to increasing the availability of quality, 2 affordable health coverage in the individual market; adding a new 3 section to chapter 43.71 RCW; adding a new section to chapter 42.56 4 RCW; adding a new section to chapter 41.05 RCW; creating a new section; and providing an expiration date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1

A new section is added to chapter 43.71 RCW to read as follows:

(1) The exchange, in consultation with the commissioner, the authority, an independent actuary, and other stakeholders, must establish up to three standardized health plans for each of the bronze, silver, and gold levels.

(a) The standardized health plans must be designed to reduce deductibles, make more services available before the deductible, provide predictable cost sharing, maximize subsidies, limit adverse premium impacts, reduce barriers to maintaining and improving health, and encourage choice based on value, while limiting increases in health plan premium rates.

(b) The silver standardized health plan must have an actuarial value between sixty-eight and seventy percent.

(c) The exchange may update the standardized health plans annually.

(d) The exchange must provide a notice and public comment period before finalizing each year's standardized health plans.

(e) The exchange must provide written notice of the standardized health plans to licensed health carriers by January 31st before the year in which the health plans are to be offered on the exchange.

(2)(a) Beginning January 1, 2021, any health carrier offering a qualified health plan on the exchange must offer one silver standardized health plan and one gold standardized health plan on the exchange. If a health carrier offers a bronze health plan on the exchange, it must offer one bronze standardized health plan on the exchange.

(b) For plan years 2021 through 2024, a health carrier offering a standardized health plan under this section may also offer nonstandardized health plans on the exchange subject to the following:

(i) For plan years 2021 and 2022, a health carrier may offer an unlimited number of nonstandardized health plans on the exchange;

(ii) For plan years 2023 and 2024, a health carrier may not offer more than three nonstandardized health plans in each of the bronze, silver, and gold levels on the exchange; and

(iii) The actuarial value of nonstandardized silver health plans offered on the exchange may not be less than the actuarial value of the standardized silver health plan.

(c) For health plan years beginning in 2025, a health carrier may not offer nonstandardized health plans in any metal level on the exchange.

(d) A health carrier offering a standardized health plan on the exchange under this section must continue to meet all requirements for qualified health plan certification under RCW 43.71.065 32 including, but not limited to, requirements relating to rate review and network adequacy.

NEW SECTION. Sec. 2.

A new section is added to chapter 42.56 RCW to read as follows:

Any data submitted by health carriers to the health benefit exchange for purposes of establishing standardized benefit plans under section 1 of this act are confidential and exempt from disclosure under this chapter.

NEW SECTION. Sec. 3.

A new section is added to chapter 41.05 RCW to read as follows:

(1) The authority, in consultation with the health benefit exchange, must contract with one or more health carriers to offer silver and gold qualified health plans on the Washington health benefit exchange for plan years beginning in 2021. A qualified health plan offered under this section must meet the following criteria:

(a) The qualified health plan must be a standardized health plan established under section 1 of this act;

(b) The qualified health plan must meet all requirements for qualified health plan certification under RCW 43.71.065 including, but not limited to, requirements relating to rate review and network adequacy;

(c) The qualified health plan must incorporate recommendations of the Robert Bree collaborative and the health technology assessment program; and

(d) The qualified health plan's fee-for-service rates for providers and facilities may not exceed the medicare rates for the same or similar covered services in the same or similar geographic area. For reimbursement methodologies other than fee-for-service, the aggregate amount the qualified health plan pays to providers and facilities may not exceed the equivalent of the aggregate amount the qualified health plan would have reimbursed providers and facilities using fee-for-service medicare rates.

(2) When implementing this section, the director must use a request for qualifications process. The director must review the qualifications of health carriers seeking to offer qualified health plans under this section and may negotiate with the health plans to the extent necessary to refine the health carriers' responses. The director must contract with all health carriers who meet the minimum qualifications.

(3) Nothing in this section prohibits a health carrier offering qualified health plans under this section from offering other health plans in the individual market.

NEW SECTION. Sec. 4.

(1) The Washington health benefit exchange, in consultation with the health care authority and the insurance commissioner, must develop a plan to implement and fund premium subsidies for individuals whose modified adjusted gross incomes are less than five hundred percent of the federal poverty level and who are purchasing individual market coverage on the exchange. The goal of the plan is to enable participating individuals to spend no more than ten percent of their modified adjusted gross incomes on premiums. The plan must also include an assessment of providing cost-sharing reductions to plan participants.

(2) The Washington health benefit exchange must submit the plan, along with proposed implementing legislation, to the appropriate committees of the legislature by November 15, 2020.

(3) This section expires January 1, 2021.

I keep thinking that I must be missing something here. The bill is only four typed pages, it seems to have quietly flown through both the WA state House and Senate with little notice outside the state, and there's zero details on where the funding for either the public option itself or the subsidies for those earning 400-500% FPL would come from.

There's nothing about submitting a 1332 waiver approval request to the Centers for Medicare & Medicaid, which either means a) it wouldn't be needed since WA operates their own exchange and they intend on financing the entire PO using state funds, or b) that's covered by a separate document.

It's worth noting that Nevada actually pulled off a similar hat trick a couple of years ago (it was a Medicaid buy-in bill, not a Medicare-level Public Option)...and like this Washington development, that one also somehow flew under the radar until it was actually mostly through the process:

The Nevada state legislature quietly, and surprisingly, passed a Medicaid buy-in option for anyone in the state. I wrote about this back in April, but even I didn't think much of it at the time--I assumed it was more of a symbolic proposal than anything, or that it would die in committee at most. The details are important, of course, but assuming they make sense, this is exactly the sort of approach I would recommend in trying to gradually transition to some type of universal single-payer like system.

The biggest questions I'd want answered are 1) What type of coverage does Medicaid actually have in Nevada? It varies widely from state to state, so if NV's is pretty comprehensive, awesome, but if it's skimpy, that's not very helpful; 2) What sort of premiums/deductibles/co-pays would buy-in enrollees be looking at?; 3) What sort of impact would this have on the state budget?; and most significantly, 4) How many Nevada doctors/hospitals would accept these enrollees? Remember, the reason a significant chunk of healthcare providers don't accept Medicaid patients is because it only reimburses them around 50¢ on the dollar compared to private insurance.

Unfortunately, while the bill passed quickly through both the Nevada House and Senate, it was ultimately vetoed by then-GOP Governor Brian Sandoval.

The difference in Washington State, of course, is that not only do they have a progressive Democratic Governor...he's the one who actually proposed the Public Option in the first place.

In terms of funding...again, I see nothing.

How much would it actually cost? I'll run some very rough estimates tomorrow.

UPDATE: So how much would Inslee's proposal actually cost assuming it passes the final state Senate vote (it will), is signed by Inslee (it will be) and goes into effect starting in January 2021 (still highly questionable for several reasons)? Again, this assumes that the state does indeed establish a full-blown individual market public option carrier on the state ACA exchange, state-wide, which is able to contract with a decent-sized network of hospitals, doctors and so forth. It also assumes those providers sign contracts accepting Medicare-level reimbursement rates for non-Medicare enrollees, which would be...a hell of a development and is probably the most thing to watch about this, to put it mildly.

Again, these are some very crude numbers, but it seems to me that the main expenses involved would be 1) setup/establishment of the program itself; 2) annual administrative expenses; and 3) the enhanced subsidies for exchange enrollees earning 400-500% of the Federal Poverty Line. It's important to note that the 400-500% subsidy expansion would apply to all exchange enrollees, not just those who choose the new PO plans.

  • Startup funding: I have no idea how much it would cost to ramp up a program like this, but it'd be a one-time expense.
  • Annual operational/administrative costs: Well, the closest parallel I can think of would be Minnesota's MinnesotaCare Basic Health Plan program. Like the proposed WA PO, MinnesotaCare also contracts with private insurance carriers to provide subsidized heatlh policies. Around 90,000 - 100,000 Minnesotans are enrolled in MinnesotaCare every year. The big difference is that MinnesotaCare is only available for individual market enrollees earning 138 - 200% FPL (low-income), while the WA PO would be available for anyone (although subsidies would, again, only be available for those earning 138 - 500% FPL).
  • According to this 2019-2020 budget report from Minnesota, in 2015 the state spent $76.3 million in administrative/operational costs for both their Medicaid and MinnesotaCare programs combined (page 10). Let's assume that 2/3 of this goes to administer Medicaid (yes, 10x as many people are enrolled in Medicaid, but many administrative expenses are the same regardless of how many people are utilizing the program). That would mean MinnesotaCare costs perhaps $25 million/year to operate/administer...let's call it $30 million/year (?) to account for inflation and so forth. Again, I could be way off on this and will update if/when I receive more accurate information.
  • That leaves the additional 400-500% FPL subsidies, which would apply to all exchange enrollees in that income bracket. How much might that cost?
  • That would average around $4,900/month apiece or $58.8 million/month total, or over $705 million in federal subsidies for the year, assuming all 143,000 stick it out for the full year, which of course won't happen; there's always some amount of attrition and churn throughout the year. Historically, monthly effectuated exchange enrollment averages around 80% of the number who originally signed up, or perhaps $564 million/year in Washington State.
  • That would mean a total of 150,000 additional subsidized enrollees on exchange plans in WA (reducing their uninsured rate by another 2 percentage points, I should also note).
  • OK, so how much in state-funded subsidies would those 150,000 people receive? Let's assume the average income of these enrollees is around 450% FPL, or $56,000/year for a single adult. At 10% of income, the additional subsidies would kick in at around $5,600.
  • The average unsubsidized premium in WA this year is $551/mo or $6,612/year, so a single adult earning $56K would be eligible for around $1,000/year in subsidies. That would amount to roughly $150 million/year which Washington State would have to come up with.
  • Add that to the $30 million (?) in operational/administrative costs and you're looking at perhaps $180 million/year.
  • There'd also have to be significant cash reserves set aside for the state to actually pay claims to the providers, even at Medicare rates. This is where the spectre of adverse selection comes in, although I presume the narrow network of providers willing to accept Medicare rates would limit that problem somewhat. I have to imagine they'd need at least another $1,000/enrollee to make sure the fund was solvent, or $150 million/year. That'd bring the grand total up to around $330 million per year.

Again, these estimates could be wildly off:

  • They don't account for premium increases for non-PO carriers between now and 2021 (or after that).
  • They assume that all 150,000 are individual enrollees (when most would likely be grouped into households).
  • They assume that the average ages and plan metal levels picked would be fairly close to what they are this year.
  • Most importantly, they assume that the PO premiums would be similar to what they are for private carriers instead of being based on the PO paying Medicare rates, which average perhaps 60% as much as private insurance.
  • They assume 150,000 enrollees who'd fall into the 400-500% FPL range...it could obviously be higher or lower than that.
  • They assume that those 150K average 450% FPL
  • They assume that only 150,000 people enrolled specifically in PO policies...when in fact it's likely that there'd be a huge shift towards it from the competing private carriers who have to reimburse providers a good 50% more and thus price premiums accordingly.

So really, the actual cost could be higher or lower...possibly significantly so. Still, Washington State has a total annual budget in the $50 billion range (Inslee's proposed 2019 budget is $54.4 billion), so we aren't talking about a massively expensive new program...it'd likely be perhaps 0.6% of the total budget, or perhaps as much as 1%, give or take.

It's important to keep in mind that even if this goes through, the policies themselves wouldn't necessarily be that much better than existing exchange plans. The Silver and Gold plans would still only cover 70% or 80% of healthcare expenses on average. There'd still presumably be large deductibles for Silver enrollees, and so on. In fact, the networks would likely be worse than current exchange plans, since I can't imagine too many hospitals, doctors, clinics etc. are thrilled about taking on more patients who they only get paid ~60% as much for as the rest of their patients.

It's also worth noting that while bumping up subsidies to the 500% threshold is important, it wouldn't do much for those earning over 500% FPL. On the other hand, assuming premiums were indeed based on Medicare rates, folks earing >500% would presumably have the option of plans costing a good 1/3 less than they'd otherwise have access to anyway, which would still be hugely helpful to many of them.

HOWEVER, the precedent which would be set would still be hugely important...and if it led to another 2% of Washington's population receiving decent (if not fantastic) healthcare coverage, so much the better.

Stay tuned...

UPDATE x2: Hah! OK, after discussing this with a couple of Washington State-based healthcare wonks in the know, I've taken a closer look at all three versions of the bill (original, substitute and "engrossed substitute", whatever that means), and there's been two important changes made to Section 3.

Here's the original, as noted above:

(d) The qualified health plan's fee-for-service rates for providers and facilities may not exceed the medicare rates for the same or similar covered services in the same or similar geographic area. For reimbursement methodologies other than fee-for-service, the aggregate amount the qualified health plan pays to providers and facilities may not exceed the equivalent of the aggregate amount the qualified health plan would have reimbursed providers and facilities using fee-for-service medicare rates.

Here's how the relevant section reads in the substitute version of the Senate bill:

(e)(i) Except as provided in (e)(ii) of this subsection (1), the qualified health plan's fee-for-service rates for providers and facilities may not exceed the medicare rates for the same or similar covered services in the same or similar geographic area. For reimbursement methodologies other than fee-for-service, the aggregate amount the qualified health plan pays to providers and facilities may 26 not exceed the equivalent of the aggregate amount the qualified health plan would have reimbursed providers and facilities using fee-for-service medicare rates.

(ii) For services provided by rural hospitals certified by the centers for medicare and medicaid services as critical access hospitals or sole community hospitals, the rates may not be less than one hundred one percent of allowable costs.

In the substitute version, they add a qualification that rural hospitals will be reimbursed for at least 100% of the "allowable costs" of services provided; this is obviously to prevent rural hospitals from going bankrupt due to only receiving Medicare rates.

And then there's the "engrossed substitute" bill, where the reference to "may not exceed medicare rates" has been completely removed...with this being the only reference to Medicare rates:

(g) For services provided by rural hospitals certified by the centers for medicare and medicaid services as critical access hospitals or sole community hospitals, the rates may not be less than one hundred one percent of allowable costs.

In other words...reimbursement rates in the final version of the bill aren't being locked in by the bill itself at all, and will presumably be up to negotiation between the state and the providers just like every other private carrier. The only exception is that rural hospitals have to at least break even, although I kind of assumed they wouldn't agree to anything lower than 100% of costs anyway.

This changes the significance of this proposal considerably...but it also perfectly illustrates exactly one of the big reasons why the proposed Medicare for All bills (as well as Medicare for America, for that matter) are going to be such a royal pain in the ass to actually get passed and implemented: Hospitals and doctors aren't going to be happy at all about accepting one dime less than they do today, in some cases with good reason.

If the WA PO ends up paying close to the same reimbursement rates as private insurance carriers do today, it will still be an extremely important development for other reasons...just not as game-changing as it seems at first.

UPDATE x3: Someone has that the “exchange must contract with one or more health carriers” wording in the bill might simply refer to the private carrier simply agreeing to add and administer another suite of private exchange policies which would be negotiated and regulated by the state (presumably with official WA Exchange ‘branding’). If this is how it ends up being done, it would be more like a Medicare Advantage plan than a true Public Option.

I’ve asked a few trusted sources and have received at least three different responses so far. It sounds like that detail is still a big unknown, along with the provider reimbursement rates.

In other words, it’s possible that this development will end up being less than it seems...but I’m not sure yet. Stay tuned.

UPDATE x4: OK, thanks to Eric Valpey for finding this for me...the ADOPTED and Engrossed version of the bill...which I assume is the final version, and which includes this language regarding Medicare reimbursement rates:

(g)(i) The total amount the qualified health plan reimburses providers and facilities for all covered benefits in the statewide aggregate, excluding pharmacy benefits, may not exceed one hundred fifty percent of the total amount medicare would have reimbursed providers and facilities for the same or similar services in the statewide aggregate

BOOM. There you have it: 150% of Medicare.

Overall, Medicare seems to reimburse healthcare providers around 60% as much as private health insurance carriers do (though this varies widely by service, carrier, etc), so 150% of that would be around...90%, give or take. In other words, in theory, the proposed Washington State Public Option would come in with premiums which can undercut private competitors by perhaps 10% or so...maybe a bit more, since the 150% threshold is the maximum reimbursement level allowed; the state might be able to strongarm providers into something a bit lower than that on certain services.