Colorado: State-Level Public Option Report released!

I honestly haven't written or read much about this since I wrote about it in April, but the Colorado government is making good on its promise to put forward a serious Public Option proposal.

While Washington is technically the first state to create their own state-based Public Option, the reality is that while I do give them plenty of credit for getting the ball rolling (their PO is scheduled to go into effect starting in January 2021), what they're doing isn't quite what most people have in mind when they think of a PO.

Washington is essentially outsourcing administration of a healthcare plan to an existing carrier, with the state government negotiating the provider network and reimbursement rate levels...which have been set to 160% of Medicare rates. There's nothing wrong with this, and it's an important move forward...but it's only expected to shave perhaps 5-10% at most off of costs because any negotiated rate settings are partly cancelled out by the cost of the private carrier doing the administration.

If I'm reading part (ii) correctly, starting the third year, they might scrap even that 160% cap anyway. In other words, the Public Option may end up costing pretty much exactly the same as other exchange options.

On the other hand, primary care doctors, including pediatricians, internists and family doctors, should be thrilled about the public option. These specialties tend to be underpaid by Medicare, so bumping up their pay by 35% should be very helpful in getting them to sign up...although that, in turn, will also presumably eat up that 5% or so savings.

In addition, that "Medicare pays 60% of private insurance" estimate is just that: An estimate. It could be higher or lower in Washington compared to other states; if it's lower, then there could still be significant savings to be had. If it's higher, it's conceivable that the public option will cost a bit more than some competitors.

In the end, having a public option is still a Very Good Thing for other reasons: It provides an important check on private carriers looking to price gouge or cut services, and it also negates any possibility of bare counties in the state, which also removes any potential for blackmail on the part of a private insurance company. Plus, it gives the PO concept a foothold and proof-of-concept for other states to study and use for their own models.

...which brings me back to today's news out of Colorado:

Colorado releases draft report on how public health insurance option would work

The Colorado Division of Insurance and Department of Health Care Policy and Financing on Monday released its draft report of how a state public health insurance option would work, a requirement under the bill passed by lawmakers earlier this year.

According to the report, people who chose a public option plan could see their monthly premiums reduced by 9% to 18% compared to other private plans and others on the state exchange. The “state option” would become available to Coloradans in 2022.

As I noted re. Washington State: The savings from a Public Option...even a fairly robust one...aren't going to be earth-shattering...but that's OK. 9-18% is still a lot better than 5-10%.

The 196-page draft report released Tuesday will now be subject to a public comment period through Oct. 25, after which the departments will have until Nov. 15 to submit their final report to lawmakers.

According to the report, the public option plans will be designed by the state but administered by insurance companies and sold on the state health exchange, Connect for Health Colorado, so that people who receive federal subsidies can use them to buy the plan.

It sounds like they're going the same route that Washington did after all, but they apparently hope to squeeze higher savings out of this model.

Hospitals will be on a fee reimbursement schedule under the plan, and the state says it plans to reimburse hospitals at 175% to 225% of what Medicare chargesbelow what hospitals currently are paid. That schedule would aid in protecting rural hospitals, the state said.

Whoa. THIS is sounds like private insurance reimbursement rates are quite a bit higher in Colorado than Washington. In fact...

“Consumers and employers in our commercial markets should not be paying nearly three times as much as Medicare like they are today,” state Insurance Commissioner Michael Conway said in a statement, adding that the state, insurers, hospitals and other stakeholders would have to “come together” to make the state option work.

Here's where it gets tricky, though:

The report says that the state will seek a federal waiver that would bring an additional $69 million to $133 million in out-of-pocket savings and cover extra services, like dental coverage.

Colorado actually just implemented their first Section 1332 Waiver for a robust reinsurance program, so this would be their second one. I'll have to take a look at the report itself to see where the $69 - $133M would come from.

But insurance companies that administer the plans will hold the financial risk with the option and will have to use 85% of the money collected from premiums to pay for patient care.

Now that's I noted in my big MLR Rebate project last month, the ACA only requires an 80% Medical Loss Ratio threshold on the Individual and Small Group markets; 85% is restricted to the Large Group market. It sounds like the proposal would bump that up to 85%...although I'm not sure if that'd be for the PO plans only or for the entire Indy market, which seems a lot more reasonable to me.

UPDATE: Sure enough, via the report itself:

The State Option will make sure that more premium dollars go toward care. Current federal law requires that a minimum of 80 cents of every dollar taken in as premium in the individual market be spent on patient care. The State Option plan will increase that requirement to 85 cents, ensuring that more of a consumer’s premium dollar is going towards their health care.

This wouldn't just benefit State Option enrollees, it should, in theory, reduce premiums for other carriers in the state by around 5% relative to what they'd otherwise be.

Alternately, it won't have any official effect on the premiums'll just mean much larger MLR rebates to policyholders in the future. For reference, this year Colorado carriers had to pay out over $10.7 million in rebates at the 80% threshold.

I'll read through the report and update this post with any additional noteworthy items later this week.