Update, March 12: Late Wednesday night, members of the Colorado House Health and Insurance Committee passed a bill to create a new health insurance plan, 7-4, along party lines. The bill is now in front of the House Appropriations Committee and will then need to clear the House floor before moving on to the Senate.
From our previous coverage:
Colorado Democrats introduced a bill on Thursday to set up a variation of a public health insurance plan.
The long-awaited bill already has drawn strong opposition from hospitals and conservatives, foreshadowing coming clashes as lawmakers near the halfway point of the session.
Supporters and critics of a “public option” for health insurance long have been debating the pros and cons of the policy, both in Colorado and at the national level. But Democrats, who control the state legislature and the governor’s office, are pushing ahead this year in an effort they argue will lower Colorado’s health care costs, which are some of the highest in the nation, according to a state analysis. Hospital prices soared by more than 73% between 2009 and 2018, that analysis found, and the “Colorado Affordable Healthcare Option” aims to address that.
Colorado’s version differs in significant ways from the type of public option insurance discussed on the national stage. Here’s a rundown:
What is Colorado’s “public option”?
The traditional public option — the kind that’s been touted on the presidential campaign trail — is a government-run healthcare plan that competes in the private market.
In Colorado’s version, the state develops the plan, including reimbursement rates, but private insurers run it. In each county, insurance companies offering individual plans would be required to offer the public option or face a fine.
Right now, the plan would only cover individuals, but state lawmakers envision a future expansion to cover small- and medium-sized businesses. About 7% of Coloradans, or more than 350,000 people, bought insurance on their own in 2019, according to a survey by the Colorado Health Institute.
If passed, the plan would take effect Jan. 1, 2022.
How does it save people money?
The most controversial part of the plan would set a base reimbursement rate for hospitals. The fixed rate of 155% of what Medicare pays for services, would, in theory, save enrollees money, while still allowing hospitals to be profitable. Hospital profits in Colorado rose by 280% since 2009, according to the Colorado Department of Health Care Policy and Financing analysis. The bill leaves some wiggle room for rate adjustments based on the hospital. A rural hospital with fewer patients and revenue might see a higher reimbursement rate, for example.
Second, the public option requires insurers to pay more of the total money they collect from individuals on patient care. Federal law generally requires insurance companies to spend at least 80% of their revenues on care, while Colorado’s public option would bump that number up to 85%. The effect of the requirement, in tandem with the other portions of the bill, would save enrollees money that would have gone toward insurance companies’ overhead or profits, advocates argue.
The bill’s sponsors say the lower costs of the public option also could drive down prices for people outside of the plan due to competition among insurers.
The bill also requires pharmacies and prescription drug carriers to pass rebates and savings from drug manufacturers on to people covered by the public option.
Because hospitals usually shift costs to make up for lost revenue — charges to people in the private market often make up for lower Medicare payments — the bill gives the Colorado Commissioner of Insurance the power to deny price increases that shift costs. So, if the commissioner determines that a hospital is charging a higher rate to people on other insurance plans to make up for lost revenues from the public option, he could block that hike.
The public option also would create an advisory board made up of members appointed by lawmakers. The board must have a majority of members without financial interests in healthcare, but there would be representation from hospitals. Board members must publicly disclose any financial ties to the healthcare industry, according to the bill.
The board is given the power to implement the public option plan and can override the decisions of the insurance commissioner.
Laura Packard, a small business owner, spoke in favor of the state’s public option plan on Thursday. Packard was diagnosed with cancer in 2017, but after radiation and chemotherapy she went into remission. She said with her individual Anthem insurance plan, her medical bills still run about $7,000 per year. A follow-up cancer screening cost more than $1,800 — even with insurance, she said. Packard said she would seriously consider switching to the state’s option, depending on what’s best for her needs. But either way, she said, increased competition in the insurance market is a positive.
“Whether I switch or whether I don’t switch, we need some pressure on these Denver-area monopolies [hospitals],” Packard said.
The Colorado Consumer Health Initiative, Healthier Colorado, The Bell Policy Institute, Center for Health Progress, the Colorado Fiscal Institute and more than 20 other organizations submitted a letter of support to lawmakers in support of the public option.
“Together, we have a shared priority in finding a pathway forward for a public option because we sincerely believe that the 90% of uninsured Coloradans who list cost as the primary reason they lack coverage need more affordable options,” the organizations wrote. About 6.5% of Coloradans lack health insurance, according to the 2019 Health Access Survey by the Colorado Health Institute.
Democratic Sen. Kerry Donovan of Vail, one of the bill’s sponsors, said that the public option could save Coloradans in the individual market in some parts of the state up to 20% on their monthly premiums.
“The Colorado option will help us put people over profits,” she said. “Consumers will have more choice, and the individual market will gain a cheaper insurance product.”
Rural hospitals, independent and critical access hospitals and hospitals that serve a large share of Medicare and Medicaid patients will be prioritized and receive higher reimbursement rates than 155% of Medicare, Rep. Dylan Roberts, another sponsor, said.
“Every hospital owner’s bill will not only be able to cover their costs, but also receive fair profits,” Roberts said.
The Colorado Hospital Association is a leading critic of the public option bill. Josh Ewing, associate vice president of legislative affairs at CHA, said its members oppose government price setting of any kind because it creates unintended consequences in other parts of the system.
“Cuts have to come from somewhere,” Ewing said.
Ewing said the association expects prices to rise for people with small employer-provided plans and for people receiving federal help with their plans.
Angelina Salazar, CEO of Western Healthcare Alliance — an association of mostly rural Colorado hospitals — said in some rural communities the public option might only help 50 people, but would make it difficult for hospitals to pay for care.
“If we want to make a sustainable solution, we have to look at more than just cost,” she said. “It’s not sustainable.”
Salazar said alliances where hospitals, insurers and consumers come together to negotiate work better than focusing on costs alone.
The Colorado Hospital Association is drafting a counter bill to the public option. The bill would create a “Total Cost of Care” type plan, which a few other states have implemented. Total cost of care plans cap the annual rate at which total spending on healthcare can grow. Ewing said such a plan addresses the entire healthcare system and doesn’t unfairly target hospitals.
Commissioner of Insurance Michael Conway disagrees. Hospital costs and profits are already “bloated,” he said, and total cost of care would bake unreasonable profits into the system.
Colorado Rising State Action, a conservative nonprofit that doesn’t have to disclose its donors, has spent more than $20,000 on mailers and ads against the public option bill, according to Executive Director Michael Fields. The mailers target Donovan and the other sponsors, calling the plan “government-run health care plan,” though the plan would be administered by private insurers.
“There’s no doubt when the government is telling the private sector what to do and setting fines and everything else, that they’re running it,” Fields said. The public option would raise costs for people on private insurance or negatively impact access, he argued.
Sen. Jim Smallwood, a Republican from Parker, believes the bill will drive private insurance companies from the state and pave the way for a regional single-payer health care system, something upon which Gov. Jared Polis campaigned, but has barely mentioned since.
Do any other states offer public option insurance and how’s that working out?
Washington state’s Gov. Jay Inslee signed a bill to create a similar public option last year, and New Mexico and Connecticut have passed legislation to consider a public option.
The Washington program won’t take effect in 2021, but there is a precedent for the rate-setting portion of Colorado’s healthcare option.
During the 1970’s and 1980’s, at least 10 states set up systems to control the rates healthcare providers could charge, according to research published in the Medicare and Medicaid Research Review. Maryland is the only state left with such a system, and, starting in 2014, Maryland also implemented a total cost of care type model.
According to a paper by Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management, the rate-setting systems dissolved after legislation to create a national rate-setting system failed and policies shifted toward market competition during Ronald Reagan’s presidency. Some states with rate-setting systems also projected lower payouts to hospitals from Medicare and discontinued the practice.
The national rate-setting study cited by Anderson found that between 1969 and 1982, states with mandatory rate settings saw a 12% to 26% decrease in costs per treatment.
“Dark money” organizations like Partnership for America’s Health Care Future and Colorado’s Healthcare future have spent tens of thousands of dollars so far airing opposition ads to the proposal.
The bill is expected to face strong opposition from Republican lawmakers and healthcare providers alike as it moves through the statehouse. GOP Sen. Smallwood said he plans to “vocally oppose” the bill moving forward.
“How can we create an entirely new insurance plan in a 20-page bill,” Smallwood asked. “We can’t.”