Colorado Option Regulations: Enforcement of Premium Rate Reduction Requirements

The Colorado Division of Insurance (DOI) adopted regulations for the enforcement of premium rate reduction requirements. In the first year of the Colorado Option, plan year 2023, insurance carriers were afforded broad flexibility to negotiate provider reimbursement rates, as long as they offered plans that meet network adequacy requirements and premium rate reduction requirements

Starting with plan year 2024, DOI will convene public hearings to address carriers that are unable to meet premium rate reduction requirements or network adequacy requirements. A public hearing could result in the Insurance Commissioner requiring certain hospitals and health care providers to accept payment rates established by the Insurance Commissioner. The public hearings, if convened, may indicate the need for cost-control measures directed at hospitals and health care providers to ensure carriers achieve mandatory premium targets.

In preparation for plan year 2024, DOI announced the proposed schedule for Colorado Option public hearings, which will take place in June for carriers in the individual market and July for carriers in the small group market. Additionally, DOI published individual and small group market target premiums and the hospital specific reimbursement floors for plan year 2024.

Reasons for a Public Hearing

DOI may convene a public hearing if a carrier fails to meet the premium rate reduction requirement (Regulation 4-2-85) or network adequacy requirements (Regulation 4-2-80), beginning in plan year 2024. Carriers are required to offer a standardized plan in plan year 2024 with a premium that is reduced by 10 percent relative to their 2021 premiums. DOI published maximum premium targets that a new carrier and existing carriers can charge on its Colorado Option plan in the individual market and small group market, by metal level and county, using a methodology developed by the Wakely Consulting Group. The targets do not account for reinsurance, which can further reduce premiums.

Procedures of a Public Hearing

The ultimate purpose of a public hearing is to resolve a payment dispute between an insurance carrier and provider(s) that stems from routine reimbursement negotiations. The dispute escalates to a public hearing if the parties are unable to settle on a reimbursement rate approved by the Insurance Commissioner. In Regulation 4-2-92, DOI lays out the procedures of public hearings, which can be divided into three stages: pre-hearing activities, public hearing proceedings, and issuance of decision. See Table 1 for more details.

Burden of Proof

In general, the burden of proof is on the party that makes an allegation. Some examples follow.

If a carrier has notified the Insurance Commissioner that it is unable to meet the premium rate reduction requirements because of a hospital or health care provider, and the hospital or health care provider alleges that the carrier is able to meet the premium rate reduction requirements, then the burden of proof is on the hospital or health care provider to prove that the carrier is able to meet the requirements.
If DOI alleges that a carrier has not met the premium rate reduction requirements, then the burden of proof is on DOI to prove that the carrier has failed to meet the requirements.
If a party alleges a particular hospital or health care provider is the reason a carrier failed to meet the premium rate reduction requirements, the burden on proof is on the party to demonstrate that the hospital or health care provider prevented the carrier from meeting the premium rate reduction requirements and to justify the appropriateness of the reimbursement sought by the party through the public hearing. In this case, the party could be a carrier or a hospital or health care provider.

Regardless of the circumstances for the public hearing, a hospital or health care provider is permitted to present evidence that a carrier’s proposed reimbursement rate is insufficient.

Allowable Evidence

Evidence presented at the hearing is limited to information that is related to the reason the carrier failed to meet the network adequacy requirements on the premium rate reduction requirements for the Colorado Option plan in any single county. The following additional documentary evidence may be included:

An actuarial analysis demonstrating why the premium rate reduction requirements were not met;
Negotiated rates with other providers in the same county.
Enrollee and utilization data for the county.
Provider financial data, including but not limited to, profit and loss statements and balance sheets. Providers may also submit other data to demonstrate unique circumstances that may not be represented in the rate setting process.
Provider rates with other carriers.
Carrier initiatives and assumptions to reduce health care costs for the county.
Demographics and acuity of covered populations within the county.

Information submitted as part of the public hearing is considered to be part of the public record. However, any party may claim that information or documents submitted is confidential under applicable state and federal law. Confidential information will only be made available to the parties involved, and not the public.

Notably, all negotiations during the settlement period are considered confidential and may not be introduced into the public hearing. Additionally, DOI’s representatives that participate in the negotiations are “screened” from the public hearing, meaning they cannot disclose any information from the negotiations to the Insurance Commissioner.

Potential Outcomes of a Public Hearing: Reimbursement Floors

A public hearing may result in the Insurance Commissioner requiring hospitals and health care providers to accept reimbursement rates established by the Insurance Commissioner. Reimbursement rates cannot be lower than hospital or health care provider reimbursement floors specific to that hospital or health care provider, calculated using methodology established in Regulation 4-2-91.

DOI published hospital specific reimbursement floors for plan year 2024. The hospital specific reimbursement floors range from 165 percent to 246.18 percent of the Medicare Benchmark Reimbursement Rate. The health care provider reimbursement floor is 135 percent of Medicare Benchmark Reimbursement Rate.

Hospital Reimbursement Rate

The hospital specific reimbursement floor before adjustments is equal to the 155 percent of the Medicare Benchmark Reimbursement rate for that specific hospital. DOI is then able to make the following adjustments to the base rate:

20 percent increase for being an independent hospital or essential access hospital;
Up to 30 percent increase for having a high share of Medicaid/Medicare patients; and
Up to 40 percent increase for efficient management of underlying cost of care.

If this formula yields a hospital reimbursement rate less than 165 percent of the Medicare Benchmark Reimbursement Rate, then the hospital reimbursement floor will be equal to 165 percent of the Medicare Benchmark Rate. The pediatric hospital reimbursement floor may not be less than 210 percent of the Medicare reimbursement rate.

In determining the hospital’s reimbursement rate, the Insurance Commissioner may consider the following factors:

Input from employee membership organizations in Colorado representing health care providers, including hospital-based health care providers;
The cost of adequate wages, benefits, staffing, and training for health care employees to provide continuous quality care;
The most current Medicare prospective or cost-based payment rates available, or any rate modifications published by the Centers for Medicare and Medicaid Services; and
Any publicly available hospital and provider data and cost tools.