Summary of the Colorado Affordable Health Care Option Act
On March 5, 2020, the Colorado legislature introduced the Colorado Affordable Health Care Option Act. While the legislative text mirrors in many ways the plan submitted to the state legislature by the Colorado Department of Health Care Policy and Financing (HCPF) and the Colorado Division of Insurance (DOI), it includes new details not present in any preceding materials. We focus primarily on this new information below.
Advisory Board
The bill would establish the Colorado Option Advisory Board for the purpose of making recommendations to develop, implement, and operate the Colorado Option. The board would consist of nine voting members. The governor would be responsible for appointing four non-legislative members; two who represent consumers with the highest barriers to accessing health care, one with expertise in providing health care to low income individuals, and one who has expertise in health care finance. Members of the legislature would be responsible for selecting four additional members with experience in value-based purchasing, rural health care, and hospital administration.
The Advisory Board would advise on any federal waiver required for pass-through funding to increase premium subsidies, in addition to the timing and feasibility of offering the Colorado Option on the small group market, and value-based payments and plan design. Of note, the Advisory Board would have the authority to override any DOI decision on the development, implementation, and operation of the Colorado Option, by a vote of at least seven members.
Colorado Option Plan Required Components
Beginning January 1, 2022, insurance carriers that offer an individual health plan would be required to offer the Colorado Option in the individual market in each county where carriers offer individual plans. In the case that a county only has one carrier, DOI may require carriers to offer the Colorado Option Plan in specific counties where they are not currently present. DOI would consider each carrier’s structure and the number of lives covered in each county, as well as alternative health care coverage available in each county, before requiring carriers to participate in specific areas.
The Colorado Option would provide first-dollar, pre-deductible coverage for primary care and behavioral health care, in addition to the essential health benefits. Carriers would be required to reimburse hospitals for inpatient and outpatient services based on the established formula and ensure that eighty-five percent of premiums collected are spent on patient care. The legislation would also require carriers to reduce premiums by the amount equal to all of the manufacturer rebates they receive for managing prescription drug benefits covered by the Colorado Option in the previous plan year.
The legislation would direct DOI to adopt several rules including a rule to better ensure the premium amount for silver plans are based on the true actuarial value of silver plans, and a rule to increase the affordability of the Colorado Option for individuals and families whose income is up to four hundred percent of the federal poverty line (i.e., the subsidized population).
Beginning January 1, 2023 (i.e., the second year of the program), the bill would allow DOI to expand the Colorado Option to the small group market, contingent on the Advisory Board’s approval. In order for implementation for the small group market to begin in PY 2023, the Board would need to vote immediately following program launch in the individual market. For purposes of the small group market, the bill would allow DOI to deem a purchasing cooperative – such as the PEAK Alliance – as a qualified Colorado Option plan.
DOI would be required to publish evaluation reports examining the effect of the Colorado Option on the individual market and any cost-shifting effects among markets. The report would also examine provider network adequacy and, importantly, the effect of the plan on the subsidized population. The bill also requires HCPF and DOI to recommend the majority of any pass-through funding received through the Colorado Option be dedicated to increasing affordability for the subsidized population.
Hospital Participation and Reimbursement
As expected, the legislation establishes a mandate that hospitals participate in the Colorado Option. The Colorado Department of Public Health and Environment is afforded the authority to suspend or revoke the license of a hospital that does not participate and would be able to impose fines of up to $50,000 per day for failure to participate.
DOI would develop a formula to set “reasonable carrier” reimbursement rates for inpatient and outpatient services. The intent of these rates – as written in the bill – would be to lower premiums and enrollee out-of-pocket costs, as well as to improve access to care in rural areas. As expected, rates would be based on a percentage of what Medicare pays for equivalent services.
Of interest, the bill would pre-establish reimbursement rates for plan years (PY) 2022 and 2022, starting at 155 percent of Medicare . DOI could further adjust this base rate according to certain hospital characteristics, as alluded to in other materials recently released by Colorado (see here) and outlined below.
Beginning PY 2024, DOI could then determine the base reimbursement rate and adjustment factors for hospitals. In doing so, the bill specifies that DOI must consult unions representing health care systems in Colorado to ensure reimbursement rates can support the cost of hospital wages, benefits, staffing, and training for staff.
Importantly, the bill would allow the DOI to modify the reimbursement rate or exempt a hospital from it entirely if a hospital that demonstrates the rate would have an adverse effect on its financial sustainability.
To counteract the potential that hospitals will increase their prices in other markets to recoup any losses they may experience due to the Colorado Option, DOI is required to deny carrier rate filings for a plan in any market that “reflect a cost shift” between the Colorado Option and that plan, taking into account the total cost of health care.