Summary of Washington’s New Cascade Care Law
On May 10, 2021, Washington State Governor Jay Inslee signed into law Senate Bill 5377 – legislation aimed at improving the affordability and stability of Cascade Care, the first state program to offer public option plans (i.e., Cascade Select). The bill reflects a more direct attempt to increase the availability of public option plans and to control health care costs, particularly through major policy changes to provider participation and reimbursement. Additionally, the bill will establish a premium and cost-sharing subsidy program to complement these new policy changes as well as the standards and guardrails for Cascade Care established by Senate Bill 5526. The bill also directs the state to pursue a federal waiver, if appropriate, to unlock federal pass-through funding to help pay for the new premium and cost-sharing subsidy program.
Provider and Carrier Participation
Currently, hospital and health care provider participation in Cascade Care is voluntary. The lack of a provider mandate, coupled with the required cost controls, appear to have limited provider participation in public option plans. In 2021, public option plans are available in only 19 of Washington State’s 39 counties, while standard plans (i.e., Cascade plans) are available in all counties. As of January 28, among the 222,731 individuals that purchased coverage on the Exchange, approximately six percent (1,872 individuals) selected a public option plan and approximately 18 percent (33,142) selected a standard plan.
In an effort to increase the availability of public option plans, participation will become mandatory for hospitals in large systems if a public option is not available in every county. The mandate could take effect as soon as plan year 2023, depending on provider participation in plan year 2022. Under the mandate, a hospital system with at least four licensed hospitals will be required to join the network of at least two public option plans in each county in which the system has at least one licensed hospital. A hospital will only be required to contract with two public option plans if it receives an offer from at least two health carriers. If a hospital receives only one offer from a carrier, then that hospital is required to only contract with that single public option plan. Negotiations over their participation are prohibited from influencing negotiations regarding participation in other non-public option plans.
Under Senate Bill 5537, insurance carrier participation will remain optional. However, the new mandate for hospitals in large systems to participate would likely provide carriers some leverage in negotiating rates. Additionally, the bill establishes a new limit on the number of nonstandardized health plans that a carrier can offer. This language is likely intended to encourage carriers to offer public option plans and standard plans and increase overall competition. Beginning in 2023, in each county where the carrier offers a qualified health plan, the bill allows a carrier to offer up to two nonstandardized gold health plans, two nonstandardized bronze health plans, one nonstandardized silver health plans, one nonstandardized platinum health plan, and one nonstandardized catastrophic health plan.
Provider Reimbursement
Additionally, the bill seeks to reduce premiums by more stringently regulating provider reimbursement. Under current law, reimbursement for health care services (excluding pharmacy benefits) are capped at an aggregate 160 percent of Medicare. Senate Bill 5537 removes HCA’s authority to waive the 160 percent cap in 2023 and beyond – a flexibility previously allowed if HCA “determines that select contracting will result in actuarially sound premium rates that are no greater than the qualified health plan’s previous plan year rates adjusted for inflation using the consumer price index.”
The new bill does not make any changes to the terms for critical access hospitals and sole community hospitals (reimbursed at no less than 101 percent of Medicare) and primary care services (reimbursed at no less than 135 percent of Medicare).
Qualified Health Plan Requirements
Senate Bill 5537 establishes a new requirement for qualified health plans to provide cost and quality of care information and data to HCA upon request. Qualified health plans are also prohibited from entering into an agreement with a provider or third party that restricts the qualified health plan from providing this information or data.
Overall, the bill maintains the same requirements established in Senate Bill 5526 for qualified health plans – e.g., be a standardized health plan, meet national accreditation standards, and comply with statutory reimbursement rates for select services. The bill also reiterates previously established requirements regarding the design of standardized health plans.
Premium and Cost-Sharing Subsidy Program
Senate Bill 5537 also applies a more targeted approach to lowering health care costs for consumers. The bill establishes a premium and cost-sharing subsidy program to be administered by the Exchange. All carriers operating on the Exchange are required to accept the new premium or cost-sharing assistance. The Washington State Legislature will need to appropriate funds in separate legislation in order to implement the program.
Eligibility Criteria
An individual is eligible for premium assistance and cost-sharing reductions if the individual:
Is a Washington State resident;
Has an income up to a threshold determined in subsequent appropriations legislation or by the Exchange;
Is enrolled in a silver or gold standardized health plan (i.e., public option plans or standard plans);
Applies for and receives all federal advance premium tax credits if eligible;
Applies for and receives all federal cost-sharing reductions if eligible;
Is ineligible for Medicare or Medicaid; and
Meets other eligibility criteria established by the Exchange; or
Meets alternate eligibility criteria established in subsequent appropriations legislation.
Income Threshold
The enacted legislation includes a key change to the design of the premium and cost-sharing subsidy program that departs from the policy’s original policy objective. Senate Bill 5526 required the Exchange, in consultation with HCA and the insurance commissioner, to develop a plan for a state subsidy program designed to limit spending on health insurance premiums to no more than ten percent for individuals with an income at or below 500 percent of the federal poverty level (FPL).
Aligned with the findings of the Exchange’s report, the introduced version of Senate Bill 5537 had set the income threshold at 500 percent of FPL. The finalized version, however, does not specify the income threshold for subsidy eligibility. Instead, it directs the Washington State Legislature (through subsequent appropriations legislation) or the Exchange to determine the income threshold. The policy change may reflect concerns over available state funding to support the subsidy program. The codified flexibility on eligibility criteria allows the state to calibrate the program based on appropriated funds.
With the extra leeway, the subsidy program can also be designed around federal premium assistance, which may change within the next two years. Congressional Democrats are expected to pursue legislation in the 117th Congress to make permanent temporary policy changes to advance premium tax credits. To provide some economic relief amid the COVID-19 pandemic, advance premium tax credits are temporarily available, for 2021 and 2022, to individuals with an income above 400 percent of FPL, the eligibility cutoff established in the Affordable Care Act (ACA). Over the two-year period, advance premium tax credits are also more generous across income levels and premiums are capped at 8.5 percent of income. Eligible individuals are required to contribute less of their income towards premiums.
The availability of additional federal premium assistance on a permanent basis for a larger segment of the individual market would likely have consequential implications for consumers at the state level. The federal government would pay for a larger portion of premiums in the individual market.
Absent federal action, the eligibility criteria for and generosity of advance premium tax credits will revert to the sliding scale and methodology established by the ACA.
Potential Subsidy Program Design
Among the various premium subsidy scenarios examined, the Exchange recommended a $200 million state subsidy program that provides a fixed subsidy at $135 per month. The Wakley Consulting Group, contracted to conduct the actuarial analysis, estimates that the fixed subsidy would result in nearly 24,000 individuals currently uninsured individuals purchasing coverage on the individual market. Among consumers with an income below 500 percent of FPL, 94 percent of that market would spend less than 10 percent of their incomes on premiums for plans purchased on the Exchange.
The Exchange notes that a state-based cost-sharing reduction subsidy could be provided along with the premium subsidy to consumers that face high out-of-pocket costs, such as older individuals and individuals with severe or chronic illnesses.
In Table 1, we delineate the maximum threshold for premium assistance eligibility and premium contributions at the federal level and for the subsidy program contemplated by the Exchange.
Federal Waivers
The bill requires the Exchange, in consultation with the HCA and the insurance commissioner, to “explore all opportunities” to apply for a federal waiver to garner pass-through funding to help pay for the new premium and cost-sharing subsidy program or otherwise improve access to and affordability of coverage. State officials are permitted, but not required, to apply for a federal waiver if an opportunity is identified. Washington State could apply for a section 1332 waiver to increase premium subsidy eligibility to individuals up to 500 percent of FPL.
New Reporting Requirements
The bill would require new studies and amend existing reporting requirements to understand the impact of the modified public option program and the new premium and cost-sharing subsidy program.
Hospital Financial Sustainability (Due December 1st of Plan Year) – Requires the Exchange, in consultation with HCA and the insurance commissioner, to analyze the impact of public option rates for in-network services on the financial outlook of participating hospitals.
Consumer Benefits and Costs (Due December 1st of Plan Year) – Requires the Health Care Cost Transparency Board to analyze the effect of public option plans on consumers by comparing the benefits and cost-sharing requirements for consumers enrolled in public option plan to those for consumers enrolled in other standardized and nonstandardized qualified health plans.
Consumer Choice and Affordability (Due December 1, 2023) – In the statutorily mandated report on the impact of only offering standardized health plans beginning in 2025, requires the Exchange, in consultation with HCA and the insurance commissioner, to include an analysis on the impact of offering a bronze standardized high deductible health plan compatible with a health savings account, and a gold standardized health plan closer to actuarial value to the silver standardized plan.