In Brief
Lead Agencies Seek Authority to Mandate Provider Participation at State-Set Rates: In the report, lead state agencies seek authority to require providers to participate in regions where public option networks are otherwise insufficient. Reimbursement levels will be set on a hospital-specific basis between 160 to 210 percent of Medicare, which the state asserts should be sufficient to encourage many providers to participate voluntarily. The state also seeks authority to mandate health insurance carrier participation if necessary.
Unsubsidized Enrollees will Realize Substantial Premium Savings: Colorado estimates Exchange enrollees who are not eligible for subsidies will see premium savings between approximately 10 and 15 percent. Rural areas may see greater discounts than urban ones. As obliquely referenced in the appended actuarial analysis, however, because the state’s proposal introduces multiple lower cost public options to the market, subsidized enrollees throughout the state would likely see nominal impact on their net premium contributions and may in some cases see their premium costs go up.
Coverage Gains will be Modest: The report finds that about 5,700 of currently uninsured residents will gain coverage under the program due to premium discounts. New enrollees are projected to have relatively low morbidity, limiting the financial impact of the coverage increase. To the degree new enrollees qualify for subsidies, the cost of their coverage will be funded with federal dollars.
New Legislation Required: Further state legislative action and subsequent implementation guidance will ultimately dictate how the public option plan is structured. Changes in the federal regulatory environment and the underlying market could also substantially alter the program’s effects. The Colorado legislature has convened for its 2020 session and the lead authors of the initial public option legislation are currently drafting a “2.0” public option bill.
Background
Despite federal government subsidies instituted under the Affordable Care Act (ACA), health care is still unaffordable for many people across the country. Colorado is taking a novel approach to address this problem. With the passage of HB19-1004 in May 2019, the Colorado Department of Health Care Policy and Financing (HCPF) and the Colorado Division of Insurance (DOI) were tasked with designing a plan for offering a public health care coverage option. That plan was submitted to the legislature on November 15, 2019. Here we summarize that document and the appended analysis from Wakely Consulting.
Colorado’s Plan
HB19-1004 (see our legislative summary here) specifies that the state DOI and HCPF work together to create a state public option that is more affordable than health care coverage options currently available through the individual and small group health insurance markets. The public option must also meet several key goals, including increasing consumer access and insurer competition in a way that limits costs and leverages state infrastructure and expertise.
Under the DOI-HCPF plan, the new state public option would begin in January 2022. All carriers in the individual market are required to offer public option plans on and off the individual Exchange market at the Bronze, Silver, and Gold metal tiers, with at least two public options in each county (there are currently 22 counties in Colorado with only one carrier in the individual market). The proposal recommends that the state seek a federal section 1332 waiver to allow it to recoup the advanced premium tax credit (APTC) savings anticipated under the program. This “pass-through funding” would be dedicated to adding benefits or increasing cost-sharing or premium subsidies.
Enrollment. Public option plans will be open to all Colorado residents in the individual market. The state anticipates many areas will have “dozens” of new options to choose from, stemming from the requirement that all existing plans in the market participate in the program.
Total individual market enrollment is expected to increase by 5,700 members or 0.05 percent, sourced entirely from the unsubsidized population and due to anticipated premium savings for these consumers. The average cost of covering these individuals would be 73 percent of the current average ACA market enrollee due to projections that they will be, on average, healthier than the currently covered population. Because they are enrolling due to a price reduction, actuaries assume their health needs are not as dire as the average consumer.
As for the subsidized population, the Wakely report suggests that approximately 50 percent of subsidized enrollees will switch to a public option plan. Because they are unlikely to see meaningful discounts in their net premium contributions, uninsured consumers eligible for subsidies would only choose to enroll if the state includes additional cost-sharing in its allocation of pass-through funding under the waiver.
Affordability. Colorado’s plan is expected to decrease average premiums by approximately 10 percent, with consumers saving (on average) more than 15 percent in rural parts of the state. The state’s plan to set hospital rates between 160 and 210 percent of Medicare reimbursement is the sole driver of these savings (current reimbursement rates in the individual market are approximately 254 percent of Medicare). Because all existing plans are required to offer public options, the lowest cost plan in each market will be a public option plan.
Colorado proposes to determine hospital reimbursement for public option plans on a facility-specific basis. Under this model, which is still being refined, facilities with less than 50 percent Medicare/Medicaid services would receive a maximum reimbursement rate of 160 percent of Medicare, while facilities with more than 85 percent Medicare/Medicaid services would receive a maximum reimbursement rate of 210 percent of Medicare. The state’s plan also requires carriers to ensure that all rebates from prescription drug manufacturers are passed through to enrollees.
Notably, the report does not extensively discuss the impact of the program on affordability for the subsidized population, which constituted over 75 percent of the Colorado exchange market in 2019. However, the report does note briefly that subsidized members who remain in their current plans (i.e., who do not switch to a public option plan) will see an increase in their net premiums.
Evidence suggests that the state’s approach of including multiple public option plans in each market, rather than one carrier, would minimize net premium discounts for the subsidized population and, in some cases, cause them to pay more. This phenomenon, which the state is currently observing in its implementation of its recently enacted reinsurance program, is due to the subsidy impact of reducing the spread between the lowest and second lowest cost silver tier plans in the market.
Benefits. Public option plans will be ACA-compliant qualified health plans (QHPs), which are required to cover essential health benefits (EHBs). The state indicated that it will require plans to provide a greater set of high-value primary and preventive care services to enrollees on a pre-deductible basis. The state is also seeking to incentivize high-value care, and disincentivize low-value care; however, the details of these parameters will need to be specified in subsequent implementation guidance. Interestingly, Wakely assumes that any change in claim cost due to value-based insurance design will be immaterial.
The state plans to re-invest pass-through savings, estimated to total approximately $88.8 million, into providing additional benefits, such as adult dental coverage. That policy is projected to cost about $65 million dollars or roughly 73 percent of projected pass-through savings. Of note, Wakely suggests that “pent up” demand for dental services will increase premiums to equal the current maximum premiums for Stand Alone Dental Plans.
Under Wakely’s hypothetical scenario, the remaining 27 percent of savings will be used to fund a cost-sharing wrap to assist individuals who enroll in a silver metal level plan on the Exchange. This added subsidy will cover additional cost-sharing for members between 200 and 250 percent FPL and add new cost-sharing assistance for members between 250 and 400 percent FPL.
It’s important to note that these allocations off pass-through funding are for illustrative purposes only. The fact the state plan relies on a federal waiver to obtain benefits for the subsidized population is a critical consideration as it moves forward with specifying details of the program.