State Public Option Implementation Update
Three states – Colorado, Nevada, and Washington – have enacted state public option programs. While public option plans in Washington and Colorado have been available since 2021 and 2023, respectively, Nevada is preparing to offer its public option in 2026. In this memo, we provide a status update on implementation activity in each state.
Colorado
In conjunction with implementation of the Colorado Option, Colorado seeks to understand the impact of premium rate reduction targets for carriers on the hospital workforce, which is a key hospital cost driver. Carriers are required to reduce premiums offered in plan year (PY) 2021 by 5 percent in PY 2023, 10 percent in PY 2024, and 15 percent in PY 2025. Earlier this year, Colorado released the 2023 Hospital Workforce Trends Report – the first of three annual analyses on the state’s hospital workforce as required by House Bill 21-1232. This report establishes the baseline on wages, benefits, staffing, training, and working conditions leading up to implementation of the Colorado Option.
Labor costs for workers employed directly by hospitals and contract workers are a major component of hospital’s operating expenses. In 2021, salaries, wages, and benefits of hospital workers represented 44.1 percent of Colorado hospitals costs and 42.5 percent of revenue derived from patient services. Increasing reliance on staffing agencies to address workforce shortages has put further pressure on total hospital costs. Between 2020 and 2021, contracted labor costs increased by 115 percent. During that same period, salaries, wages, and benefits for workers directly employed by employees rose by 8.4 percent.
Future reports will delve into the impact of the Colorado Option on the state’s hospital workforce, including the impact of the Insurance Commissioner’s increased authority starting in PY 2024 to require hospitals to accept state-established rates in order for carriers to meet premium reduction targets and enhanced network adequacy standards. The next report intends to gather input directly from employed and contracted workers to increase understanding of the interactions between workforce experiences, hospital costs, and the Colorado Option.
Additionally, the Colorado Division of Insurance received $245 million in pass-through funding for Colorado’s Reinsurance Program and the Colorado Option, authorized through a Section 1332 waiver. Federal funding will be used to lower premiums and out-of-pocket costs for Connect for Health Colorado and support the OmniSalud program, which provides financial assistance for health insurance to Coloradans without documentation (including DACA recipients). With the federal funding, the OmniSalud program will provide $0 premium health plans to 11,000 qualified individuals in 2024, a 10 percent increase from 2023.
Nevada
The Nevada Public Option will be available January 1, 2026 in the state’s individual market, Nevada Health Link. In preparation for the launch, the Nevada Department of Health and Human Services (DHHS) is seeking public comments on its Section 1332 waiver application, which must be submitted to the Centers for Medicare and Medicaid Services by January 1, 2024. The federal waiver would allow Nevada to implement the premium reduction targets and general federal pass-through funds to pay for the Nevada Public Option’s operational costs. Remaining funds could be used to improve consumer affordability.
In an effort to address concerns that the public option will destabilize Nevada’s individual market, Republican Governor Joe Lombardo announced in October 2023 his plan to “transform” the public option into a Market Stabilization Program. Governor Lombardo’s “new approach” does not structurally change the public option, as it is established by Nevada Senate Bill 420, and instead specifies how remaining federal pass-through funds from the Section 1332 waiver will be used to establish a three-part Market Stabilization Program:
A new state reinsurance program for health insurance issuers operating in Nevada Health Link. The new program seeks to limit financial losses for health insurers, mitigate the risk of cost shifting by insurers due to premium reduction targets, and lower health care costs.
A new annual quality incentive program for health insurance issuers offering the Nevada Public Option. Like the quality bonus payment program used in the State’s Medicaid managed care program, the new program would reward issuers that meet or achieve certain quality targets or other program goals. Governor Lombardo is particularly interested in new incentives to increase the use of value-based payment models.
State loan repayment and full-ride scholarships for health care providers willing to work in Nevada for at least four years after training. Financial assistance could cover tuition and some portion of housing costs. Individuals who do not complete four years of in-state service would be required to pay back financial assistance.
Participating health carriers selected through a competitive bidding process will be required to meet an annual premium reduction target, starting with a 4 percent reduction in year 1 relative to the average second lowest-cost silver plan (i.e., benchmark against which premium tax credits are calculated) by county available on Nevada Health Link in plan year 2024 until it reaches at least 16 percent in year 4. In subsequent years, the premium cannot increase by a percentage greater than the increase in medical inflation plus any adjustments necessary to reflect local changes to utilization and morbidity. The requirements for the public option premiums expire on December 31, 2029.
Actuarial analysis conducted by Milliman, Inc. estimates potential for federal savings of $341 million to $464 million in the first five years and nearly $1 billion in the first 10 years. Because the estimated annual state operations budget for the public option is $3.75 million, a significant portion of federal funds could be used to implement the Market Stabilization Program. How the funds will be allocated across its three components is yet to be determined.
Regarding next steps, Nevada DHHS will update its Section 1332 waiver application with Governor Lombardo’s Market Stabilization Program. The current draft released in December 2022 proposes two discretionary uses of remaining pass-through funds: a quality incentive program, which will remain, and state-based premium subsidies, which will be replaced with the reinsurance program and financial assistance for health care providers. Provided the application is submitted by the end of the year, a final decision could be issued in summer or fall 2024.
Washington
Washington’s public option plan, Cascade Select, has been available on the state’s individual market, Washington Health Benefit Exchange, since plan year 2021. During the first three years, the Exchange made minimal changes to the standard benefit design of Cascade Select plans. In plan year 2024, the Exchange incorporated new value-based insurance design (VBID) features – two $1 primary care and mental health visits to bronze and silver plans.
Continuing in the VBID direction, the Exchange is considering ways to reduce spending in plan year 2025 on low-clinical value care and to reallocate spending to high-clinical value services without increasing premiums or deductibles. Additionally, the Exchange seeks to promote equity when considering what services to incentivize or disincentivize.
Specifically, the Exchange is considering two options at each metal level outlined in the draft 2025 standard plan designs on pp. 11-16:
Option A: Keeps plan design at each metal level as similar as possible to 2024 plans, with adjustments only as necessary to keep the plan within the actuarial value (AV) range for the metal level. Such adjustments entail increases to the deductible or maximum out-of-pocket to offset increases in actuarial value (AV).
Option B: At Silver and Gold metal level, incorporates high-value generic tier ($10 silver, $5 gold). It is not possible to add high-value generics tier to Bronze and stay within the AV range. For both options A and B, it is necessary to subject preferred brand drugs to a deductible in the silver level.
The Exchange requests comments on stakeholder preference for each metal level, whether one set of options better accomplishes Exchange goals of balancing higher cost shares and promoting equity, potential premium impacts of the proposed options, feasibility of administering plan designs, and other feedback. Public comments are due November 27.