How will Colorado’s public health insurance option work?

A report released in November estimated people who buy their insurance on the individual market could save as much as 11% if the new plan moves forward, but the actual savings could vary dramatically, depending on decisions yet to be made in the statehouse.

Private insurers would sell the plans, but they’d be overseen by the Colorado Division of Insurance and the Department of Health Care Policy and Financing, which worked together to craft the proposal in the report.

The regulators are expecting most of the savings to come from paying less to hospitals, which will come out in force against plans that cut into their revenue. And the agencies still must do much of the hardest part — crafting a formula to decide how much the hospitals will get. Lawmakers are working with hospitals throughout the state to make those determinations.

Washington is the only state that has passed a state option, but it hasn’t come into effect, meaning there’s little to guide Colorado.

An actuarial report based on the draft plan expected anywhere from 4,600 to 9,200 people to enroll in a state option in its first year, and that most of them would be uninsured people who are relatively healthy and earn too much to qualify for federal subsidies or people who get insurance on the individual market.

Below is a guide to the most common questions about the proposed state plan as it stands based on the proposal. Any or all of these answers may change as lawmakers draft a bill on what the public option will look like.
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Health insurance confuses me in general. What do all these terms mean?

You pay premiums every month to keep your coverage, like you pay rent or a mortgage. Unlike rent, however, your premiums don’t necessarily entitle you to full benefits. Usually, you have to meet a deductible first. If your plan has a $1,500 deductible, for example, you have to spend $1,500 on health care (not counting your premiums) before certain services are covered.

Even if you meet your deductible, you may have to pay more out-of-pocket. That could be co-pays (for example, a flat $25 for a doctor’s visit) or co-insurance (you have to pay 30% of the cost of your hospital stay). You keep paying those until you hit your out-of-pocket limit, which may be more than $10,000 in some plans.
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OK, so what’s the state option?

Basically, it’s a lot like any other insurance plan you could buy on the individual market. It would have to cover the same “essential health benefits,” like hospital stays, prescription drugs, maternity care and mental health treatment. If your income qualifies you, you could use the same tax credits you get for other plans you buy through Connect for Health, Colorado’s state-run exchange. Anyone could buy state option coverage, but if employer-sponsored coverage is an option for you, it may be cheaper to stick with your company plan.

Despite the name, it’s not state-funded, and you pay premiums to an insurance company.
So what’s the difference?

The biggest difference is that the state thinks it can create a cheaper plan without cutting services. The report found rural areas would have bigger savings than urban areas, though urban residents would still pay less on average for insurance.

The proposal also would require the state plan to cover more services before you meet your deductible. Many insurance plans will cover preventative services (like your flu shot), but not other primary care services (like if you see the doctor when you get the flu). If the proposal goes through in its current form, both those services would be covered before you’ve spent enough to reach your deductible. You’d still have to meet your deductible before you’d be covered to see a specialist.
How would they make the plan cheaper?

The biggest savings would come from paying hospitals less. A draft proposal released in October estimated the plan could lower premiums by 10% to 18% if it limited payments to hospitals to between 175% and 225% of the rate Medicare pays. The final report didn’t recommend that lawmakers follow that particular plan, however, but instead that they craft a formula taking into account hospital characteristics like how many uninsured patients they treat. That means any predictions are essentially out the window until we know more about the formula.

Insurance companies would also be required to spend less on overhead. Currently, federal law requires insurers to spend 80 cents out of every dollar they collect on customers’ medical care. The proposal would raise that to 85 cents out of every dollar for the state plan.

The report proposed phasing in the formula over multiple years, and it’s not clear how much cheaper the insurance could be in the first years. Psychiatric and rehabilitation hospitals would be exempt from the formula.
Will that work?

Theoretically, sure, but the devil’s in the details. The agencies have asked lawmakers to give them the authority to require hospitals and insurers to participate. If the General Assembly doesn’t do that, insurers might not participate in some counties, and patients who were able to buy insurance might find that no hospitals will take it.

It’s also possible that, to satisfy providers and insurers, the plan will make only small changes, leading to smaller savings. Potential buyers would have to decide if those savings are meaningful to them.

But lawmakers sponsoring the bill said they’re working to ensure four main concepts that will reduce costs, said sponsor Rep. Dylan Roberts, D-Avon: putting limits on what hospitals can charge — Colorado’s hospitals make the second-highest profits in the nation; bumping the amount insurance companies have to spend on patient care from 80% to 85%; passing down rebates from pharmaceutical companies to the consumers; and creating competition, particularly for the 22 counties in the state that only have one option on the individual market.
Who’s taken a position on the state option?

Republicans have generally opposed a state option, calling it a step toward single-payer health care, but supporters of the plan say there’s no way that can happen. (In single-payer systems, everyone receives insurance coverage paid for with tax dollars.)

Democratic Speaker of the House KC Becker has said it’s only one option for reducing health care costs, given the complexity of the issue.

The Colorado Hospital Association isn’t opposing the entire concept but said centrally set rates are a red line for its members and the state would do better to focus on insurance companies’ overhead. The Colorado Association of Health Plans, which represents insurers, urged lawmakers to focus on hospitals, and to slow down while they adjust to other recent policy changes.

Special interest groups have been sponsoring TV and print advertisements against the public option, saying it will cause harm and decrease competition, but Roberts said the ads are filled with misinformation and conjecture about a bill and plan that haven’t even been finalized.
What else needs to happen?

The agencies say lawmakers need to pass at least one more bill to give them the authority to set reimbursement rates for hospitals, require insurers to pass on rebates to customers and require hospitals and insurance companies to participate.

It’s not strictly necessary, but the state also is hoping to get federal money to help out. States can submit a waiver request to the federal Centers for Medicare and Medicaid Services arguing that they’re going to save the feds money, and therefore should get a cut of the savings.
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Colorado is going to argue that offering a cheaper option means that less federal money is going to pay for tax credits for people buying their insurance through the exchange. It’s not clear how CMS will respond to that argument, and Colorado’s application could become irrelevant if a lawsuit to strike down the Affordable Care Act succeeds, because the ACA created the type of waiver Colorado wants.

If the ACA holds up and CMS likes the plan, Colorado could use the federal money to lower premiums, reduce out-of-pocket costs, or add insurance for dental care, the report suggests.

Colorado lawmakers are working to pass a bill this legislative session to create the public insurance option plan, with the earliest start on Jan. 1, 2022.

Denver Post reporter Saja Hindi contributed to this story.