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Modern Healthcare – Wednesday, January 29, 2025
By Nona Tepper
Promising signs for “public option” health plans sold on state health insurance exchanges spell bad news for providers, who say they’re squeezed by low reimbursements.
Colorado and Washington are the only states that have government-sponsored — but privately administered — public options on their marketplaces. Nevada is set to join them soon and other states may follow. Public option enrollment climbed on Connect for Health Colorado and Washington Healthplanfinder during the open enrollment period that ended Jan. 15, the states reported.
The major selling point of the public option is that it’s supposed to reduce costs for insurance customers. Part of that is removing profit from the equation and subjecting health insurers to more competition. But the real key is holding down provider reimbursements by pegging them to Medicare rates plus an add-on.
Colorado Option plans must pay providers at least 155% of Medicare rates while the Cascade Select plans in Washington cap payments at 160% of Medicare reimbursements. Washington requires hospitals to be in-network with at least one Cascade Select plan.
The payments are simply not enough, providers say.
“At a time when more than 70% of Colorado hospitals are operating with unsustainable finances (with total margins below 4%), rate-setting for care provided is concerning,” a spokesperson for the Colorado Hospital Association wrote in an email. The Washington State Hospital Association, which opposed the public option, did not respond to an interview request.
More than 146,700 people enrolled in Colorado Option plans for 2025, a 58% increase. That represents 47% of exchange sign-ups in the state. Cascade Select plans in Washington accepted about 94,000 members, a 50% rise. That amounts to 30% of Washington Healthplanfinder sign-ups. Cascade Select debuted in 2021 and the Colorado Option followed a year later.
The Colorado Option has reduced the average marketplace premium by $101 a month compared with 2020, according to a Brown University study published in the journal Health Affairs on Jan. 15. Nationally, exchange premiums rose 10% during that time, the researchers found.
“It is a humongous success. Anyone that tries to frame it in any other way is just full of malarkey,” said Colorado Insurance Commissioner Michael Conway.
The Colorado Hospital Association anticipates this trend will continue and threaten hospital finances. Colorado hospitals expect to lose $125 million this year due to what they characterize as inadequate reimbursements, according to the provider group.
Trade-offs
The balance between lower premiums and supporting providers has been at the center of the political debate over the public option since Congress began drafting the Affordable Care Act of 2010.
At the time, progressive Democrats saw the public option as critical to achieving lower healthcare spending and lower insurance premiums. Health insurers adamantly opposed what they saw as unfair competition from the government, while providers protested they couldn’t subsist on low reimbursements. The House included a public option in its version of the ACA but Congress left it out of the final bill President Barack Obama signed.
But states are free to pursue alternative health programs under the ACA’s section 1332 waivers, so long as they accomplish the same broad objectives of increasing health coverage and providing financial assistance.
On Jan. 13, Nevada received federal approval to launch a public option next year. Maine, Minnesota and New Mexico have enacted legislation to study the feasibility of state-sponsored health plans on their exchanges.
If Colorado Option enrollment continues at this pace, it could significantly ding provider finances, especially for rural hospitals and independent physician practices, said Emily Johnson, managing director of research, evaluation and convening at the Colorado Health Institute, a think tank.
“If you scaled it up, suddenly the impact on providers would be much more notable for them. Then they might leave the market,” Johnson said.
Small market
The broader effects are limited, however.
Although public option sign-ups are rising, the actual number of enrollees remains small as a proportion of the population. The exchanges themselves cover just a sliver of U.S. residents compared with Medicaid, Medicare and employer plans.
“State public-options really haven’t changed much,” said Lauren Crawford Shaver, executive director of the Partnership for America’s Health Care Future, an industry-backed group founded to oppose single-payer healthcare. “It’s not doing anything to commercial [insurers]. It’s not driving down costs,” said Crawford Shaver, a senior managing director at FTI Consulting.
In the snowy mountains in Aspen County, Colorado, for instance, residents often forego coverage because the exchange market lacks competition in the area, said Logan Hood, executive director at Community Health Services, a nonprofit clinic in Aspen. Hood expects the uninsured rate to rise because even Colorado Option plans cost too much for the housekeepers, cooks and other hotel employees who live in the rural resort area, she said.
“We need the Colorado Option to be affordable and equitable,” Hood said. “The premiums are extremely high and really the coverage isn’t great. There’s only a few players that participate in the Colorado Option in small mountain towns. If you want insurance, you have to pay a premium.”
Still, the high cost of healthcare and the winning politics of reducing household expenses has other states looking to copy what Colorado and Washington have done.
“Many states that are grappling with high healthcare costs, particularly on their exchange plans, are looking at the innovative direction led by Colorado and Washington of having a public option that creates an affordable option and balances the market trade-offs,” said Christopher Whaley, an associate professor at the Brown University School of Public Health and co-author of the Health Affairs article.