On the campaign trail, Joe Biden promised to create a nationwide public health insurance option that would lower patient costs, improve medical care, and help small businesses deal with soaring health care costs.
While a Medicare for All, single-payer health care system would be simpler, cheaper, and guarantee universal coverage, Biden and Democrats in competitive Senate races pitched a public option as a way to expand and improve coverage without fundamentally changing how most people get health insurance today. And the Congressional Budget Office recently reported that a robust public option could reduce premiums and save Americans big money.
So far, however, President Biden and Democrats in Congress have made little effort to follow through on the pledge, instead opting to funnel tens of billions of dollars to private health insurance companies to put people on expensive insurance exchange plans known for large out-of-pocket costs and high rates of denied claims.
Amid the leadership vacuum in Washington — and as premiums and insurance profits continue to skyrocket — state lawmakers have been frantically working to develop their own alternatives to try to help Americans combat increasingly costly medical coverage. Their efforts spotlight the challenges and opportunities for states trying to offer their citizens a public health insurance option.
While such state-level public option programs are no replacement for a national Medicare for All program, many see them as tangible and constructive health care reform for budget-strapped states barred from deficit spending.
Washington state led the way in 2019, establishing the nation’s first public insurance option. The program was supposed to provide a cheaper alternative that people would choose on the state’s insurance exchange. But so far, enrollment has only reached about 1 percent of the population, largely because the program does not require hospitals to accept the insurance and most have chosen not to.
As the state’s lawmakers prepare to pass a much-needed fix, the battle over a public option is heating up in Colorado for the second year in a row. This time, legislators are hopeful they can overcome a swarming lobbying effort and propaganda campaign to derail the bill.
A Faulty First Attempt in Washington State
In 2019, the Washington state legislature passed a bill creating a new state health insurance program, Cascade Care, with two elements: new standardized plans that private insurers were required to offer, as well as a public option.
Both the private, standardized plans and the public option are administered by private insurers and are required to offer a standard set of benefits such as primary care visits, generic drugs, and mental health care services.
The main difference between the standard option and the public option is that the public option plans reimburse providers at a rate of up to 160 percent of the Medicare reimbursement rate, which is lower than what private insurers typically pay. Employer-based plans, for example, pay an average reimbursement rate of 240 percent of Medicare.
The lower reimbursement rate is supposed to keep costs down. While premiums for the Cascade Care plans were higher than the average plan offered on the exchange, Cascade Care options had deductibles that were, on average, $1,000 lower than other plans.
But the bill had a significant loophole that made the plans inaccessible: Hospitals successfully lobbied to ensure they were not compelled to accept the insurance, due to the public option’s lower reimbursement rates than private insurance. Cascade Care’s public option plans, as a result, were only available to Washingtonians in half of the state’s counties.
“Hospitals were opposed to it, and they never moved off of their opposition,” said the bill’s lead sponsor, Democratic representative Eileen Cody.
When the public option launched during the 2021 enrollment period, about 15 percent of people buying health insurance on the state exchange opted for Cascade Care plans, but fewer than 5 percent of the people who bought those plans actually chose the state’s public option plans.
As a result, only 1,872 people are currently utilizing the state’s public option, or less than 1 percent of people who get health insurance through the state exchange. That percentage is slightly higher — about 2.5 percent — when taken just as a percentage of people who enrolled on new plans in 2021 as opposed to keeping their old plans.
In order to solve this problem, the state Senate passed a fix earlier this year, requiring hospital systems to accept the public option plans. The fix was then modified and passed by the state House. Now, the Senate needs to concur on the modified legislation.
“The trigger is that any hospital that contracts with Medicaid or the state employee health care plans would have to accept a public option plan,” said Cody, adding, “Everybody takes Medicaid.”
Cody expects the state Senate to concur on the legislation this week, and Governor Jay Inslee is expected to sign it into law. She has one piece of advice for lawmakers in Colorado working on public option legislation: “Prepare for a fight.”
A New Strategy in Colorado
Colorado has been a major health care battleground since 2016, when activists ran a single-payer ballot measure that prompted Democratic consultants to help the insurance industry crush it at the polls.
Following that defeat, state lawmakers went to work on public option legislation last year, with the support of Democratic governor Jared Polis. They passed a bill out of a House committee just two days before the legislature shut down due to the COVID-19 pandemic. The private health insurance industry aggressively opposed the bill, arguing it was better to let the industry lower costs voluntarily rather than by government mandate, according to state representative Dylan Roberts, one of the leading public option advocates in Colorado.
“What we heard continuously during the bill debate was that insurance companies know health care costs are too high, and that they would like the opportunity to lower costs without strict government intervention, or any type of government intervention, actually,” Roberts said.
This year, Colorado Democrats are trying a new strategy by calling the private health care industry’s bluff. Their revised public option bill would give private insurers the opportunity to significantly reduce costs over two years before a public option is introduced.
The bill would require insurers offering plans on the state individual or small group marketplace to offer a new standardized insurance plan, which will be designed by the state health insurance commissioner.
If insurers manage to reduce premiums and deductibles on their standardized plans by 10 percent each year in 2023 and 2024, then the state won’t set up its public option plan.
“We built in the first phase of the bill to take the insurance companies at their word and allow them two and a half years to get costs down,” said Roberts. “If they do, great, we all benefit from lower health insurance costs.”
But if they fail to do so, then the state will apply for a waiver from the Biden administration, a so-called “Innovation Waiver” created under the Affordable Care Act, and it will use the money from the waiver to set up a public option. The public option, or “Colorado option,” would be the state’s version of a standardized plan.
About 15 percent of the state’s population is projected to be offered the public option plans. These are people who either don’t get health insurance through their employer and buy it on the state’s exchange, or people who work for small businesses that opt for their employees to be covered under the public option.
The Colorado legislation also integrates lessons learned from the effort in Washington state.
For example, the bill is designed to align cost-cutting measures with the introduction of standardized plans, said Adam Fox, deputy director of the Colorado Consumer Health Initiative, a consumer advocacy group supporting the public option legislation.
“In the Colorado option legislation, we’re essentially requiring insurance carriers to offer the standardized plan. And those are the plans that they have to meet these target reductions on,” Fox told us.
In Washington, Fox said, the standardized plans were separate from the cost-cutting elements of the legislation. That resulted in higher premiums, even though Cascade Care plans did have lower deductibles than other private insurance plans.
The bill also creates a fee schedule for provider reimbursement rates, which are slightly higher for rural hospitals and lower for highly profitable hospitals that are part of larger networks. The reimbursement rates would be set through a public rulemaking process, Fox said.
Perhaps most important, the Colorado legislation is statewide, meaning providers can’t refuse the insurance as they have in Washington state. And, unlike the Washington plans, which are administered by private insurers, Colorado’s public option will be operated by a nonprofit entity set up by the state.
Roberts said that, while the bill would only make modest changes to the state’s health care system, especially during the first stage, it could have important reverberations across the country, showing people how government action can reduce health care costs and improve care.
“It’s not a total overhaul of our health care system in Colorado or in the United States by any means,” he said. “However, we would be the first state in the country that would do something like this, where it would be truly a statewide plan that’s available to every Coloradan that wants to purchase it. I would love to see it trickle out across the country, and hopefully show Congress in Washington that this is something that they should pursue on a national level.”