Jun 24, 2022 - Health

Colorado bets on a public option to grow health coverage

Illustration of a stethoscope in the shape of a Colorado flag

Illustration: Sarah Grillo/Axios

Colorado is reviving an old progressive health care goal with a new twist, creating a public health insurance option that could be a model for other states trying to expand affordable coverage as they move past the pandemic.

Why it matters: Using flexibilities the Biden administration granted on Thursday, the state is trying to prove a government-run health plan can attract more consumers and save money while avoiding the political pitfalls associated with single-payer systems.

Driving the news: Colorado on Thursday became the first state to get a federal waiver to create a plan called the "Colorado Option" that will be offered on the state's Affordable Care Act exchange starting in 2023.

  • The plan would compete with private plans on the exchange with premiums that are on average 22.3% lower.
  • That's projected to save the federal government $214 million in spending on premium tax credit subsidies next year.
  • Colorado would also expand a state subsidy program to lower costs for people who aren't eligible for ACA subsidies.
  • An estimated 32,000 residents could gain coverage through the option by 2027, when the waiver expires. 

The big picture: Washington state is the only state with a public option, but Nevada, Oregon and Connecticut are weighing whether to follow suit.

"We encourage all states to consider innovative ways to use section 1332 waivers in the future to expand and improve coverage and lower costs for their residents," CMS administrator Chiquita Brooks-LaSure said in a statement.

Yes, but: Washington's plan, which dates to 2019, has run into snags, including hospitals unwilling to voluntarily participate because of low payments and policies that tie reimbursements to Medicare rates.

  • Private insurers have also balked at contracting with the state and participating in the plan, in part because hospitals were wary.
  • Washington officials are trying to fill coverage gaps in some underserved areas and set rates for next year to ensure every county in the state will have a public option plan.
  • Data from the Washington Health Benefit Exchange show that more Washington residents chose public option plans, called Cascade Care, in 2022 than in 2021.
  • In 2021, just 12% of people with plans on the exchange chose a Cascade Care plan, but in 2022, nearly a third of exchange plan customers chose a state-designed plan.

The intrigue: Colorado is trying to avoid some of the biggest problems that Washington encountered hit.

  • The biggest difference is insurers that offer ACA exchange plans in a county will also have to offer a Colorado Option for both individual and small-group coverage at the outset.
  • "That means everyone essentially will have a Colorado Option which makes their presence more significant," Krutika Amin, associate director of the ACA program at the Kaiser Family Foundation, told Axios.
  • Colorado public options plans will also need to meet network adequacy requirements, to ensure there are enough providers.

Flashback: Centrist Democrats in Congress rejected putting a public option in the Affordable Care Act more than a decade ago.

  • The idea began to enjoy a revival before the pandemic, and Colorado Gov. Jared Polis signed legislation last year to set in motion his state's version of a government-run plan.
  • President Biden touted a public option during his 2020 campaign, to build on the coverage gains of Obamacare.

What we're watching: The end of the COVID-19 public health emergency could alter prospects for state-based health plans, as thousands of people who have stayed on Medicaid plans throughout the pandemic might no longer qualify.

  • It remains to be seen whether that population can find affordable coverage on state marketplaces.
  • States like Colorado are hoping to bridge that gap with subsidies for those at certain income levels who enroll in the Colorado Option.

The bottom line: Other states will be closely watching the experience in Colorado and Washington as the nation transitions away from the public health crisis and the uninsured population is expected to grow.

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