Mar 24, 2023 - Health

State public option plans keep hitting obstacles

Illustration of a construction barrier and traffic cones in front of a broken up dollar bill.

Illustration: Megan Robinson/Axios

State efforts to control health costs through public options are stalling in the face of resistance from providers and lackluster enrollment, even as talk of a federal version recedes.

Why it matters: The states' underwhelming attempts offer an ominous warning for lawmakers seeking to lower health costs: Insurers and providers aren't going to willingly cooperate with programs that threaten their profits and revenues.

  • And lower health care costs are, in the end, a hit to someone's profits and revenue.

The big picture: The public option was supposed to resemble government-run health care for moderates uncomfortable with "Medicare for All." But it flopped on the first try in Washington state and is drawing meager interest there and in Colorado.

  • Nevada, New Mexico, Minnesota and Connecticut are among the other states either weighing bills to create public options or nudging similar plans forward.
  • A key will be whether they can attract more consumers and save money through partnerships with insurers or whether they'll have to force the carriers to participate, a recent Commonwealth Fund comparison found.

Public options are state-administered health plans that offer a defined set of services at a discounted price to promote access and affordability.

  • But while President Biden campaigned on a federal version, there's been little follow-up — and in states it's "one of many choices" to expand coverage and lower costs, Christine Monahan, an assistant research professor at the Georgetown University Center on Health Insurance Reforms, told Axios.

Where it stands: Washington state's first-in-the-nation public option launched in 2019 but hit obstacles when insurers didn't voluntarily contract with the state and offer plans in each county. That was partly because hospitals also balked at a program they said made low payments and policies that tied reimbursements to Medicare rates.

  • With big geographic gaps in plan availability, the state put more requirements on hospitals to contract with plans. But only 27,000 residents selected a public option plan for the 2023 plan year.
  • Washington's Health Care Authority late last year recommended forcing insurers and health providers that participate in other state health programs to also participate in the public option.

Colorado tried to avoid the Washington experience by launching a public option this winter and requiring insurers to offer three tiers of service in all counties where they offer individual or small-employer plans.

  • About 35,000 residents enrolled so far. Next year, the Division of Insurance will begin holding insurance companies accountable to meeting premium reduction targets.
  • The Colorado Association of Health Plans estimates the lion's share of its members won't meet those targets, and that insurance regulators set too generous benefits as the standard package, driving up premiums.
  • Insurers are set to go before the Division of Insurance this summer for hearings and there are proposed changes to the public option law pending in the Colorado General Assembly.
  • The Colorado Association of Health Plans is concerned about the Democratic-led changes, noting in a statement to Axios that "the policy goals are now moving from affordability to value." The association is also concerned about an accelerated timeline to comply with the program.

The intrigue: Nevada's public option isn't due to take effect for another three years but already is in limbo after newly elected Gov. Joe Lombardo (R) said the state legislature should repeal or significantly revise the Democratic-driven legislation that created it.

  • Nevada structured its public option in a way that forces hospitals and insurers to participate.
  • The goal is to insure more than 55,000 Nevada residents in the first year and more than 90,000 by its fifth year while saving the state as much as $464 million over that period.

Yes, but: The state's big health care players were not on-board.

  • The Nevada Hospital Association and Nevada Association of Health Plans both oppose the legislation, and they expect new legislation to be introduced this year to alter the law.

The bottom line: Early results cast doubt on whether public option plans will achieve their goals if they depend on providers and insurers to willingly take a pay cut.

  • "I don't think it's like the hot, flashy thing that states are going to try," Monahan said.
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