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States giving public option health plans a hard look

A public plan is in the works in the Kaups’ home state. The new Democratic governor of Colorado, Jared Polis, in May signed a bipartisan bill to study and develop a public-option plan for the Legislature’s consideration next January, to launch in 2021.

Washington state went further. Gov. Jay Inslee and his fellow Democrats enacted a bill last month to have the state contract with private insurers to offer lower-cost, tightly regulated plans on the ACA exchange for 2021. The new plans would pay providers no more than an average of 160% of Medicare rates, a compromise from an earlier version of the bill limiting rates to 100% of Medicare.

Inslee, who’s running for president, called it the nation’s first “public guarantee” of health insurance access.

Elsewhere, the New Mexico Legislature recently passed a bill to study and develop a Medicaid buy-in plan option. Other states eyeing a Medicaid buy-in or public plan include Connecticut, Delaware, Illinois, Massachusetts, Minnesota, Nevada and Oregon. 

Leaders of these initiatives envision their proposed public plans paying providers significantly lower rates than they currently receive, ranging from Medicaid levels to some percentage above Medicare. They are capitalizing on growing evidence and public consternation that private insurers are paying hospitals two to three times more than Medicare pays, as a RAND Corp. study recently found.

“There is a massive reconsideration of the role of provider market power, and how government can use regulatory and price-setting powers to push back,” said Jacob Hacker, a Yale University political science professor who has championed a federal public-option approach.

Opponents warn that state public-option proposals are just a way station on the path to a federal single-payer system, which advocates don’t necessarily deny. “There’s no question the endgame is single-payer,” said Dr. Roger Stark, a health policy analyst at the conservative Washington Policy Center in Seattle.

But designing a workable public plan is a daunting task that requires state policymakers to prioritize among a variety of their prized objectives and weigh tough trade-offs.

One challenge is that offering cheaper public plans on the ACA exchange could reduce federal premium subsidy payments, unless a state obtains a Section 1332 state innovation waiver and gets back those federal savings for the purpose of lowering premiums and/or expanding coverage.

Alternatively, some states are considering offering a public plan outside the exchange. But then consumers wouldn’t be able to use federal premium subsidies to buy in—unless, again, the federal government granted a 1332 waiver. Under that model, however, healthier people might exit exchange plans and switch to the public plan, potentially destabilizing the exchange market. 

There also are major political obstacles. State policymakers face resistance from health plans, hospitals, and physicians, who strongly oppose the rate caps that are central to these proposals. Insurers, who don’t want to compete against government-sponsored plans, mounted a successful late lobbying push to kill a public option bill in Connecticut last month.

“We understand that healthcare needs to be more affordable,” said Chelene Whiteaker, senior vice president for government affairs at the Washington State Hospital Association, which opposed the state’s public-option measure. “Yet this bill approaches affordability by cutting provider and hospital rates. What will that mean for access to care?”

Meanwhile, there are questions about the compatibility of state public-option programs with the ambitious health reform proposals from congressional Democrats, including presidential candidates who are calling for a national program of public insurance such as Medicare for All or a voluntary Medicare buy-in.

“When you think back to the Affordable Care Act, we had a state example in Massachusetts before the country was ready to embark on a major health reform discussion,” said Chiquita Brooks-LaSure, a managing director at Manatt Health. “Having several states testing different types of ideas will be really useful for the national conversation.”

Others caution that state public-option plans could get in the way of a federal program. “If the states were moving forward on state public options for a decade, that would be a pretty ugly position for those of us who want federal action, because then there would be more facts on the ground,” said Yale’s Hacker.

He’s skeptical that many states will get very far on their own. “Fiscally speaking, a lot of the states aren’t super-eager to take on the challenge of covering the remaining uninsured population,” he said. “They would really like the federal government to step up.”

But states can’t wait for federal action, said Democratic state Rep. Eileen Cody, a chief sponsor of the Washington public-option bill. A longtime supporter of a single-payer system, she doubts the political viability of getting that through Congress or her state anytime soon. So her goal is to offer cheaper, more consumer-friendly health plans now, with an evolution toward single-payer.

“It’s not a bad thing if everything moves to a lower-priced public-option plan,” said Cody, a retired nurse who chairs the House Health Care and Wellness Committee. “You won’t get there overnight. We have to do what we can and not disrupt the entrenched marketplace.”
In a move that dismayed some single-payer supporters, the Washington bill’s sponsors softened insurance industry opposition by contracting out the public plans to private carriers. They also included provider rate caps, which two major carriers supported.

“We felt (the rate cap approach) would most effectively reduce the cost of care and improve affordability for consumers,” said a spokeswoman for Premera Blue Cross.

Cody and others say the new Cascade Care plans should be able to offer premiums that are 5% to 10% lower than current individual plans by paying providers no more than 160% of Medicare rates—an estimated 10% to 30% less than plans are paying now. The bill includes special payment floors for primary-care physicians and rural critical-access hospitals—135% and 101% of Medicare rates, respectively.

The state will have the leeway to contract with plans that pay higher rates if the plans can show they couldn’t assemble an adequate provider network at the lower rates.

To simplify consumer choice and encourage enrollment in plans with lower cost-sharing, the contracted plans would have standardized benefit designs for each metal tier. 

Insurers say it’s not clear they will be able to form networks at the capped payment rates. They also are worried that the Cascade Care plans could negatively affect their other business in the individual, employer and Medicaid markets. They are particularly nervous that smaller employers might drop their health plans and shift employees into the cheaper public-option plans.

Those concerns were supported by a Milliman analysis commissioned by the Association of Washington Healthcare Plans. It projected that most individual-market customers would move to the new plans, and that a significant share of the employer group market also might migrate.

Milliman found that without a Section 1332 waiver, lower-income consumers who receive ACA premium subsidies would not see cost savings. Instead, the main beneficiaries of the new plans would be consumers who earn more than 400% of the federal poverty level, who make up about 17% of the 410,000 uninsured people in Washington.

Insurers also dislike the law’s provision allowing the state to consider tying a carrier’s participation in the public-option program to its continued participation in Medicaid and the state employee benefit programs. That was included to give the state leverage if carriers don’t bid for Cascade Care contracts.

Insurers declined to say whether they would participate in the new program, indicating they would wait to see how state regulators structure the program. A key question is whether and how the regulators permit carriers to deviate from the law’s rate caps if necessary to form a provider network, said Meg Jones, executive director of the Association of Washington Health Care Plans.

Similarly, the Washington State Hospital Association said its members would wait to see whether insurers decide to participate and how they set benefits and payment rates. Shirley Prasad, the association’s policy director for government affairs, added that hospitals are watching warily to see if the state moves to make participation mandatory for plans and providers.

But state Sen. David Frockt, who co-sponsored the Cascade Care bill, said industry groups actually are less opposed to the public-option model than they are publicly letting on, with some privately telling him they could live with the rate caps and form adequate networks.

Much of the grumbling, he said, is rooted in philosophical opposition to a strong government role in designing plans and setting rates. “They just don’t like it,” he said. “But I don’t know how else you can get a handle on costs.”

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