This story was updated at 12:37 p.m. on Sept. 13, 2019. See the shaded box below for the update.
Gov. Jared Polis, standing before a crowd in Keystone, unveiled an eye-popping number on Monday.
$14,000.
That is how much he said a family of four in Summit County will be able to save on their health insurance next year through the new Peak Health Alliance, compared with what they’re paying now.
The model, which has been attracting national attention, brings together employers and individuals to negotiate prices directly with doctors and the local hospital and then use those prices to get a better deal from insurers. It has quickly become one of the star ideas on Polis’ agenda to reduce health care costs. And he used the announcement on Monday to again talk about taking the idea statewide, fundamentally changing the leverage points in the Colorado health insurance market.
“Now customers are banding together to solve a problem, and it’s a model we are expanding statewide to save people money on health care,” Polis said in a statement.
But one potential problem is emerging. Hospitals, which have been supportive publicly of the Peak Health Alliance’s work, say they’re not sure people across the state can get the same kind of deal the folks in Summit County are getting.
“It’s not necessarily as simple as, ‘Let’s copy and paste Peak,’” said Katherine Mulready, the Colorado Hospital Association’s chief strategy officer.
Hospital system Centura Health, whose St. Anthony Summit Medical Center struck a deal with Peak to reduce prices by 20%, said what happened in Summit County simply can’t be replicated everywhere.
“In Summit County, the combination of dynamics on the expense side and the revenue side allowed for creative thought which created the Peak Health Alliance model,” Wendy Forbes, a Centura spokeswoman, wrote in an email. “Unfortunately, these same combinations of dynamics do not exist in other communities throughout Colorado. Therefore, it is not possible to apply the same model used in one community to another community.”
But Colorado Insurance Commissioner Michael Conway disagrees, his words hinting at the battle looming between hospitals and the Polis administration, which hasn’t been shy about singling out hospitals for their role in rising health care costs.
“I think that it’s fundamentally wrong,” Conway said of the hospitals’ statements. “I think the unique factors that are present in Summit County are absolutely present around the state because that unique factor is people believe they are paying too much for their health insurance.”
The basics
In the current market, insurance companies negotiate prices with hospitals and then offer coverage to consumers, who have no real say in the underlying deals. Take ‘em or leave ‘em.
In what Conway calls the “purchasing alliance” model, consumers start by banding together. They get the best deal they can from hospitals, and then they ask insurance companies to bid for their business. The more people in the alliance and the more leverage they can exert, the better deal they get.
Conway said there’s no reason this can’t work statewide. In Summit County, there is only one hospital. So the Peak Health Alliance — which will include several of the county’s large employers, as well as smaller businesses and individuals — held talks with hospitals in Eagle County and on the Front Range, even though it was always going to be most convenient to stay closer to home.
Spread across all of Colorado, Conway said an alliance could assemble a huge group to credibly negotiate with multiple hospital systems, creating something of a bidding war.
“The reason why we’re focused on statewide is we believe we can build something that has significant leverage and significant purchasing power,” he said.
But Allie Morgan, the director of legislative services for the Colorado Health Institute, a nonpartisan think tank, said the alliance model may work best in smaller communities with fewer hospitals.
The reason, she believes, is that communities need to come to negotiations armed with data showing how a hospital’s prices are out of whack — otherwise, how do you make your case that prices could be much lower? The more hospitals in an area, the harder it is to pull together the data and the more complicated the negotiations would be.
There’s something else that works in smaller communities’ favor, she said. When the Health Institute talked to people in Summit County, they would sometimes joke that they knew where the CEO of the local hospital shopped for groceries.
“That makes the dynamic different, when the community can lean on you,” said Morgan, who is working on an analysis of how a Peak Health Alliance model could be scaled up around the state.
Untangling the numbers
On Monday, Polis said the Peak Health Alliance rates will be, on average, 41.5% below what people in Summit County who buy insurance on their own are paying now. When the number was announced, Conway said some people in the audience at the Peak launch party teared up.
(In industry parlance, people who buy insurance without help from their employer are in the “individual market.” Polis has previously said large and small businesses in the Peak Health Alliance would see a 20% drop as a result of the alliance’s deals, though official numbers weren’t made available Monday.)
But most of that reduction in the individual market isn’t the result of the alliance. Instead, the bulk of it comes as a result of the state’s new reinsurance program — which specifically targeted mountain communities for big price drops.
In Summit County, Bright Health, the insurance company that won the Peak Health Alliance’s business for the individual market, dropped its rates by more than 30% just as a result of reinsurance, according to figures published by the Division of Insurance. So that means Peak will save consumers an extra 11%, on average, Conway said. Doing the math, that puts the savings just from Peak closer to $3,800 per year for a family of four, out of the $14,000 total savings.
UPDATE: Bright Health says a lot of factors go into setting insurance premiums and the math above isn’t right for two reasons. First, the Division of Insurance’s calculation for the average impact of reinsurance on Bright’s rates includes both Peak and non-Peak plans. And, second, Bright says the Peak plans will be more generous in the benefits they offer than the non-Peak plans it’s offering currently in Summit County, making comparisons about the relative value of Peak’s savings more difficult.
Giving its best estimate, Bright says Peak alone will result in about a 15% savings for consumers. It did not quantify that in a dollar amount relative to the $14,000 overall savings Polis touted.
The uncertain path forward
What happens next isn’t all that clear. Polis, in comments on the alliance model, has variously talked about creating a broad statewide version of it and of empowering local innovation for smaller-scale replicas.
Conway said the goal is both. In the next year, he said he expects other communities — places in Eagle, La Plata and San Miguel counties have often been mentioned — to either set up their own versions of the Peak Health Alliance or to work out a deal to expand Peak. But Conway said the administration is also contemplating a large statewide alliance of employers.
Morgan said it gets confusing because the administration is also working on developing a plan for a “public option,” a state-run insurance plan that would compete in the market against private plans. Conway said the two tracks will stay separate.
There’s no real timeframe for when any of this might happen.
“There’s going to be a lot of movement constantly,” Conway said.
And that won’t necessarily sit well with hospitals. Mulready, from the Colorado Hospital Association, said the genius of Peak was that it came about organically — “of the community, by the community and for the community.” She said hospitals would be willing to support further efforts by communities to get together with their local hospitals to talk about mutually beneficial solutions.
But if the administration starts pushing more aggressive discussions about the future of health insurance and hospital pricing in Colorado? Expect a very nerdy war.
“We might feel differently about those depending on the path, to be quite honest,” Mulready said.