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A patient at UCHealth Memorial Hospital Central recovers from open heart surgery at the Colorado Springs hospital in August 2018. (Mark Reis, Special to The Colorado Sun)

Colorado officials on Monday released their long-awaited plan for a public health insurance option — and it is dramatically unprecedented, in the best or worst sense of the term, depending on your perspective.

The goal of the insurance option, which was one of Gov. Jared Polis and statehouse Democrats’ top priorities during this year’s legislative session, is to provide people with coverage that costs less. At its most basic level, people shopping for health coverage will be able to buy plans offered via the insurance option the same way they would buy any other plan — and it would provide all the same benefits, too.

But how the state is proposing to do that will take Colorado down several relatively untraveled roads, potentially creating a health insurance market like no other in the country that could become a national model — or a cautionary tale.

Let’s dive into the details:

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It’s a “state option” not a “public option”

While much of the talk during the legislative session and beyond was about a government-run or government-backed insurance program, that’s not what this is. Instead, it’s essentially a product that private insurance companies will sell.

The state has little involvement in managing it and no financial risk. So, if, for instance, there’s a really bad flu year that causes medical claims to exceed the amount brought in through premiums, taxpayers won’t be on the hook for covering the difference. 

Thus, officials are referring to this as a “state option,” and not the kind of “public option” plans that are getting so much attention on the presidential campaign trail.

MORE: As Coloradans struggle to pay for health coverage, cheaper alternatives come with their own perils

It’s only for people who buy insurance themselves — to start

When the program launches — expected to be in January 2022 — it will only be for people who buy insurance themselves. That’s the so-called “individual market.” According to the latest numbers, it makes up about 7% of the state — so several hundred thousand people.

State officials hope that it will be able to quickly expand to cover small and large employers. But, for now, they said they want to start small-ish.

But, being open to everyone in the individual market means several major things. It will be available in every county across the state. It will be available to anyone, citizen or immigrant, documented or undocumented. (Covering the undocumented population was a key goal of left-leaning health care advocates.) 

And it will be available to people if  they receive help from the federal government to pay their premiums or if they don’t.

Lawmakers meet in the Colorado House of Representatives on May 1, 2019. (Jesse Paul, The Colorado Sun)

It won’t need federal approval — but that would help

When the legislative effort to create the state option began, many people assumed it would be a version of something called a Medicaid buy-in. 

In other words, people would be able to pay to get the coverage provided by Medicaid. But, because there’s a lot of federal dollars flowing into Medicaid, that kind of program would have needed federal approval.

The one announced on Monday does not. But it would help.

That’s because the state plans to apply to ask the federal government to be able to pocket some of the money the feds might be expected to save by not having to pay as much in subsidies to help people afford insurance. (Cheaper insurance means the federal government pays less in subsidies.) 

If that sounds familiar, it’s the same process Colorado used to get its reinsurance program up and running.

MORE: Colorado’s reinsurance program could fall $50 million short next year, according to health insurer estimates

The state will set hospital prices

Now we’re getting into the real trailblazing stuff — and the things that will, in theory, bring down insurance prices. 

Colorado would tell hospitals how much they can charge for treating people who have state-option plans. The state intends to set the rates at 175% to 225% of what Medicare charges for the same services. For comparison, a study earlier this year from the RAND Corp. found that hospitals across Colorado on average charge privately insured patients 269% of what Medicare pays.

These price caps will drive most of the state option’s savings, officials say. They’re also how the government will stay out of actually running an insurance plan. The state is essentially giving private insurers price points and telling them to build plans around those.

This is not entirely unprecedented. Washington state, which is the only other state this far along in planning a public option, has also set hospital prices for its program — at 160% of Medicare rates. Maryland has been setting hospital prices for years, though not tied to Medicare rates.

Gov. Jared Polis announces the creation of the Office for Saving People Money on Healthcare on Wednesday, Jan. 23, 2019. (Jesse Paul, The Colorado Sun)

Hospitals will be required to participate

The problem with rate-setting, as government-dictated hospital pricing is called, is that few hospitals actually want to participate in it.

Washington, for instance, originally proposed setting rates for its plan equal to Medicare levels. But it had to raise its rates over worries that no hospitals or doctors would accept the insurance at the lower levels. North Carolina also backed off a rate-setting proposal in its insurance plan for state employees after doctors said they wouldn’t take it.

So how will Colorado solve this problem? By forcing hospitals to participate, if needed.

Kim Bimestefer, the head of the state’s Department of Health Care Policy and Financing and one of the state option’s chief architects, said officials hope hospitals will embrace it.

But, she said, “if we feel that the hospitals are not going to participate, we will require their participation.”

Most insurance companies will also have to participate — and have their profits further capped

The mandate extends to insurers, as well. 

Michael Conway, the state’s commissioner of insurance and the state option’s other main designer, said insurance companies of a certain size will have to offer state-option plans. 

They get to determine — with state regulatory oversight — the exact structure of premiums and deductibles. But they have to sell the plans.

And it’s not just insurance companies that already sell plans in the individual market. It’s insurance companies that sell plans in any of the state’s individual, small group and large group markets.

There are other big requirements for insurers. Already, under federal law, insurance companies selling plans in the individual market have what’s called an MLR, a medical loss ratio. It’s the percent of what they collect in premiums that has to be used to pay for medical claims, and it acts as a cap on profits and administrative expenses.

Currently, the MLR in the individual market is 80%. But the state option will require insurers to maintain an 85% MLR. And, on top of that, they also will have to pass on any rebates to consumers that they receive in the prescription drug-buying process.

“We’re asking insurers to be a little bit more efficient to give consumers a break,” Conway said.

MORE: Colorado’s uninsured rate is holding steady, but a new study shows troubling trends in the state’s health care market

It could save consumers as much as 18%

That’s the upper end of the estimate state officials gave for savings. The lower end is 9%. Either way, it would mean hundreds to thousands of dollars a year for the average person or family who buys coverage on their own.

It’s just a draft

What officials released Monday is not a done deal. Bimestefer and Conway will now take their plan on the road to gather more feedback — with presentations in Denver and Pueblo on Tuesday. Written comments can be submitted through October 25. By the end of the month, the pair will set to writing a final version. That version will be delivered to the legislature in November.

They expect they will face some opposition. But, for now, they are optimistic.

“I think folks will be pleasantly surprised at what we put together,” Bimestefer said.

John Ingold

John Ingold is a co-founder of The Colorado Sun and a reporter currently specializing in health care coverage. Born and raised in Colorado Springs, John spent 18 years working at The Denver Post. Prior to that, he held internships at the Rocky Ford Daily Gazette, the Colorado Springs...