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Hospitals are backing off a budget fight over Colorado’s reinsurance program. Is a deal possible?

The Colorado Hospital Association dropped its lawsuit over the fees that fund the health insurance program

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The association that represents Colorado hospitals says it is talking with lawmakers about a potential budget deal over the state’s new, multimillion-dollar reinsurance program.

The program, which is expected to spend half a billion dollars over two years, is one of Gov. Jared Polis’ biggest achievements from his first year, dramatically lowering health insurance premiums for some people who buy coverage on their own. But its budget and funding sources have hit potholes — from questions about how they interact the Taxpayer’s Bill of Rights to a lawsuit from the Colorado Hospital Association over $40 million in fees that help pay for the program.

On Wednesday, though, the hospital association announced that it has dropped the lawsuit and is working instead on a proposal that would defer the hospital payments without otherwise impacting the program’s savings.

“It really does present us with a way to move forward with a win on all sides,” said Katherine Mulready, the hospital association’s chief strategy officer.

It remains to be seen whether the Polis administration sees it the same way. A spokesman for the Division of Insurance, which administers the reinsurance program, declined to comment on the proposed budget deal, saying the division has only seen “rough concepts” and not formal legislative language.

The emergency room entrance to Saint Joseph Hospital in Denver, photographed on Oct. 22, 2019. (John Ingold, The Colorado Sun)

The crux of the issue

Hospitals have to pay $40 million a year for two years to fund the reinsurance program. The state has proposed collecting the first $40 million chunk before the end of June, in part to avoid some TABOR complications. Hospitals balked, saying that did not give smaller hospitals enough time to budget for the payment.

Reinsurance works by giving money to health insurance companies to help them pay their highest-cost claims, allowing those companies to reduce what they charge everybody in premiums.

The hospital fees are part of a funding stream that also includes some state tax money and, more significantly, federal dollars. Last week, the Division of Insurance announced that the federal government will contribute $169 million this year to fund Colorado’s reinsurance program, which is expected to spend about $250 million in total to cover each of the two years for which it is currently authorized.

None of this money actually gets spent, though, until August 2021. That’s because there’s a lag between when claims for 2020 come in and when the state has to settle up.

Michael Conway speaks to Colorado Gov. Jared Polis at Red Rocks Community College on Thursday, Dec. 12, 2019, for a stop on his listening tour. (Jesse Paul, The Colorado Sun)

The lawsuit

On Christmas Day, the Division of Insurance posted a proposed rule requiring hospitals to pay the first $40 million in fees for the reinsurance program by June 30. The draft rule was given an effective date of Jan. 1.

The hospital association sued, saying they weren’t given enough time for public comment and that the law creating reinsurance doesn’t allow the state to collect any fees from hospitals until next fiscal year, which starts July 1.

The state countered that the rule was just a draft that hadn’t been adopted and that the Jan. 1 date was written as a placeholder. The day after the hospital association filed its lawsuit, the Division of Insurance posted a notice for a public hearing on the proposed rule. The notice included a new draft of the rule with an effective date in April.

That caused the hospital association to drop its lawsuit. But, more than anything, the two-week court fight has revealed the level of suspicion and acrimony that currently appear to exist between hospital representatives and state officials.

In a statement, Chris Tholen, the association’s president and CEO, said: “If the administration proceeds with the attempt to collect hospital payments early — especially in the face of a workable solution — we’ll be back in court if necessary.”

Insurance Commissioner Michael Conway responded sharply in a statement of his own.

“We are pleased that this frivolous lawsuit has been dismissed,” he said. “At the Division of Insurance, we are dedicated to administering the reinsurance program. … Now that this distraction is over, we will continue to  work with stakeholders as we strive to serve Colordans.”

The possible deal

The palpable distrust makes a budget deal seem unlikely. But Mulready, with the hospital association, said she is optimistic.

The deal would allow hospitals to wait until the second half of 2021 to pay their fees, and then they would pay all $80 million in one fiscal year, spread out a bit to comply with federal law.

Mulready said the deal would still allow the state to avoid TABOR problems, and the money would be available in time for the state to make good on its first reinsurance payments. It would give hospitals a longer time to budget for the fees. She said the association is working with lawmakers and legislative budget staffers on the idea.

In his statement, Tholen confidently referred to the budget deal as a “forthcoming legislative solution.” But, Mulready acknowledged that there’s nothing on paper yet, calling the discussions so far “conceptual.”

State Rep. Julie McCluskie, a Dillon Democrat who both sits on the legislature’s Joint Budget Committee and also sponsored the bill that created the reinsurance program, said she has had some early discussions about the hospitals’ proposal.

But she said she needs a lot more detail before being able to decide if it’s a good idea. Currently — after the state received more money for the program from the federal government than it was expecting — McCluskie said she’s already feeling pretty good about reinsurance’s budget plan.

“I just think we have to proceed thoughtfully,” she said, “and we have to dive in deep to understand whether this works for everyone.”

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