Colorado Democrats just proposed an enormous change to how health insurance programs are funded

In a budget-panicked, coronavirus-interrupted legislative session that has already seen major proposals for how health insurance should work in the state come and go, Colorado lawmakers have just proposed another massive change.

Senate Bill 215 would create a new fee on the health insurance premiums paid by close to a million people in the state. Supporters say the fee would take the place of a federal tax that is expiring at the end of the year. Money from this new fee — estimated at around $100 million per year — would be used to pay for the state’s reinsurance program and provide additional subsidies to lower health insurance prices, collectively benefiting hundreds of thousands of people who purchase coverage on their own or are currently uninsured.

The reinsurance program has been credited with reducing premiums in the state’s individual insurance market this year by 20%, but funding to sustain the program has seen frequent turmoil. The new bill extends the program for five years.

“We’ve seen that it has tremendous success in lowering premiums,” said Sen. Dominick Moreno, a Commerce City Democrat who is one of the bill’s sponsors. “Obviously we want to keep it around, keep it going.”

Insurance groups opposed to the bill say it will raise insurance prices for many people and may violate the Taxpayer’s Bill of Rights by cloaking a new tax not approved by voters as a fee. The bill was introduced in the state Senate on Tuesday afternoon and received its first committee hearing Wednesday morning — a breakneck pace that more than perturbed those against it.

“The process for how they’re trying to do this is, in my opinion, questionably ethical,” said Brad Niederman, an independent insurance broker who is a board member for the Colorado State Association of Health Underwriters.

The background

The new bill is the latest in a truly dizzying list of changes and proposed changes that Colorado lawmakers, driven by Democratic control of both chambers and the governor’s office, have considered in the past two years.

Earlier this year, lawmakers battled over a plan to create a version of a public health insurance option that would also create a cap on hospital prices for some. The proposal went by the wayside — at least for now — when the state budget imploded as a result of the coronavirus pandemic.

The reinsurance program is one of Gov. Jared Polis’ biggest legislative accomplishments. But, for complicated reasons, it also had the unintended consequence of increasing what some lower-income people pay for their coverage.

Still, reinsurance has saved some families hundreds or thousands of dollars a year in health insurance costs. In a sign of the support the program enjoys within the Capitol, its current funding structure was largely untouched in the pandemic-induced budget-slashing.

What the bill does

But Senate Bill 215 rewrites the funding for reinsurance, with money left over for other health insurance subsidy programs.

The bill hangs on the expiration of the federal Health Insurance Tax — which insurers refer to as the HIT. The tax, which was part of the Affordable Care Act, was repealed by Congress in a bipartisan deal and is set to go away at the end of the year.

“So if we were to do a seamless extension of that, we would need to do that now,” Moreno said. “The case becomes a lot harder to use this as a funding mechanism if the federal tax goes away and the state doesn’t do anything to keep it around.”

The bill imposes a 1% fee on premiums collected by nonprofit health insurers and a 2.5% fee on premiums collected by for-profit insurers. The fee applies only to plans regulated by the state Division of Insurance — meaning it excludes the health insurance plans that cover workers at many large companies, which self-insure their health plans.

In recent years, more than 1 million people in Colorado have been covered each year by health insurance regulated by the Division of Insurance. But the division is expecting that number to shrink to around 850,000 people this year due to pandemic-related job losses. Insurers say they don’t believe the market will contract that much.

In addition to the new health insurance fee, the bill would also impose a new $20 million annual fee on hospitals for two years. (Under the existing funding system for reinsurance, hospitals are due to pay $80 million in fees over two years; the bill would eliminate that and replace it with the $20 million annual fee. The Colorado Hospital Association says it is neutral on the bill.)

Where the money goes

All of this money would be collected by a new entity called the Health Insurance Affordability Enterprise, which will be overseen by a nine-member board. Money from the enterprise would go to benefit people in the individual health insurance market — people who buy coverage themselves without help from an employer. Specifically, the money would provide funding for the reinsurance program at up to $90 million per year. Anything left over from that could go to additional subsidies to help people in the individual market buy insurance.

Advocacy groups that support the bill say those subsidies could, for instance, benefit the roughly 40,000 people in Colorado who are caught in the so-called family glitch. That issue prohibits people from getting federal subsidies to buy health insurance in the individual market if they have access to coverage through an employer, even if that employer-based coverage is wildly unaffordable. Other subsidies could go to help lower-income people whose costs are increased by the reinsurance program.

The bill also notes that people will be eligible for state subsidies regardless of their immigration status. Currently, immigrants without documentation are not eligible to receive federal subsidies for health insurance and are believed to make up a disproportionate share of the state’s uninsured.

Kyle Piccola, a spokesman for the advocacy organization Healthier Colorado, said it is crucial to find new ways to help people buy health insurance now, after so many have lost coverage due to pandemic-related job cuts.

“We’re really excited we were able to think of something in this time when we have no money to help with affordable health insurance and fix some of these problems we’ve had for some time,” Piccola said.

Concerns from insurers

Insurance companies opposed to the bill raise two main objections: the costs they say the bill will create for consumers and the last-minute speed at which it is moving.

The bill’s fiscal note, prepared by nonpartisan legislative fiscal analysts, estimates the fee will bring in around $105 million in its first year. That’s roughly what insurance companies in Colorado pay now for the federal tax.

Amanda Massey, the executive director of the Colorado Association of Health Plans, a trade organization for insurance companies, said she believes the fee will actually bring in much more — around $135 million. The result, she said, is that insurance premium prices will go up for many, though she said she couldn’t yet provide estimates. The impact will be most acute for workers and owners of small businesses who will have to pay the fee but won’t be eligible for the subsidies.

“We are very concerned about taxing health care and making it more expensive in order to make it more affordable,” she said.

Moreno disputed this, noting that in years when the federal tax was temporarily suspended, insurance companies did not dramatically change their prices, making him question how much of an impact it actually has on premium rates.

But the more blunt concern from insurers is how the bill was rolled out. Jason Hopfer, a lobbyist for the Colorado Association of Health Plans, said discussions of this idea date back to at least February, and he rejected the idea that it is driven by pandemic-related budget concerns. Hopfer said he didn’t see a draft of the bill until Saturday, and he questions why sponsors are moving it forward so quickly, without having first sought more input from insurance companies and businesses.

“Frankly,” he said, “this feels like an attempt to use the pandemic to meet a variety of policy goals that are unrelated to the pandemic.”

Moreno, who sits on the legislative committee that writes the budget, said that’s not that case. He said ending the existing funding system for reinsurance and replacing it with this new one will save the state’s general fund about $60 million next year that can be used elsewhere.

“Reinsurance really passed without having all of the funding figured out,” he said, “and this is establishing that sustainable funding mechanism to keep it going.”

The bill passed its first test, in the Senate Finance Committee, on Wednesday by a 4-3 party-line vote with Democrats in favor and Republicans opposed. It next goes to the Senate Appropriations Committee.