Eight years after Arkansas made a name for itself with the “private option” — the state’s premium assistance approach to Medicaid expansion — several other states are pursuing a so-called “public option” to complement their Medicaid expansion efforts. Following recently enacted legislation in Washington state, four other states ― Nevada, Colorado, Connecticut, and Oregon ― have considered bills this year that would introduce some form of a public option with the objective to reduce insurance premium costs for consumers.
Although there is no standard definition of a public option, the general concept is a government-sponsored insurance option that would serve as an alternative to private insurance for those who do not qualify for Medicare or Medicaid and would compete alongside private plans in the market. A public option was originally proposed as part of the federal Affordable Care Act, but it was removed in favor of a multi-state plan (MSP) program in which two insurers were selected by the federal government to compete alongside insurers offering coverage in each state’s health insurance marketplace. In 2019, the MSP program was discontinued, having gone from offering coverage in 35 states in 2015 to only one in its most recent year.
The demise of the MSP program, along with the fact that the public option was not included in President Joe Biden’s budget proposal this year, has prodded states to act on their own.
- Washington was the first state to enact a public option in 2019, but health plans — 15 of them administered by five insurers via a contract with the state — were not available until this year. The original legislation proposed a cap on provider reimbursement rates at the rate that Medicare pays, but the cap was later amended to 160% of Medicare rates. As a result, public option plan premiums were on average 4% higher than private plans offered on the health insurance marketplace. Even though the public option plans were a bit more generous than the private plans, premium prices were a determining factor for consumers, and less than 1% of enrollees opted for a public option plan. The Washington Legislature passed a bill this year that will, among other changes to the program, require hospitals to contract with the plans under certain circumstances.
- Hoping to learn from the Washington experience, the Nevada Legislature passed a public option bill in late May. The Nevada governor has signaled that he will sign the bill, a departure from his predecessor, who vetoed a public option bill passed in 2019. Two of the main differences from the Washington public option are that Nevada’s Medicaid managed care plans will be required to submit a proposed plan and that healthcare providers in the Medicaid or state employees’ health insurance plan will be required to accept public option plan patients. Providers are guaranteed at least Medicare reimbursement rates (but there is no price ceiling), and the target for public option plan premiums is to be 5% below premiums offered by private insurers on the health insurance marketplace, with a goal to be 15% below by 2030. Public option plans will be available to both individuals and small business, but they will not be available until 2026.
- A public option bill is also making its way through the Colorado Legislature. The bill originally included a state-administered plan with a goal to reduce premiums by 20% over three years, but now the bill looks a bit more like a blend of the Washington and Nevada programs. The current bill would require insurers in the individual and small group markets to administer a standardized plan and meet a 15% premium reduction target over three years beginning in 2023. The bill would establish a floor for reimbursement rates of 155% of Medicare rates but would not establish a ceiling, instead relying upon the insurers to negotiate provider reimbursement rates. If the insurers fail to attract enough providers for their network, the state insurance commissioner is authorized to set reimbursement rates (after nonbinding arbitration and a hearing) and levy fines against providers for refusing to accept the rates.
States are clearly hearing echoes of the influential 2003 study showing that differences in healthcare spending in the United States compared with other countries are caused mostly by higher prices for healthcare goods and services, and they are finally becoming active in rate-setting. As is typically the case, however, the political process involves many trade-offs. While states are showing success at anchoring the starting point for negotiations to Medicare’s rates, establishing rate ceilings has been more elusive.
If states are successful, the federal government should expect to see savings from lower premium tax credits as people migrate to lower-cost public option plans. Legislation in Nevada and Colorado authorizes state officials to apply for a waiver under Section 1332 of the Affordable Care Act to recapture any savings generated by public option plans and use them to expand subsidies, enhance benefits, or offset program costs.
