HB20-1349 Colorado Affordable Health Care Option (Donovan (D)) [Roberts (D), Kennedy (D)]

AMENDED: Minor

KILLED ON HOUSE CALENDAR

Appropriation: None
Fiscal Impact: About $950,000 next year, then about $750,000 each year

Goal: Create the Colorado Option, an insurance plan offered by private insurers that is controlled by the state government and includes higher medical loss/ratios, basic protections provided by the ACA, defined reimbursement rates and mandatory participation for hospitals, and must be offered by at least two insurers in each county in the state.

Description:

Requires health insurance carriers in Colorado to offer what the bill calls the “Colorado Option”, which has its own set of rules and regulations, beginning in 2022. This must be offered to anyone on the individual health care marketplace in each county where the insurer offers any other insurance, but the state commissioner of insurance is empowered to write rules expanding the Colorado option to the small group market if a majority of an advisory board created by this bill also agrees. If the board agrees, the commissioner is also required to ensure that at least two carriers offer the Colorado option in each county and gives power to the commissioner to establish rules that may require carriers to offer the plan in specific counties. All hospitals must accept Colorado option insurance or face fines escalating to $40,000 per day and potential loss of license.

For insurers, the Colorado option plan must have a medical loss ratio of 85%, rather than the 80% required by the Affordable Care Act (ACA). This means 85% of all premiums must be spent on reimbursing medical care. All rebates and incentives from drug manufacturers must pass through at 100% to policyholders in the form of premium reductions. Plans must be at least ACA bronze and silver levels of coverage, include the essential benefits package required under the ACA, and provide first-dollar, predeductible coverage for certain services such as primary care and behavioral health care as appropriate.

In developing the plan the commissioner must consider: lowering all out-of-pocket costs to consumers, including premiums; increasing access to health care; increasing consumer choice; reducing health disparities; minimizing cost shifting, impacts on other markets, and impacts on those receiving federal subsidies; improving care coordination; and incorporating value-based purchasing and plan design. Commissioner is specifically tasked to mitigate adverse impacts on those whose income is up to 400% of the federal poverty line (eligible for federal subsidies under the ACA).

The Colorado option has specific hospital reimbursement rates that must be included in all plans. The commissioner will set these rates for in-patient and outpatient services, with a specific goal of lowering costs and increasing access in rural areas. The rates must be based on Medicare or equivalent reimbursement rates. The base is 155% of Medicare and then is adjusted based on the following factors:

• Critical access or hospitals that are not a part of any health care system get a 20% increase in reimbursement. A hospital that is both gets to double-dip: 40% increase
• Hospital with combined percentage of Medicare and Medicaid patients that exceeds statewide average gets up to a 30% increase, based on how far above average it is
• Hospital that is efficient in managing underlying cost of care, taking into accounts its margins, operating costs, and net patient revenue, gets up to a 40% increase

Commissioner must consult with employee membership organizations representing health systems’ employees in Colorado and with hospital-based health care providers and may make changes as necessary to reflect cost of adequate wages, benefits, staffing, and training. Commissioner also has the option to exempt a hospital from these rates if it can demonstrate they will have a significant negative affect on the hospital’s financial sustainability. Starting in 2024 the advisory board will advise the commissioner on any adjustments that should be made to this formula.

Commissioner must annually report to the legislature beginning in 2024. The department of health care policy and financing must, in consultation with the advisory board, annually report on the impact of the Colorado option on hospital sustainability, the health care workforce, and health care wages to the legislature, also beginning in 2024.

The bill also creates the Colorado Option Advisory Board, which in addition to its already described duties, must also advise the commissioner how pass-through funds from any federal waivers received (which the bill requires at least 80% of which to go to those eligible for ACA subsidies), opportunities to leverage the plan to promote innovation and lower costs, and overall help in designing and implementing the plan. The board can override any decision made about the Colorado Option by the commissioner with a vote of 7 out of the 9 members.

Additional Information:

Arguments For:

Multiple regions in Colorado still struggle to obtain affordable, useful insurance. The useful clause there is important, low-cost mostly useless insurance doesn’t do anymore much good and is the system we had before the Affordable Care Act when bankruptcy from health care costs was considered a normal thing in this country. 14 counties had access to only one insurer through the state’s exchange in 2019. The federal government doesn’t seem like it is going to do anything to address this, so it is up to us. Free markets have utterly failed in this industry for several very good reasons. First, consumers do not “price” their health care options. It is nearly impossible to do so even if you wanted to shop around at various providers. Second, consumers mostly do not have the choice over their insurance to begin with, since the vast majority get it through their employer. And most importantly, we cannot choose to not get health care. We all need it and we cannot choose when we need it. And so we have two choices: offer insurance through the government (a public option) where the government is in essence the insurance company or create and manage an insurance option for private insurance. In essence, attack head-on the problems we all see in the health care marketplace through an insurance plan that must be offered throughout the state. We passed a bill last year to explore this issue and the committee it created recommended this solution. A true public option just does not fit with state finances (multiple other states including Vermont and California have explored this and come to the same conclusion). So what are these problem areas? First, prescription drugs, where a piece of the issue is cost savings from the manufactures that are not making their way to consumers but instead being pocketed by insurers and pharmacy middlemen called PBMs. That will not happen under the Colorado Option. Second, insurance companies themselves, who remain an extremely profitable industry, with net profit margin higher than before the introduction of the ACA (3.4% in 2018 and rising) on vastly increased revenues (thanks in part to all of those new ACA customers). So clearly shaving another 5% off the amount of premiums they are allowed to keep isn’t going to hurt anyone. Finally and most importantly, a big part of this is hospitals. Denver-area hospitals made a record $2 billion in profit (yes profit, not revenue) and prices overall in the state grew 70% between 2009 and 2018. In the state, hospitals are now profiting (again, profiting) at $1,518 per patient in 2018. That number was $538 in 2009. A 280% increase in pure profit. Coloradans have lost billions of dollars just so these hospitals can make more money, mainly through charging non-Medicare and Medicaid patients far more than they need to offset any potential losses. We have the second highest hospital profits in the entire country, the fourth-highest administrative expenses (non-medical care—you don’t profit on salaries but you can compensate your executives highly, like over $5 million a year for the CEO for instance), and the second-most hospital construction in the country, despite the fact that we are one of the healthiest states in the nation. And this is an industry dominated by “non-profits” (over ¾ of the hospitals in the state) who aren’t supposed to care about making a profit at all. These non-profits have cut spending on charity care by 2% according to the latest tax data available while instead money is plowed into unnecessary construction (our occupancy rate is below average for the country and dropping) and stockpiling of “reserves”. All of that extra cost gets passed on to us through insurance premiums. Probably the most controversial part of this bill will be the rate setting for hospitals, which of course face similar issues with Medicaid and Medicare but have more flexibility to opt-out of providing some of that care. The break-even point for most hospitals is believed to be at about 143% of Medicare rates, so we are already starting above that in order to provide some cushion. Then of course we want to not have a one size-fits all rate but target hospitals in specific circumstances (including having more of those low fee Medicare and Medicaid patients) for higher reimbursement rates. No one wants to run hospitals out of business or put added stress on hospitals that are already struggling (thus the ability to also have a complete exemption from these rates). We just want to reign in one of the worst systems in the entire country when it comes to cost. So yes, the state sets reimbursement rates and those rates may in fact drive other insurance plans offered in the state to negotiate their own rates from a place of power, rather than their current place of weakness in the face of the monopolistic structure of our hospital system (where there has also been a lot of consolidation of ownership). That is in fact the entire point. We do not need the most profitable hospital industry in the nation. The design of the bill may actually also raise reimbursement for some hospitals who are not part of a big system, critical care locations, and efficiently serving high numbers of Medicare and Medicaid patients (the media has already found 10 hospitals, all rural, that they believe will actually see rate increases under this bill). Because all of those adjustments to the rates are additive, you can easily blow past 100% if you hit multiple categories. And those are precisely the hospitals that are currently struggling and the ones we want to reward. The bill also protects against two main areas of concern with a state-backed plan: that insurers will simply shift costs to non-Colorado Option plans and that those on subsidies will be negatively affected. For the first, the commissioner of insurance can deny any rate change that is a cost shift (all plans must be approved by the commissioner to appear on the marketplace right now). As for the alternative total cost of care model proposed in arguments against, this is a model that fails to acknowledge that our current spending is wildly out-of-control and instead locks that spending level in and just tries to “limit” future growth. Massachusetts may believe they have saved money by using this plan compared to nothing at all, but insurance premiums and out-of-pocket expenses have grown there by more than their targeted maximum growth figure (which was 3.8%, well above inflation). So it may be somewhat helping but it by no means gets a full handle on the problem. The final point is the concern over insurers fleeing the state entirely. This gets parts of the equation here wrong. Insurers are going to love the reimbursement rates set on hospitals (who also aren’t going anywhere) and are going to love the bargaining power this option gives them when it comes to their own plans. They may not be so pleased with being forced to serve some markets and being forced to give up another 5% of their premium revenue, but profits remain profits. And the insurance industry can still easily be profitable under this bill, as can hospitals.

Arguments Against:

Getting costs down by getting more free market innovation into the space is the right way to go, not more government involvement. There is a reason why there are few insurers who want to provide coverage in these counties and that is because of the high cost of delivering health care in these areas. Thanks to the Affordable Care Act, these insurers cannot offer lower cost plans that do not cover as much, so everyone is stuck with high priced plans. We need to get government out of the way, not more deeply involved as this bill envisions. In essence, this bill gives an enormous amount of power to unelected government officials to basically set the health care market for the entire state. The commissioner of insurance gets to create this plan and its requirements, tell hospitals exactly what they are allowed to charge for services, and tell insurers where they must offer plans as well as denying rate increases in other areas. This is government intervention on steroids. For hospitals, there is a lot to unpack here. First, the profit numbers include profits from investment income (reserve funds, which no one denies a hospital should have, don’t just sit in a bank account), and the profits due to just patient care drop the profit margin from 10% to 4%. And of course we need new construction, we are one of the fastest growing states in the country. We might be somewhat under-capacity right now, but we know more people are coming. And when it comes to cost, the fact that no one like to talk about is that health care innovation is incredibly expensive. All of the work that goes into creating new drugs and new equipment and new procedures that benefit us all must be paid for. And hospitals frequently have to make significant capital investments in that new equipment just to keep up. But yes, there probably is extra cost here that could be addressed. But instead of government pricing controls, we should look to the model used in Massachusetts and Oregon (hardly bastions of conservative thought). This is a total cost of care model that sets a desired target for how much health care spending can grow and then work with hospitals that do not meet the target (including public hearings and a formal improvement plan). Massachusetts believes it has saved billions with this program and we can do the same here in Colorado by working with the hospital industry, not in conflict with it. And that truly is the bottom line here, a collaborative approach with all elements of this industry to foster innovation and competition by removing government oversight. Then consumers can pick options that work best for them, which in a free market drives money to the best operators in the industry, including those with the best costs. Because this plan runs the risk of insurers and hospital providers deciding they don’t want to participate in Colorado at all. The commissioner of insurance or state government cannot force them. So instead of creating more options and lower costs, we could end up with fewer options as these companies flee the state entirely.