Jul, 09, 2021

The State of Play: A Mid-Year Update on the Public Option at the Federal and State Level

Patricia Boozang, Joel Ario and Amy Zhan, Manatt Health 

In the ten years since the passage of the Affordable Care Act (ACA), 18 million Americans have gained access to health insurance.[1] However, in 2019, over 26 million Americans remained uninsured[2]— and people who are Black, indigenous, or people of color (BIPOC) are still more likely to be uninsured compared to white Americans.[3] Coverage affordability remains a significant concern and barrier to access for both insured and uninsured people in the United States.

The 2020 election and transition to a new federal administration marked a pivotal point for state policymakers with an interest in the public option. At the federal level, President Biden’s health reform platform included support for a federal public option based on the Medicare program and offered on the ACA Marketplaces. Since the election, the administration and Congressional leaders have continued to seek input on what a federal public option might look like but the Democrats slim margin in the Senate may well limit the potential for action. At the same time, President Biden and Congress are pursuing other health reform priorities through the reconciliation process, including a two-year expansion of premium subsidies in the American Rescue Plan[4] and ongoing efforts to make those new premium subsidies permanent.

At the state level, Washington implemented the nation’s first public option for the 2021 plan year and in the first six months of 2021, states made significant progress in advancing public option proposals, with public option legislation advancing in Colorado, Nevada, Oregon, and Washington. While progress is incremental, with some state laws reflecting long implementation timelines and additional studies, the legislative results suggest that the public option will continue to be an important health reform initiative at the state level. And, as discussed below, the administration could play a decisive role in how public options develop at the state level through its approach to Section 1332 innovation waivers.

What is the Public Option? 

 A “public option” typically refers to a new coverage option that leverages government (either state or federal government) bargaining power to offer a more affordable coverage plan for consumers. Since 2017, nearly a dozen states have considered or passed legislation to study or implement a state-based public option program. In response to strong support from the American public,[5] candidates for public office and elected officials across the country have backed a public option as a coverage affordability solution at both the state and federal levels.

Absent a federal public option in the near term, states will continue to consider whether a state-based public option is an effective tool for meeting their coverage and affordability goals. State public option programs are evolving and encompass a range of models that can be tailored to meet state policy needs. The spectrum of models includes, for example, state-contracted public-private partnerships, a state-sponsored health insurance product administered through a third-party, or offering currently ineligible individuals the opportunity to buy into an existing public program (e.g., a Medicaid-lookalike program or the state employee health plan). Evaluation of these models will be unique to each state, and anchored in the problem the state is trying to solve and for which populations (e.g., the uninsured, the underinsured, or the unsubsidized.)

Washington Implements the First State Public Option for 2021 and Strengthens Law with New Legislation

Washington State residents had the option to enroll in the nation’s first state public option plan for 2021. Under the initiative, passed in 2019,[6] the Washington Health Care Authority (HCA) contracted with five health insurance carriers to provide bronze, silver, and gold-level qualified health plans (QHPs) in the state-based Marketplace. These public option plans had a standardized plan design and were offered in 19 of 39 counties in the first year. Standardized plans are typically priced slightly higher than non-standard plans because they must provide more services with reduced cost-sharing. To increase affordability, public option plans are subject to an aggregate provider reimbursement cap of 160 percent of Medicare rates for all medical services (except pharmaceuticals)—with reimbursement floors for primary care providers and critical access hospitals. The initiative also simultaneously introduced other standardized plan designs in the Marketplace with higher value silver and gold metal tiers, which were offered alongside the public option during the state’s 2021 open enrollment period (OEP).[7]

Public option plans were projected to decrease premiums and they were less expensive than other standardized plan offerings in all but one county.[8] However, first year premiums for public option plans are, on average, slightly more expensive ($392-$490 per member per month) than non-standardized plans ($376-$500 per member per month).[9]  These premiums have been closely watched as a bellwether for the potential impact of reimbursement changes on premiums. However, the specific impact of public option rate-setting is hard to delineate due to the simultaneous introduction of other standardized plans to the market, and results of first-year provider rate negotiations will be verified using claims data, with the final aggregate reimbursement rates still to be determined. Additionally, while standardized plan premiums were slightly higher than non-standardized plan offerings, it is notable that deductibles for standardized plans are, on average, $1,000 below non-standard plan deductibles in the same metal tier, and standardized plan enrollees were twice as likely to select a gold-level plan compared to non-standardized plan enrollees.[10]  

Final enrollment figures for the 2021 OEP show that 222,000 total enrollees signed up for coverage, and 15 percent of all enrollees, or approximately 35,000 individuals, signed up for a standardized health plan, 1,900 of which enrolled in a public option plan. The state has initiated a campaign to explain the new plan structure and will continue to encourage Washingtonians to enroll in the new state-sponsored plans, with new limitations on non-standardized plan offerings to limit consumer confusion. 

This year, Washington’s legislature enacted new legislation,[11] which strengthens the public option by:

  • Adding state-financed premium and cost-sharing subsidies for certain individuals purchasing standardized silver or gold plans,[12]
  • Requiring certain hospitals that participate in other public programs to participate in at least one public option plan in counties without a public option plan,
  • Giving state regulators authority to issue fines and take other actions to enforce the hospital tie-in requirement,
  • Limiting carriers’ non-standardized plan offerings, and
  • Authorizing state officials to seek pass-through funding through a Section 1332 waiver.

Nevada Becomes Second State to Enact a Public Option

In June 2021, Nevada became the second state to enact a law establishing a public option, directing the state’s Department of Health and Human Services, in consultation with the Executive Director of the Exchange and the Commissioner of Insurance, to contract with Medicaid managed care organizations (MCOs) and/or commercial health insurers to provide a Marketplace public option plan beginning in 2026.[13] The legislation requires a competitive bidding process to solicit and select carriers for administration of the public option, with MCOs required to participate in the competitive bidding process as a condition of their participation in the state Medicaid managed care program. Participation by commercial insurers is optional.

Premiums for the public option plan must be at least five percent lower than the benchmark premium in each zip code and cannot increase by more than the Medicare Economic Index each year. Providers participating in Medicaid, the public employees’ benefits program (PEBP), and state workers’ compensation programs will be required to enroll in at least one network of providers established for the public option. Additionally, provider rates under the public option plan must be, in aggregate, “comparable to or better than” Medicare reimbursement rates. Under this legislation, the state is also required to contract with an independent actuary to conduct a study assessing the impact of the public option on existing markets before applying for a Section 1332 waiver to capture pass-through funding.

Colorado and Oregon Also Approve Public Option Initiatives

The other two states to advance public option legislation in 2021 to date are Colorado and Oregon.

The Colorado legislature passed and the Governor signed a compromise version of the public option in 2021, requiring carriers to offer a standardized health care plan and to achieve annual premium reductions of 5, 10, and 15 percent, respectively, beginning in 2023 until 2025. For 2026 and beyond, carriers would be required to limit annual premium increases at rates no greater than medical inflation. Carriers that fail to meet the premium rate requirements established in the bill would be subject to additional data reporting requirements and would be required to participate in a public hearing prior to the determination of their premium rate for the following year. The bill also directs the state to apply for a Section 1332 waiver to capture the savings associated with the implementation of the standardized plan and associated premium reductions, and directs captured federal pass-through funding to be used to increase affordability for unsubsidized individuals and families. 

The Oregon legislature approved and the Governor is expected to sign a second public option study bill in 2021 state legislative session, directing the Oregon Health Authority (OHA), in collaboration with the Department of Consumer and Business Services (DCBS), to create an implementation plan for a public health plan for individuals and families in the individual health insurance market and small employers.[14] The Authority and the Department must analyze, among other variables, the impact of the American Rescue Plan and changes to other federal programs that may improve the affordability and access to coverage, how these changes inform state policy options, the effect a public health plan may have on the state’s insurance markets, and any adverse consequences of certain public option design elements. The Authority and the Department are  further required to provide recommendations on the governance and structure of the public health plan, opportunities to leverage existing state-backed plans or networks, options for reducing costs for individuals and barriers to care, and how the plan can further state goals for healthy system transformation. The implementation plan, associated analyses, and recommendations for the structure and design of the public health plan are due to the Legislative Assembly by January 1, 2022.

Looking Ahead

With four states advancing public option initiatives in 2021, states will continue to be an active arena for exploring how state-based public option plans can serve as a tool to ensure coverage across geographies and improve affordability through increased competition and cost-containment. Each of these states illustrates in its own way how progress is likely to be incremental: Washington continues to refine its program; Nevada enacted a robust public option with an implementation timeline that extends to 2026; Colorado enacted a more measured approach to achieving targeted premium reductions compared to earlier proposals; and, Oregon approved a second public option study with more refined parameters on public option study features. Through each of these stages of program development – ongoing study, design and implementation – states will continue to test whether and how a state public option can increase coverage and health care affordability for uninsured and underinsured residents. As part of this work, it will be essential for states to determine if and how a public option advances equity in coverage, access and affordability for BIPOC, and what other reforms in addition to or instead of a public option might be needed to address health coverage and access inequities for these populations.[15]

As these public option initiatives progress, states are likely to seek partnership with the new federal administration, including assistance with development and approval of Section 1332 waivers to support public option implementation. Approval of these waivers is at the discretion of the Departments of Health and Human Services (HHS) and the Treasury, and comes with requirements that states meet waiver “guardrail” criteria at application and in implementation of the waiver program.[16] The Biden administration has shown strong support for the ACA through increased premium subsidies and enhanced enrollment support, but has not yet indicated what its approach to Section 1332 waivers will be. The administration’s interpretation of Section 1332 guardrails, as well as its interest and capacity in negotiating Section 1332 innovation waivers with states will impact the next phase of state individual market reforms. Many stakeholders are hopeful that the new administration will be receptive to innovative state programs and provide new flexibility.[17] The interpretation of the Section 1332 deficit neutrality language remains a key issue, and it is unclear how or if the administration will extend flexibility that encourages enrollment and, therefore, increases federal costs within the statutory requirements.

The Biden administration’s efforts to make the ARP premium subsidies permanent will also have a major impact on how states view and design a state-based public option. If premium subsidies are permanently expanded, states may look public option designs and other reforms that reduce cost sharing or reach targeted populations like people who are unsubsidized or small group employers and their employees. An advantage of a state-tailored public option is that it can be adapted to changing needs at the state level, instead of a “one size fits all” solution.

To date, public option proposals have been crafted without significant federal partnership or relying on potential flexibilities and funding available through a Section 1332 waiver, so the states will be breaking new ground with the Biden administration as they continue innovate as laboratories for health care reform.

 

[1] U.S. Census Bureau, American Community Survey, 2010 and 2018. These figures represent the civilian, noninstitutionalized population.

[2] US Census Bureau, Health Insurance Coverage in the United States: 2019, September 2020.

[3] Between 2010 to 2018, Blacks were 1.5 times more likely to be uninsured than Whites, the Hispanic uninsured rate was over 2.5 times higher than Whites, and American Indians and Alaska Natives rate grew to 2.9 times higher compared to Whites. For more see, Kaiser Family Foundation, Changes in Health Coverage by Race and Ethnicity since the ACA, 2010-2018, March 2020.

[4] U.S. Congress, H.R. 1319: American Rescue Plan Act of 2021, March 2020.

[5] Kaiser Family Foundation, Poll: Democrats Like Both the Public Option and Medicare-for-all, But Overall More People Support the Public Option, Including a Significant Share of Republicans, January 2020.

[6] Senate Bill 5526, State of Washington, 66th Legislature, 2019 Regular Session.

[7] Under Washington’s “Cascade Care,” standardized plans are referred to as “Cascade” plans, and public option standardized plans are referred to as “Cascade Select” plans.

[8] Non-public option standardized plans are offered, on average, between $385 and $528 per month.

[9] Premiums represented here are for Silver-level coverage and vary by geographic region. Source: Public Option Institute. Washington Certifies Plan Offerings for the 2021 Marketplace, September 2020. For more information, see the Plan Year 2021 certified rates here.

[10] Washington Healthplanfinder, Cascade Care Preview, January 2021. 

[11] Senate Bill 5377, Washington State, 67th Legislature, 2021 Regular Session

[12] For the 2021-2023 biennium, the legislature appropriates $30 million for a pilot premium assistance program for child care workers up to 300% FPL for 2020-2021, and $50 million for broader premium subsidies for those up to 250% FPL beginning in 2023.

[13] Senate Bill 420, State of Nevada, 81st Legislature, 2021.

[14] House Bill 2010, 81st Oregon Legislative Assembly, 2021 Regular Session. Oregon’s first public option study was conducted by Manatt Health in 2020.

[15] Illinois recently released a feasibility report for coverage affordability initiatives in April 2021, which found that under a public option model that assumes a 10 percent reduction in premiums for the second lower-cost silver plan, nearly 6,000 uninsured Illinoisans would gain coverage as a result, with over 85% of the additional enrollment coming from individuals with a household income over 500 percent FPL who do not qualify for Marketplace APTCs. Given the higher concentration of white individuals at higher income levels, the study noted a public option would likely benefit white individuals more than minorities.

[16] The Section 1332 statute Proposals must meet four “guardrails”: (1) The waiver must cover at least as many people as the ACA would cover without the waiver; (2) The waiver must provide “coverage and cost sharing protections against excessive out-of-pocket” spending that are at least as “affordable” as Marketplace coverage; (3) The waiver must provide coverage that is at least as “comprehensive” as coverage offered through the Marketplace; (4) The waiver must not increase the federal deficit.

[17] CMS, Patient Protection and Affordable Care Act; Updating Payment Parameters, Section 1332

Waiver Implementing Regulations, and Improving Health Insurance Markets for 2022 and

Beyond Proposed Rule, June 2021.