Jan, 07, 2021

The State of Play: Public Option at the Federal and State Level and What to Expect in 2021

Patricia Boozang and Kyla Ellis, Manatt Health

In the ten years since the passage of the Affordable Care Act (ACA), 18 million Americans have gained new access to health insurance.[1] However, in 2019, over 26 million Americans remained uninsured[2]–and communities of color are still more likely to be uninsured compared to Whites.[3] Coverage affordability remains a significant concern and barrier to access for both the insured and uninsured.

Faced with significant premium fluctuation and the risk of “bare counties”—counties with no subsidized ACA Marketplace plan—many policy stakeholders have turned to the public option as a potential tool to promote stability and affordability in the individual insurance market. A public option is typically defined as a new coverage option that leverages 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,[4] candidates for public office and elected officials across the country have backed a public option as a coverage affordability solution. Efforts to promote a public option at the federal level were bolstered by President-elect Joe Biden’s support for a federal plan—based on the Medicare program and offered on the ACA Marketplace—during the 2020 presidential campaign. President-elect Biden also articulated a strong interest in strengthening the ACA through expanded subsidy eligibility, increasing the generosity of ACA federal tax credits and subsidies, and promoting higher value (Gold-level) plans.

The 2020 election and transition to a new federal administration marks a pivotal point for state policymakers with interest in fostering new coverage options. An incoming Biden Administration’s support for state innovation will create new state-based coverage opportunities, even as major federal legislation is unlikely under a divided Congress.

Implementing a federal public option would require a significant legislative effort. Even though Democrats picked up both Georgia seats from the January 5, 2021 run off elections to tie the Senate 50-50 (with Vice President-elect Kamala Harris serving as a tiebreaking vote), a slim margin will prevent significant healthcare reform legislation without the full support of the Democratic caucus or bipartisan support from some Senate Republicans. While not impossible, the size and scope of a federal public option initiative is unlikely to pass in the Senate.

As a result, policy activity on public option will continue to be concentrated at the state level. Without a federal public option, states will continue to consider whether a public option is an effective tool for meeting their coverage goals. State public option programs are evolving and encompass a range of models that can be tailored to meet specific state policy needs. The spectrum of models includes 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

Beginning in the 2021 open enrollment period, residents of Washington State have the option to enroll in “Cascade Care,” the nation’s first state public option plan. Under the initiative, passed in 2019, 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 plans, dubbed Cascade Care, will be offered in 19 of 39 counties in the first year. In an effort to increase affordability, Cascade Care 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 simultaneously introduced standardized plan designs in the Marketplace with higher value Silver and Gold metal tiers. Standardized plans are typically priced slightly higher than non-standard plans because they must provide more services with reduced cost-sharing.

Originally, Cascade Care plans were projected to decrease premiums by 5-10 percent. Finalized premiums for standardized Cascade Care public option plans are, on average, slightly more expensive ($392-$490) than non-standardized plans ($376-$500).[5] In all but one county, public option plans have lower premiums than non-public option standardized plan offerings.[6] These premiums have been closely watched as a bellwether for the potential impact of reimbursement changes on premiums. However, the specific impact of the rate-setting is hard to delineate due to the simultaneous introduction of standardized plans. Further, the results of first-year provider rate negotiations will be verified using claims data, so the final aggregate reimbursement rates are currently unknown.

The state has initiated a campaign to explain the new plan structure and encourage Washingtonians to enroll in the new state-sponsored plans. Final enrollment figures, when released, will offer other states valuable insights for structuring their future programs.[7]

Other States Continue to Explore Potential Public Option Initiatives

While Washington is the only state to execute a public option, a number of other states have considered public options through state studies and/or attempts to pass implementing legislation. The range of program designs reflect state-specific policy objective and political dynamics.

Colorado   In March 2020, after studying potential public option models, lawmakers in Colorado introduced legislation to implement the Colorado Health Care Option. Under the proposal, state-sponsored health insurance plans would be offered as QHPs on the state Marketplace, Connect for Health Colorado. The legislation went further than Washington’s Cascade Care by requiring all carriers that offer plans in the individual market to participate in the Colorado option plan in the same counties as current offerings, and requiring all Colorado hospitals to participate in the program, with a financial penalty and/or license suspension for noncompliance. The state also set provider reimbursement rates for hospital inpatient and outpatient hospital services based on a published methodology that recommended a base rate of 155% of Medicare rates for plan years 2022 and 2023. The base rate would be adjusted for individual hospitals based on hospital type, payer mix, and how efficiently they deliver care. These rates were estimated to reduce premiums by 7%-20%. The bill indicated that should the state seek federal pass-through funding from a Section 1332 waiver, at least 80% of the federal pass-through funding received should be used to increase affordability for unsubsidized individuals and families.[8] The legislation was expected to attract significant attention from state and national provider groups concerned about rate setting and participation requirements, including public campaigns against the bill. However, the legislation did not proceed during the 2020 legislative session due to the COVID-19 pandemic. Lawmakers are expected to reintroduce a public option plan during the 2021 session.
Oregon In December 2020, Manatt Health, on behalf of the Oregon Health Authority, released the results of a legislatively-required study that considers a plan for a “Medicaid Buy-in program or public option” in Oregon. The study evaluates three proposed delivery models—a coordinated care organization (CCO)-led model, in which the state utilizes the existing Medicaid network, a carrier-led model, and a state-led model in partnership with a third-party administrator, in which the state holds the plan risk as the insurer and uses a third-party administrator  for processing claims and plan implementation. The study also includes an analysis of a CCO-led model targeted to the undocumented and family glitch populations with state subsidies to ensure affordability. The study will be used to inform policy decisions during the 2021 legislative session.
Nevada   Nevada’s state legislature was the first to pass a Medicaid buy-in proposal in 2017; however, then-Governor Brian Sandoval (R) vetoed the bill, citing the need for further study. During the 2019 legislative session, the Nevada legislature enacted Senate Concurrent Resolution No. 10 to study the feasibility, viability, and design of a “public healthcare insurance plan” before the 2021 legislative session. The law specifies that the study will explore the feasibility of offering a public option health plan allowing all residents to participate in the Public Employees’ Benefits Program. The study was released in January 2021 for legislative consideration during the 2021 session.
Connecticut In 2019 and 2020, Connecticut lawmakers attempted to pass a bill that would allow individuals and small businesses to enroll in the state employee health insurance plan. The 2019 bill failed after significant opposition from insurance carriers, many of which are headquartered in the state. Another bill, which would have allowed the state to contract with carriers to provide QHP coverage in the state-based Marketplace, was also unsuccessful in 2019 and was abandoned in committee during the 2020 session due to the COVID-19 pandemic. In November, Democratic state lawmakers and the State Comptroller announced plans to introduce a new public option bill in the next session.

Looking Ahead

States will likely continue to consider public option implementation as a potential tool to ensure coverage across geographies and improve affordability through increased competition and cost-containment. A key unanswered question is whether a state public option can increase affordability enough to compel the uninsured or underinsured to buy and use the product without further subsidies.

A critical challenge for the progression of state-based public options will be increasingly strained state budget environments due to the COVID-19 induced recession. While some public option models may be budget neutral (such as a public-private partnership using carriers on the Marketplace), others may require state investment to implement and ensure affordability.

Given the state budget constraints and a new federal administration to partner with, states may seek 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.[9] To date, public option proposals have been crafted without relying on potential flexibilities and funding available through a Section 1332 waiver, in light of the likelihood that the Trump Administration would not approve 1332 waivers to implement a public option.

The Biden Administration’s interpretation of the Section 1332 waiver guardrails and interest and capacity in negotiating these 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 flexibility that includes federal financial support.[10] However, 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.

Additionally, any effort at the federal level to pass bipartisan legislation that strengthens the ACA—like enhancements to the federal tax credit and subsidy structure—will impact state policy on public option. For example, changing the federal benchmark to Gold-level QHPs would reduce pressure on states to promote the use of higher-value plans and provide state subsidies to reduce consumer out-of-pocket costs. Instead, state funding and political capital for those initiatives could be redirected to other state programs, like providing coverage to the undocumented, who are ineligible for federal support.

States will continue to play an important role as the laboratories for healthcare reform. In 2021, states will likely continue to evaluate whether the public option is the most effective policy lever to foster competition, address consumer affordability, and promote cost-containment. Meanwhile, state policymakers will be watching for federal policy interventions, either administratively or legislatively, that could impact the state coverage affordability landscape.

[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] 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.

[5] 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.

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

[7] As of December 16, 30,000 new customers had enrolled in 2021 coverage during open enrollment (of 210,000 total enrollees), and 41% chose standardized Cascade Care plans.

[8] The state later passed a state subsidies program as part of a new state-based health insurance and hospital assessment.

[9] 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.

[10] In the 2022 Notice of Benefit and Payment Parameters proposed rule, HHS proposes to codify the Trump Administration interpretation into regulation; if finalized, future changes would be required to go through the rulemaking process.