Lawmakers reveal first draft of Colorado Option health insurance bill

DENVER — The first draft of a bill to implement a “Colorado Option” for health insurance alongside the private market and the state-managed Affordable Care Act markets has arrived, setting up a legislative battle between hospitals and state lawmakers.

Under the bill, private insurers would offer Colorado Option plans in any county they already sell their own individual plans. The state’s insurance commissioner would also have the discretion to require insurers to offer the Colorado Option plan to the 22 Colorado counties that have only one insurer offering coverage.

In a call with reporters Thursday afternoon, state Rep. Dylan Roberts (D-Avon) called the current state of health-care affairs in Colorado a market failure that demands a system-wide shakeup.

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“This is not the time to be tinkering around the edges with small policy ideas,” he said. “This is a time to move forward with big policy ideas that will make a big difference for the people struggling to afford health care.”

State agencies predict the plan would shave an average of 10.6 percent on health insurance premiums for the average resident by 2022 compared to the projected premiums that year for a plan on the Affordable Care Act markets.

The majority of those savings were originally proposed by capping hospital reimbursement between 155 to 225 percent above Medicaid’s rates, but the bill now calls for a formula to set reimbursements on a hospital-by-hospital basis.

The formula described in the bill is as follows:

• Every hospital would begin with a reimbursement rate of 155 percent.
• Then, “critical access hospitals” and providers not a part of a larger health system would get increases of either 20 or 40 percent, depending on whether or not they are independently run. Critical access hospitals are defined by the federal government as primarily serving rural areas with emergency care.
• All hospitals with higher-than-average percentages of Medicare and Medicaid patients would get an additional 30 percent increase.
• Finally, all hospitals that are efficient in managing underlying cost of care are eligible for an additional 40 percent increase in the reimbursement rate. The bill language does not specify how exactly it would define efficiency in a hospital to the level where it would qualify.

Colorado hospitals currently charge privately insured patients an average of 269 percent of the Medicaid rate, and the state estimates hospitals would break even with a reimbursement rate as low as 143 percent.

Hospitals on average would be reimbursed at a rate of 190 percent, Kennedy said, with some rural hospitals earning reimbursements north of 200 percent.

The Colorado Department of Public Health and Environment would have the ability to fine hospitals $50,000 per day or potentially suspend and revoke licenses for hospitals that refuse to participate in the rate setting, but the bill would allow some care providers to apply for a waiver if they can prove the set rate would threaten their ability to operate.

The Colorado Hospital Association is preparing for a major fight against the bill. In October, the trade group claimed the public option could cut hospital payments by up to $1.5 billion over the first five years and disproportionately harm small rural hospitals.

In a statement, the trade group said the Option saddles the entire cost-saving burden on providers instead of other cost-drivers such as prescription drug prices and insurers and fails to address other problems like expanding coverage to uninsured residents.

In an interview, UCHealth spokesman Dan Weaver told BizWest the health system would have to find areas to trim hospital budgets if the Colorado Option was enacted, likely in reducing community programs, cutting investment in research and facilities and possibly slowing hiring or shedding employees. He also argued the policy is drastic for the state with the ninth-lowest premiums in the country.

“Cost shifting is not cost reduction, and we need to focus on cost-reduction efforts that are going to improve quality and actually help our patients be healthier and live better lives,” he said.

But state Democrats have criticized hospital profits, including Gov. Jared Polis during his State of the State address this year. Bill co-sponsor Sen. Kerry Donovan (D-Eagle County) said the bill doesn’t mean to alienate hospitals for trying to get a better bottom line, but she drew a direct line between hospital profits and rising costs of care.

“We can’t be afraid to bring attention to big profits that are impacting the overall costs of health-care,” she said.

The public option would also require insurers and pharmacy benefit managers to pass along drugmaker rebates to consumers, and would increase insurer’s medical loss ratio from 80 percent to 85 percent in large group plans.