Washington Becomes First State to Create Public Option Health Insurance

Authors:Sara B. Richman, Barak A. Bassman and Tracy Rhodes

5/15/2019 - Pepper Hamilton LLP

On May 13, 2019, Washington Gov. Jay Inslee signed Senate Bill 5526 into law, creating the first public option health insurance product for the individual market in the United States. The public option—a public plan offered in direct competition with private health insurance products—was a hotly debated topic during the drafting of the Affordable Care Act (ACA), which ultimately did not include such a provision. Recently, some states have attempted to implement public option legislation, but so far, Washington has been the only state to do so.

Washington’s law creates a hybrid system, known as Cascade Care, in which private insurance carriers will offer three levels of state-defined plans. Under this hybrid model, the state will define the plans’ terms but will not provide the plans itself; rather, it will hire private insurance carriers to administer the plans, including enrolling patients and paying out claims. Washington Sen. David Frockt, the bill’s sponsor, described the hybrid system as a compromise, stating, “What’s important about this plan is that the government is coming in and taking a more aggressive role in regulating the cost drivers of health care.”

The state-defined plans will be designed to reduce deductibles and limit increases in premium rates, among other things. They will cap payments to hospitals and health care providers at 160 percent of federal Medicare fee for service rates. With this cap, proponents estimate that these plans will be 5 to 10 percent less expensive than private insurance. However, proponents also acknowledge that rate caps risk creating coverage gaps in rural areas, as providers are not required to participate in the public option plans. The plans will be available on the state’s Health Benefit Exchange by 2021, and will be available to all residents, regardless of income.

The Washington law was passed as a safeguard against rising prices and to increase the availability of health coverage in the state, where some counties have only a single insurance option available on the exchange.

The law also follows uncertainty surrounding the ACA and the Trump Administration’s increasing hostility toward it. In December 2018, a federal district court declared the ACA unconstitutional under the Commerce Clause, in Texas v. United States, No. 4:18-cv-00167 (N.D. Tex.). On appeal before the Fifth Circuit, the Department of Justice has taken the position that the ACA is unconstitutional.

Twelve states have proposed public option plan or Medicaid buy-ins,¹ but Washington is the first to pass such legislation. Washington’s hybrid system differs from other public option proposals, which have mostly tried to expand eligibility for existing public programs like Medicaid. The Washington law also provides a higher payout to providers than some other proposals, which would limit reimbursement to Medicaid or Medicare rates.

Endnotes

Sara B. Richman and Barak A. Bassman are partners in Pepper Hamilton’s Health Sciences Department, a team of 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients throughout the health sciences spectrum. Tracy Rhodes is an associate in the Health Sciences Department.