Colorado first state to launch public option via federal waiver

Published June 24, 2022 - HR Dive
Rebecca Pifer, Reporter

Dive Brief:

• Colorado has received Biden administration approval to create a public insurance option, with the goal of saving money and providing more affordable insurance as more generous COVID-19 insurance benefits in the Affordable Care Act exchanges are set to expire, expected sometime later this year.
• Via a federal waiver granted by the CMS on Thursday,，olorado can use federal funds to set up a government-run health plan, a long-held progressive healthcare goal that began picking up steam during the 2020 presidential campaign, backed by President Joe Biden.
• Colorado is the first state to get a Section 1332 innovation waiver to create a public option plan, called the “Colorado Option,” that will be offered on the state’s ACA exchange starting in 2023. Colorado projects 32,000 residents could gain coverage through the option by 2027, when the waiver is scheduled to expire.

Dive Insight:

Democratic policymakers sought to weave a public option into the ACA passed more than a decade ago, but the plan was nixed from the sweeping healthcare legislation’s final iteration. Biden campaigned in part on enacting a public option, but the idea quickly fizzled in a gridlocked Washington and concerns about reimbursement cuts to providers.

Now, states are taking the lead on the policy, with states including Oregon, Vermont and Connecticut weighing a public option for residents. Nevada plans to contract with managed care organizations to offer a public option in 2026.

"We encourage all states to consider innovative ways to use section 1332 waivers in the future to expand and improve coverage and lower costs for their residents," CMS Administrator Chiquita Brooks-LaSure said in a statement Thursday.

Washington is the only state that has previously enacted a public option health insurance program, in 2019. The state did not request a CMS waiver for the program, which faced opposition from insurance companies that didn’t want to contract with the state and substandard hospital participation due to low payments.

However, Washington’s program has grown: More residents chose plans in the state’s Cascade Care option in 2022 than 2021, when the program swelled to almost a third of exchange plan customers, according to data from the Washington Health Benefit Exchange.

Unlike Washington, Colorado is requiring private payers who offer coverage on the state’s Affordable Care Act exchange to also offer a public option in the individual and small-group markets,［aking Colorado Option more available for a broader swath of consumers. Plans will also need to meet network adequacy requirements.

Though insurance trade group AHIP was skeptical of the waiver’s structure in a November comment letter on the plan, the Colorado Hospital Association said it was neutral on the proposal last April.

The plan will compete with private plans with premiums that are on average 22.3% lower, or $132 cheaper per person a month, CMS said. It’s projected to save the federal government $214 million in spending on premium tax credit subsidies in 2023 alone, and $1.6 billion over the five-year waiver period.

Colorado also plans to expand a subsidy program for people who aren’t eligible for ACA subsidies.

Colorado’s legislature passed a bill allowing the state to create a public option in spring 2021. The state applied for the innovation waiver in November.