Washington state formally approved the public option this week, becoming the first state to test a policy that numerous Democratic presidential candidates — including the state’s governor — will tout on the campaign trail.
But the state’s work on the idea is just beginning, and it’s facing a major time crunch to get the plans launched by the legislation’s 2021 start date. State officials must wrestle with key questions about how to design the public plan to make it affordable enough to attract new customers, while ensuring enough hospitals and doctors will join its network.
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Here are some unresolved issues state officials will have to confront in the months ahead:
Who can buy the plans and will they be affordable?
The new option will be sold through the state’s exchange starting fall 2020 and is targeted at people in the individual market who aren’t covered by workplace or other government health plans.
The Washington State Health Care Authority will contract with private health insurers to offer standardized health plans meant to be simpler for customers to use. They will compete directly with private insurers on the exchange, making the state’s approach distinct from other public option proposals that would let people buy into Medicare or Medicaid.
Gov. Jay Inslee’s administration estimates that premiums in the public plan will be 5 to 10 percent lower than current offerings, but the legislation doesn’t fund additional subsidies beyond Obamacare’s. That raises questions about whether the public plan will help middle-income people who haven’t already received ACA tax credits, which are limited to those earning up to 400 percent of the federal poverty level.
About a third of the 195,000 enrollees on the Washington exchange aren’t receiving premium subsidies, according to state data.
“I do admit that we cannot be precise here,” Jason McGill, Inslee’s senior policy adviser on health issues, said about premiums. “It’s hard to precisely predict.”
The legislation directs state officials to devise a plan by November 2020 to subsidize individuals who earn up to 500 percent of the federal poverty level — roughly $62,500 for an individual and $129,000 for a family of four. However, there’s no plan yet for funding the subsidies or an estimate of what they would cost.
Washington exchange shoppers on average would pay $551 per month for coverage this year if they didn’t have a subsidy, almost double the $286 premium that subsidized enrollees pay.
Will providers really be paid less than private insurance?
Inslee initially pushed for the public plan to pay hospitals and doctors no higher than Medicare rates, which are markedly lower than what private insurance pays. But the reimbursement levels kept creeping up during legislative negotiations. The final bill caps reimbursement at 160 percent of Medicare levels, and primary care providers must be paid at least 135 percent of Medicare. Drug benefits are also not subject to those limits.
Importantly, the legislation includes a few ways for providers to escape the spending caps — for instance, if they can’t build an adequate network under that pricing. That could drive up the public plan’s cost and ultimately make the option less competitive.
“The public option is going to have challenges building a network with those rates because there is no requirement or pressure for providers to participate,” said Billy Wynne, founder and CEO of the Wynne Health Group, a health care consulting firm.
McGill acknowledged that the governor’s office is sensitive to providers’ concerns. But he said the cap on public option payments isn’t far off from what insurers are now paying, so there’s less of a worry that providers wouldn’t participate. State claims data shows that individual market plans on average are reimbursing Washington state providers at 175 percent of Medicare rates, McGill said.
“This is a fair rate,” McGill said.
However, the state “clearly did not get the kind of concessions they wanted on pricing but it’s a step in the right direction,” said Trish Riley, executive director of the National Academy for State Health Policy.
Will the industry play ball?
There’s nothing in the legislation requiring providers to participate in the public option plan, although the state hints that it might eventually go in that direction.
For insurers, there are a lot of unknowns about how the new plans will be designed. Critically, issues such as cost-sharing for certain services have not yet been addressed. The copayments for certain health care services will go a long way in determining how insurers price their plans and how they negotiate with providers.
Providers are also waiting to see what kind of benefit design the state mandates. The rate may not be as high as many would like, but if the cost of health insurance comes down, hospitals could see fewer uninsured patients, reducing losses from bad debt and charity care.
“We all know that Medicare does not pay costs, but the critical equation for hospitals comes when looking at [their] payer mix,” said Chelene Whiteaker, senior vice president of government affairs at the Washington State Hospital Association. “I think it’s too early to speculate.”
Will there be unintended consequences?
Hospitals say government insurance like Medicare and Medicaid typically doesn’t pay enough to meet their costs, so they charge commercial insurers substantially higher rates to make up the difference. If hospitals take a lower rate on the individual market, could they try to hold out for higher rates in the small or large group markets?
Meg Jones, executive director of the Association of Washington Healthcare Plans, said that’s one of the things her group is watching as the public option takes shape.
What other states are eyeing this as a model?
Efforts to enact a similar government-run plan have mostly stalled in other blue states this year, but the issue is likely to resurface soon. Democrats in New Mexico will study a Medicaid buy-in this year, and Colorado approved a public option study bill this year. Connecticut, Illinois and Nevada have all pitched some version of the idea.
Washington state’s experience with the public option could influence how other efforts take shape around the country.
“Gov. Inslee’s trying to thread the needle,” said Riley of NASHP. “This is an important step.”