President Joe Biden has not yet delivered on his campaign promise to create a national public health insurance option, but three states have moved forward with plans of their own.
Colorado and Nevada this year passed public option plans—government-run health insurance plans—that are set to launch in 2023 and 2026, respectively. They join Washington state, which enacted its law in 2019 and went live with its public option in January.
Proponents hope a more affordable alternative will attract residents without health insurance.
“What we’ve seen is that when people can afford health insurance they get insured and get access to health care they wouldn’t otherwise have access to,” said Nevada Senate Majority Leader Nicole Cannizzaro, a Democrat who sponsored her state’s bill.
Republican state Sen. Joe Hardy countered that proponents haven’t proven that they can design a financially feasible public option. Hardy said he doesn’t expect that to change in the four years the law gives Nevada to devise a plan.
“This is the classic ‘Knock-knock, who’s there? I’m from the government and I want to help you,’” Hardy said. “It would be just another government program soaking up money for the bureaucracy.”
Whether Cannizzaro’s proposition will prove true—that people will choose the public option or that it will be cheaper than commercial plans—is up in the air.
The early results from Washington state’s experiment are disappointing. In many parts of the state, premiums for the public option plans cost more than premiums for comparable commercial plans.
Many of the state’s hospitals have refused to take part in the public option, prompting lawmakers to introduce more legislation this year to force participation if there aren’t sufficient health insurance options in a geographic area. And consumer buy-in is also meager. In its first year of operation, the state health insurance exchange sold only 1,443 public option plans, representing fewer than 1% of all exchange policies.
Michael Marchand, chief marketing officer for the Washington Health Benefit Exchange, the state’s health insurance marketplace, said it’s premature to judge the program by its first year.
During the earlier years of Obamacare, the premiums for many commercial plans were high, he pointed out. Eventually, as insurers became more knowledgeable about the markets, prices dropped, he said.
“I knew one year wasn’t going to necessarily tell the whole narrative of how this plays out,” he said. “We’re going to have to wait a few years.”
Many commercial insurers and medical providers say that may be wishful thinking and doubt the viability of the Colorado and Nevada plans. They also warn that public options, predicated on lower payments to hospitals and doctors, could ultimately limit health care access.
The health insurance industry lobbied against public option plans in the three states.
“The concern is that with government-negotiated rates in a public option, that those plans would become so popular and would be lower-priced so that they would price the private market out of business and drive us toward a single-payer system in the longer term, in the next 10 to 15 years,” said Marcy Buckner, senior vice president of government affairs for the National Association of Health Underwriters.
The group argues that the focus should instead be on strengthening the Affordable Care Act, which has reduced the number of Americans without health insurance since its implementation in 2014.
State lawmakers have continued to consider public option plans to further drive up enrollment in health insurance. Legislators in Connecticut, Maine, New Jersey, New Mexico and Oregon all either filed bills or conducted studies on public option plans in the past three years. National polls show strong support for a public option.
Despite progress made under the Affordable Care Act, an annual survey conducted by the U.S. Census Bureau found that 9.2% of the population, nearly 30 million Americans, remained without health insurance in 2019.
In the two rural counties that Colorado state Rep. Dylan Roberts represents, the uninsured rate is nearly double the national one. In many years, he said, only one carrier sold plans in each of his counties, and the premiums are beyond the means of many of his constituents.
“There was a lack of competition in my region, and the rates kept rising because there was nothing to keep them in check,” said Roberts, a Democrat.
He began pushing for a public option soon after winning his seat in 2018.
By its strictest definition, a public option plan is one the government creates and administers to compete with commercial plans.
Neither Washington state’s plan nor those adopted by Colorado or Nevada precisely fit that definition. Instead, they all involve public/private partnerships in which commercial carriers administer health plans that operate under state rules.
Each state’s public option plan has its own wrinkles.
Both the Colorado and Nevada laws establish limits on premium costs. For example, in Nevada, premiums will initially be set 5% lower than a “benchmark” commercial plan sold on the exchange in the same region. Eventually, the law requires that the public option premium be set 15% lower than the benchmark plan.
Colorado mandates that carriers offering public option plans in 2023 set premiums 6% lower than plans they sold in 2021. By 2025, they’ll have to be 18% lower.
Washington state did not establish mandatory premium levels, and premiums in public option plans in many parts of the state in the first year are higher than comparable commercial plans. In many cases, Marchand said, patient costs could be lower in the public option plans because of lower copayments and deductibles.
To achieve savings, all the public option plans would pay providers less than commercial insurers do. Washington state set the provider reimbursement rate at 160% of what Medicare pays. (According to the Kaiser Family Foundation, private insurers pay nearly twice as much for hospital services as Medicare does.)
Nevada’s law sets Medicare payment rates as the floor for reimbursement, with the actual rate determined in negotiations. Colorado’s law says the reimbursement rate must be at least 155% of the Medicare rate, but if insurers fail to meet the premium reductions in the public option plans, the state’s insurance commissioner can step in to set the reimbursement rate.
Those lower reimbursement rates concern hospital and physician organizations.
Chelene Whiteaker, senior vice president for government affairs at the Washington Hospital Association, said hospital finances depend on higher commercial insurance reimbursement rates to compensate for low Medicare and Medicaid rates. The public option, if Washington consumers flock to it, could weaken hospitals’ financial sustainability, she said.
“When that equation gets unbalanced, we can’t make a go of it and have to look at closing hospitals or mergers or reducing our services,” she said.
While the Colorado Medical Society, which represents physicians, was neutral on the bill that ultimately passed, its CEO said that the burden of making the plan work falls on medical providers.
“What this bill doesn’t do at all is address the total cost of care and the main drivers at keeping everything so expensive in health care, like inefficiencies, monopolies, pharmaceuticals and a million other things,” said Bryan Campbell, CEO of the Colorado Medical Society.
Colorado state Sen. Jim Smallwood, a Republican, described his state’s public option as "an arbitrary rate-cutting bill on doctors and hospitals. Basically, it imposes the insurance commissioner’s will on setting prices for doctors and hospitals.”
Medical providers in Colorado staved off a provision that would have forced them to participate in the public option. But in Nevada, a condition of the law for participating in the state’s Medicaid program and state employee health plan is that doctors and hospitals must treat public option enrollees.
“Policing something like that will be an incredibly administratively heavy burden,” said Heather Korbulic, executive director of the Silver State Health Insurance Exchange.
Nina Owcharenko Schaefer, a senior research fellow in health at the conservative Heritage Foundation think tank, said state public option laws are a tacit acknowledgement of the weakness of the Affordable Care Act, which established the health benefit exchanges and expanded Medicaid. The state actions may end up conflicting with the plans of congressional Democrats, including the possibility of a federal public option plan, she argued.
“If Washington is doing one thing and states are doing something else, they don’t fit together in the long term,” she said. “What’s Washington [state] going to do if Congress passes its own public option?”
She and other critics also pointed out that Biden’s American Rescue Plan temporarily boosted federal tax credits to help consumers afford to purchase policies on the health insurance exchanges. Democrats hope to make that additional funding permanent. If so, Schaefer asks, why would states need a public option?
One reason, according to Nevada’s Cannizzaro, is that because Nevadans would be using less of the federal tax credits available to help poorer Americans purchase commercial plans, the state could draw down some federal money as a reward. Nevada could use that for money for other health-related purposes, such as helping immigrants without legal status get access to tax credits.
“We can’t sit and wait here in Nevada for another several years,” she said. “We have this uninsured population, and we don’t have time to sit and wait to see if the federal government is going to do something more long term.”