The public option is now a reality in 3 states

By Dylan Scott

Three states have now approved public health insurance plans that will be sold on the Affordable Care Act’s insurance marketplaces alongside commercial coverage.
Karen Bleier/AFP via Getty Images

Colorado Gov. Jared Polis on Wednesday signed into law a public health care option, making it the third state in the US to approve the creation of a government-run health insurance plan to be sold alongside commercial coverage on the Affordable Care Act’s insurance marketplaces.

More than a decade ago, a federal public option was cut out of the ACA, largely because of objections by centrist Senate Democrats. Now it’s enjoying a revival of sorts. President Joe Biden campaigned on a public option in 2020, and while the chances of his proposal (or something like it) passing at the federal level have faded, Democrats in Congress are seeking input on what a federal public option should look like.

But some states aren’t waiting for Congress to act. Their public options may be more limited than what a possible federal version could be, but they are still valuable experiments that will test the concept in the real world.

Washington state first approved its public option in 2019 and made it available to consumers for enrollment in 2020. The state now has a year of experience getting the Cascade Care program up and running, and it’s already starting to tinker with the policy design. It’s also offering lessons for Colorado and Nevada (the other state to pass a public option this year, one week before Colorado).

As these states have drawn up their plans, one thing has become clear: The potential value of a public option is in keeping health care costs in check by keeping rates lower than those of private insurance plans. But it still remains to be seen whether a public option can expand health coverage to more people.

Already, more than half of the uninsured in the US are eligible for either Medicaid enrollment or ACA subsidies for private coverage. Surveys have shown that price concerns often keep them from enrolling — so if these public options can help put a check on rising health care costs, perhaps they can also have an effect on coverage. But that is an open question at this point.

“The jury is very much still out on whether the public option will expand enrollment,” Sabrina Corlette, co-director of the Center on Health Insurance Reforms at Georgetown University’s McCourt School of Public Policy, told me.

“The unifying theme of these three bills is they try to reduce health care costs for consumers by tackling provider prices,” she said of the public options in Washington, Colorado, and Nevada. “Time will tell whether they also expand coverage as a result of lowering premiums.”

With three state-level public options now out in the wild, we’re getting a clearer idea of the traits they share and how they are distinct. Even if nothing happens in Congress, the coming years will be a natural experiment in how to run a public option.

What the Washington, Colorado, and Nevada public options have in common

None of the states offer a “public” option like the one Congress contemplated in 2009, where the government sets up and administers its own health insurance plan.

“None of them are true public options in that sense,” says Katie Keith, who writes about insurance reform for Health Affairs and consulted with states as they developed public option legislation.

Instead, she compares them with public-private partnerships. States are contracting with private companies to create new insurance options to be overseen, if not run, by the government. States would face practical challenges to doing a “true” public option — namely, building up the financial reserves they’d need to pay out claims — so they’re taking another approach wherein private insurance companies will run the public option under rules set by the government.

This isn’t unprecedented: Medicare and Medicaid already rely on private companies to administer benefits for some of their enrollees.

The plans will be sold on the ACA marketplaces, alongside ACA-compliant private insurance. Only people who are eligible for ACA coverage through the individual and small-group market can sign up; these plans aren’t the kind of public option contemplated by some Democrats during the 2020 presidential campaign, which would also have allowed people who have large-group coverage to enroll.

All of these states are also trying to save money for both the government and consumers. Nevada, for example, has established very specific goals: The public option should have premiums that are 5 percent lower than a benchmark plan in the short term; over the longer term, the goal is to bring premiums down to 15 percent below comparable private plans on the market. Similarly, Colorado will require public option plans to reduce premiums by 15 percent over three years.

Importantly, all three states are pursuing waivers from the federal government. (Washington didn’t originally, as the Trump administration was categorically opposed to state-level public options, but new legislation requires the state to do so.) Those waivers would allow the states to keep any savings achieved for the federal government through lowering premiums (and therefore ACA subsidies). That money can then be used to provide more financial aid to cover people’s premiums or otherwise decrease health care costs.

But these states are deploying different strategies to achieve their savings, as well as to make sure doctors and hospitals actually accept the public option so that patients can get the medical care they need.

How these three state-level public options are different

At first glance, these state public options look very similar. But in the details, they have several important distinctions.

How much to pay health care providers is the most important issue for any health insurance plan — those prices dictate the premiums charged to customers — and these states are taking divergent approaches in their calculations.

Washington has capped provider payments at 160 percent of Medicare payment rates. Colorado has dictated that provider rates can’t be lower than 155 percent of Medicare; however, if insurers fail to achieve a 15-percent premium reduction, the state insurance commissioner has the authority to mandate lower rates. Nevada has said its public option can’t pay providers less than Medicare, but it otherwise leaves flexibility for the plan to hit its own premium-reduction targets.

One challenge in trying to set lower provider rates is that doctors and hospitals might simply choose not to accept the public option plan. That was Washington’s experience in its first year: Some hospitals refused to contract with the public plan, and since an adequate provider network isn’t possible without a hospital, the plan has only been available in 19 of the state’s 39 counties.

Washington is trying to correct that issue through recently signed legislation that will, among other things, require hospitals in large systems to participate in at least one public option plan. Nevada and Colorado, having seen Washington’s network-adequacy issues, are setting up their own provider participation requirements from the start.

“Nevada and Colorado clearly took a page from Washington’s experience,” Georgetown’s Corlette said.

In Nevada, if a provider accepts the state employee health plan, workers’ compensation, or Medicaid, they must accept the public option. Meanwhile, hospitals in Colorado will be required to accept the public option — with the threat looming that if costs don’t come down quickly enough, the state could step in and mandate lower reimbursement rates.

For benefits, Colorado and Washington are establishing what’s called a standardized benefit plan through their public options. With standardized benefits, some services (primary care visits and generic prescription drugs, for example) are provided at either no cost or for a small copay, even if the policyholder has yet to meet their deductible. Other common medical services have clearly defined cost-sharing obligations for patients, designed to make it easier for customers to know what they’ll need to pay out of pocket for health care if they sign up for that plan.

Nevada, on the other hand, hasn’t said how benefits have to be structured under its public option, nor what the cost-sharing obligations for patients must be.

When you look under the hood, there are important differences in how these public options will operate. But they’re all striving toward the same goals: lower health care costs and, hopefully as a result, more coverage. The test now is whether they can achieve their objectives.

“It will be interesting to see if additional intervention is needed,” Keith said, “or if this can be successful.”