The U.S. Department of Health and Human Services (HHS) recently approved a new section 1332 waiver authorizing Colorado’s public option–style law. Under this law, insurance carriers must offer individuals and small businesses new, lower cost “Colorado Option” plans, in addition to their regular plan offerings. The waiver represents the first time the federal government has taken action to approve state legislation that introduces more heavily regulated plans into Affordable Care Act marketplaces to compete against traditional plans.
Colorado’s Public Option Law
Colorado is one of three states, along with Washington and Nevada, that has enacted legislation enlisting insurance carriers to offer new public option–style plans. These laws fall short of offering a traditional publicly funded and operated public option health insurance plan. But they fall within the same family of initiatives by introducing new plans into the marketplace that must meet heightened criteria and are intended to give consumers more affordable, higher-quality coverage options than currently available.
Colorado’s law requires all carriers participating in the individual or small-group markets to offer Colorado Option plans in each county they operate in, beginning in 2023. Colorado Option plans must meet premium-reduction targets that should result in lower plan premiums than competing plans. Specifically, carriers must cut premium rates for Colorado Option plans by up to 5 percent in 2023 and up to 15 percent in 2025 compared to their 2021 offerings. Beginning in 2024, if carriers cannot meet these targets — or if they do, but do not offer adequate provider networks — the commissioner of insurance must investigate. If the commissioner determines that a health care provider, such as a hospital, is keeping a carrier from complying with the law, the commissioner may order the provider to participate in a plan’s network and set their reimbursement rates. To protect providers financially, these rates will be subject to certain floors that Colorado calculated to be well above providers’ “break even” points.
Initial indications suggest that carriers have not been turned off by the new requirements. Based on preliminary rate filings, Colorado reports that at least two Colorado Option plans will be available at the bronze, silver, and gold levels in every county save one in 2023. (Jackson County will have just one Colorado Option plan at these metal levels offered by Anthem — the only carrier currently in the individual market there.) This means that consumers will be able to choose among plans of different levels of generosity, with bronze plans offering less financial protection but lower premiums, relative to silver and gold plans. More information on initial plan filings is available here.
Colorado’s New Section 1332 Waiver
HHS’s approval of Colorado’s new waiver clears a critical hurdle for the state to move forward with implementation. This waiver, which also extends prior federal approval for the state to operate a reinsurance program, allows carriers to attribute savings from reducing provider reimbursement rates or other cost-containment measures to the Colorado Option plans that generated those savings, rather than to all plans.
The Colorado Option waiver provisions are expected to reduce premiums an average of 1.3 percent and increase enrollment by approximately 0.8 percent in 2023. Although the initial impact of the program is small, the effects are expected to grow significantly as the premium-reduction targets are phased in and more people enroll in plans. Colorado anticipates the program will reduce premiums by nearly 14 percent and increase enrollment by more than 11 percent — to approximately 10,000 people — by 2025, and that these numbers hold steady through 2027, the end of the waiver period.
The new waiver is expected to reduce federal spending by $213.8 million in 2023 and up to $367.6 million in 2027. These amounts will be passed through to the state to help subsidize premiums and cost sharing for individuals currently ineligible for federal subsidies because of immigration status or the “family glitch,” which prevents family members in high-cost employer plans from becoming eligible for marketplace subsidies. The funds also will help reduce cost sharing for lower-income enrollees who are receiving federal premium tax credits.
For the first time, HHS has approved a waiver related to a state public option–style law. Before now, nearly all section 1332 waivers have been used to allow states to operate reinsurance programs. More states are sure to follow in Colorado’s footsteps and pursue 1332 waivers to expand access to affordable coverage. Nevada is developing a waiver application to support a similar program, and Washington State has submitted a waiver application that would allow the state to open its marketplace — and with it, state subsidies — to immigrants lacking federal documentation. The federal government’s approval of Colorado’s waiver is likely to encourage more states to enact public option laws and other innovative reforms.