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Public Option Experiment Hits Speed Bump as Premiums Don’t Fall

Aug. 10, 2020, 9:30 AM

Premiums aren’t dropping as predicted in Washington state’s first-in-the-nation experiment with offering health insurance plans based on Medicare rates.

Five insurers are offering 15 so-called public option plans for 2021, but their average proposed premium for 2021 is higher than what the state’s consumers typically paid for traditional Obamacare policies in 2020.

Washington’s experience setting up a public option plan highlights the difficulties for states weighing similar plans they hope will expand health-care coverage while driving down costs. Providers, especially hospitals, have been reluctant to agree to rates based on Medicare payments, which are lower than rates paid by employers and commercial health plans.

It also could presage problems that a national public option plan could face. Democratic presidential candidate Joe Biden is calling for a similar plan to shore up Affordable Care Act markets.

The average proposed public option premium for 2021 is 5% higher than 2020 average Obamacare premiums, Christine Gibert, policy director with the Washington Health Benefit Exchange, said in an interview.

“Overall we were hoping for more of an impact for premium prices,” Michael Marchand, the Obamacare exchange’s chief marketing officer, said.

The public option plans are required by the state law authorizing them to pay rates to hospitals and medical providers that average 160% of Medicare rates, and they also must offer standard benefits that feature lower deductibles and other out-of-pocket costs than traditional plans.

The public option plans will be offered on the Evergreen State’s 212,000-customer exchange. Of the five insurers offering public option plans, two are new to the state exchange and are only offering public option plans, and three are offering public option plans along with their traditional Obamacare marketplace policies.

Proposed Prices Vary

Pricing for the public option plans varies depending on the carrier, Marchand said.

In King County, Washington’s largest county and where Seattle is located, UnitedHealthcare of Oregon, a new entrant, has proposed monthly premiums of $476 before subsidies for its public option plan for a 40-year-old non-smoker. The average comparable premium for a silver-tier plan is $426 a month, according to information from the exchange. Silver-tier plans are the most popular plans sold on the exchanges.

But premiums proposed by Community Health Network of Washington, a nonprofit that operates Medicaid managed care plans and community health centers in the state, are $394 a month in Pierce County, home of Tacoma, compared with a $441 monthly average for silver tier plans.

Average premium proposals for the 2021 public option plans weren’t available, but all premium rates filed by a total of 15 health insurers, including the public option plans, are 1.8% lower on average than 2020 rates, the Washington Office of the Insurance Commissioner announced June 1. The rates must be approved by the insurance commissioner, which is expected to occur in mid-September.

Washington’s experience getting its public option program going “is very much like what we saw the first year of the exchange” in 2014, Marchand said.

At that time, insurers had no experience with the health of the population they would be covering in the exchanges and what claims would be like, making it difficult to price premiums competitively and profitably.

‘A Completely Different Product’

For Community Health Network of Washington, which offered Obamacare plans on Washington’s exchange from 2014 through 2017, “This is a completely different product for us than how we approached it the first time,” Chief Executive Officer Leanne Berge said in an interview.

“We are really focusing on affordability and on populations that we are currently serving through our community health centers,” Berge said.

The organization, which has about 260,000 enrollees primarily in its Medicaid managed care plan, intends to offer public option plans in 11 counties, Berge said. Its proposed public option plan premiums are lower than the silver-tier plans in seven of the counties, according to the organization.

The nonprofit is using its primary care network based on its community health centers, Berge said. “Our community health centers know how to manage total cost of care” with integrated care that includes a wide range of services such as social services, behavioral health, and dental care, she said.

That should translate into a lower-cost product, Berge said.

“We were shooting for between 5 and 10% lower than the costs would otherwise be,” she said. “Hopefully, the rates are the right ones for the costs that we’re going to incur.”

Hospital Negotiations Challenging

Negotiating with hospitals for Medicare-based rates has been especially challenging during the pandemic, Berge said.

“This has been a tough time to get hospitals to accept lower rates because of what’s going on with Covid and all of the strains on the hospitals,” she said.

Her organization has argued to hospitals that it’s in their interest to join the public option program, Berge said. “Many of these people would be uninsured, and they would be even more poorly reimbursed if they don’t have insurance at all,” she said.

Washington Gov. Jay Inslee (D) in 2019 signed into law the measure creating the public option plans. Inslee, then a presidential candidate, said it would be a “significant step to the goal of universal coverage in the state of Washington,” and that it would ensure that state residents have affordable health insurance.

State Sen. David Frockt (D), chief Senate sponsor of the law creating the public option plans, said that while the public option experiment in the state “is not as comprehensive as we would have liked,” more plans are coming into the state and consumers will have more choices for products that allow lower out-of-pocket costs.

“I see a mixed picture but a solid start,” he said.

Other states are considering public option plans. However, Colorado, which was closest to moving forward, pushed back action on its legislation because it was too hard to get providers who opposed it to negotiate during the Covid-19 crisis.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com

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