Why Governor Polis won’t sign a Public Option into law this year.
First. Sentence. I am not here either to support or express opposition to the Colorado State Option for Health Care Coverage (the new name for the Public Option). I am here to analyze the situation...
It was January 14th, and state lawmakers descended on the University of Denver campus to kick off the legislative year with their “Big Ideas”. (With the temperature hovering right around freezing, and with snow beginning to fall, I decided to take in the event via a live stream.) Governor Polis kicked off the session by talking about a “Public Option” for Colorado citizens, and why it would both reduce health care costs and the ranks of the uninsured. He has since advocated vociferously on its behalf. However, by January 19th, the CEO of Centura Health posted an editorial to the Colorado Sun explaining how adopting the Public Option was unsustainable and would potentially cause employers to drop coverage, thereby reducing access. At various times, hospital and health plan industry groups have expressed their opposition to the proposal.
As I see it, there are at least two major reasons the Public Option will not be passed into law this time around. One is a policy reason, and the other is a marketing reason.
For those who still struggle with what the Public Option is, here is a concise version. Some people buy health insurance the way they buy car insurance. They shop for and buy an individual policy that covers them or them plus their family. If there is a Public Option, the government would artificially set the price for hospital care below the price the hospitals would otherwise charge and pass that savings on to people who buy individual health insurance. According to Connect for Health Colorado, about 170,000 Coloradoans have private medical insurance purchased through the exchange (roughly 3% of the state’s population). https://connectforhealthco.com/metric-and-reports/
From a policy point of view, I believe the proposed legislation (HB20-1349 for those who want to look it up here: https://leg.colorado.gov/bill-search?search_api_views_fulltext=HB20-1349) lacks one key ingredient – carrots for Colorado hospitals and health plans. As a consequence, it is not surprising to see those industry participants oppose the legislation. Here are their respective statements:
Colorado Hospital Association:
Colorado Association of Health Plans:
In order to help the hospitals partner to reduce health care costs, the Public Option needs to help hospitals become more efficient. For background, here is an example of what a hospital’s financials might look like:
By reducing the hospital’s revenue without helping reduce its cost, you are driving it from break-even to loss-making. (Yes, there are many Colorado hospitals operating well above break-even, but there are also many who are not; explaining the bill’s varied intended effects offers a high degree of difficulty). Politically, it is difficult to get after labor costs (50%), because those are salaried doctors, nurses and so forth. It is also difficult to get after “other” expenses, b/c those are items like rent, repairs and maintenance, insurance, etc. What might work is getting after supplies expense. Just as with prescription drugs, many supplies are highly priced and quite profitable for those that manufacture them. Hospitals pay very different prices for these supplies, and there is very little transparency around contracts. Colorado might explore the creation of a purchasing pool for high-priced, high value supplies and let hospitals and other appropriate entities in the state participate. If, by doing so, hospitals could reduce their supply costs by 15-20%, this would create room for the State Health Option.
For the insurers, the main complaint, beyond the fact that you are creating a bad precedent, is that the Public Option proposal puts an awful lot of power in the hands of the Commissioner of the Department of Insurance. Among other elements, which can be found in the Bill, the Commissioner would be required to ensure that there are at least two health insurance carriers offering the Public Option in every county in the state. Currently, Anthem Blue Cross/Blue Shield is the only carrier in 22 counties. Thus, if the Bill is not amended, the Commissioner would be authorized and compelled to make at least one other carrier compete in those counties. This is the equivalent of telling Burger King – “folks in Summit County only have a McDonald’s in town, so you have to open a store”.
Governor Polis and other proponents of the Public Option have primarily argued that “it’s the right thing to do”. Colorado hospital prices rank among the nation’s highest, and Colorado hospital profitability is second only to Alaska. However, one of the main arguments against the Public Option is that it will hurt smaller hospitals and, potentially, force those to reduce services lines or, worse yet, close. Indeed, in January, Memorial Regional Health in Craig closed its labor and delivery department. According to the Colorado Rural Health Center, 18 rural hospitals in Colorado are loss making and, according to a report produced by FTI consulting in concert with the Partnership for America’s Health Care Future (an industry lobbying organization), 23 rural Colorado hospitals would be at risk of closing should the Public Option pass.
Paradoxically, part of the intended effects of passing the Public Option into law is to redistribute wealth amongst the state’s hospitals. Many rural hospitals would actually fare better financially with the Public Option in place, compared to the status quo. However, the Bill’s proponents and sponsors have not latched on to this message. The title of the Bill ought to be “Defending Access to Quality Health Care in Rural Colorado”. Proponents could then speak to the fact that many rural hospitals need help, many rural communities do not have enough practicing physicians, and many rural residents have access to only one health insurance carrier.
Before the Bill text came out and the world fell victim to COVID-19, it was not clear whether HR20-1349 would pass. Now that 1) the proposal is in print, including not only the issues I present above, but the enumerated expansion of the Public Option to the small employer market, 2) stakeholders have developed their positions fully, 3) COVID-19 has ripped through hospital financials like a tornado, and 4) the legislature is not set to reopen until May 18 (reminder: the fiscal year begins July 1), I think we’ll be revisiting this in 2021.