In recent years, state lawmakers have been considering and/or implementing policies to increase affordability for state consumers in the individual market. Since 2017, nearly a dozen states have considered or passed legislation to study or implement a state-based public option program.
In response to strong support from the American public,1 candidates for public office and elected officials across the country have backed a public option as a coverage affordability solution.
During the campaign, President Joe Biden also proposed a federal public option, based on the Medicare program, which would require congressional enactment. At the federal level, this would likely require eliminating the filibuster or proceeding through budget reconciliation. Given this landscape, the design and passage of a federal public option would take time and political will, and could take years to implement. As a result, states continue to pursue state-based public option programs, which may serve as models for future federal reform.
Driven by state-specific policy goals, and coverage and insurance market dynamics, these initiatives are diverse—including private-public partnerships with existing insurance carriers, allowing residents to buy in to an existing government program such as Medicaid or the state employee health plan (SEHP), and other arrangements.
A recent issue brief, State Public Options: Comparing Models from Across the Country, authored by Manatt Health with support from the California Health Care Foundation, outlines some of the specific problems states are seeking to address with their public option proposals, categorizes proposed public option proposals into archetypes and identifies important issues for policymakers to consider as they explore the use of a state-based public option.
Figure 1. The Spectrum of State Control Across Public Option Archetypes
Following enactment of the American Rescue Plan—including enhanced federal premium subsidies and expanded tax credits to people above 400% of the federal poverty level—states are assessing the ways in which they will alter, or build upon, health reform plans already under consideration and how they can leverage new opportunities included in the federal legislation. State legislatures currently considering public options, including those listed below, may consider shifting their timing and/or program designs in the future by offering subsidies to populations ineligible for federal assistance (for example, those ineligible due to a family glitch or because of immigration status), focusing on addressing the underlying costs of health care, and/or possibly delaying health care reform pending further federal action.
Notably, Washington is the only state to have implemented a public option program for plan year 2021 coverage, though multiple states are reconsidering public option legislation in the 2021 legislative session.
Washington State. Washington became the first state to implement a public option in 2021. The state program, Cascade Care, included two key components: standardized plans with lower consumer deductibles and state-contracted public option plans subject to an aggregate provider reimbursement cap of 160% of Medicare reimbursement rates for all medical services, except pharmaceuticals.2
Finalized premiums for standardized Cascade Care public option plans were, on average, slightly more expensive ($392–$490 per month, unsubsidized) than non-standardized plans ($376–$500).3 Overall, more than 15% of all consumers selected a Cascade Care plan during the 2021 open enrollment period, including 40% of new enrollees. However, the majority of Cascade Care enrollment (95%) was in standardized plans and not the state-sponsored public option plans. In total, 1,872 Washingtonians selected a public option plan in the 19 counties where plans were available.
The state legislature is currently considering a bill to adjust the Cascade Care program. The legislation would establish a premium assistance program and cost-sharing subsidies for individuals up to 500% FPL (the amount would be determined by future appropriations). The new legislation also requires that large hospital systems participate in Cascade Care networks and repeals the state’s previous authority to waive the requirement that Cascade Care plans reimburse providers at 160% of Medicare rates in the existing program. These provisions were added due to challenges attracting providers in the first year of the program.
The results of Washington’s Cascade Care implementation are being watched closely by other states considering public option legislation.
Oregon. After the release of a Manatt Health report analyzing three potential public option designs last year, a new public option bill was introduced to the legislature in this year’s session. The bill would require state-employee plan, Medicaid managed care and Medicare Advantage carriers to offer Silver- and Gold-level “state-designed health plans” to individuals on the Marketplace and in the small-group market starting in plan year 2023. The plans would be required to set provider reimbursement rates at no more than 100% of Medicare rates4 and to meet specific design parameters, including providing integrated primary and behavioral health services, addressing social determinants of health, and investing in community-based activities. An amendment to the bill, introduced on April 1, calls for a study of a public option health insurance plan and design options. The report would require evaluation of a plan that reduces costs and improves the affordability of premiums and other out-of-pocket costs, eliminates health disparities by 2030, and would consider specific program designs that reduce drug prices and premiums, and limit provider reimbursement rates.
Colorado. Lawmakers in Colorado considered a private-public hybrid model that would require all carriers and hospitals to participate in the program and all hospitals to accept a state-determined benchmark reimbursement rate. The legislation attracted significant attention from state and national provider groups, but consideration was interrupted by the COVID-19 pandemic. On March 18, a revised “Colorado Option” bill was introduced. Under the bill, existing carriers in Colorado would be required to offer standardized plans at Bronze, Silver and Gold levels on and off the Marketplace with specific premium reduction benchmarks. By 2023, carriers will be required to reduce premiums by 10%—and by 20% by 2024—compared to 2021 premiums.5 If premium reduction targets are not met by existing carriers, a quasi-governmental entity, the Colorado Option Authority, would be established to operate as an insurance carrier and offer the Colorado Option. The Authority would set a physician fee schedule to achieve 20% premium savings (compared to 2021 rates) and require providers in the state to accept consumers enrolled in the plan. The bill specifically repeals the state’s authority to establish a public option plan if a federal public option plan is established that meets the premium reduction goals.
Connecticut. In 2019, state lawmakers proposed a state program that would allow individuals and small businesses to enroll in the SEHP plan with the goal of increasing coverage options for small businesses. The 2019 bill—and a subsequent compromise proposal to allow the state to contract with existing insurers (rather than using the SEHP) to provide individual coverage on the Marketplace—failed after significant pushback from insurance carriers, including national insurers, many of which are headquartered in the state. A similar bill, Senate Bill 842, offering a public option for small businesses and nonprofit organizations, was introduced in the 2021 legislative session and is currently being considered by state lawmakers.
Illinois. While not considering implementing legislation this session, earlier this month, Illinois released a legislatively required evaluation of multiple coverage options. The report includes an analysis of four potential policy programs to increase affordability and reduce the number of uninsured: a Basic Health program, a public option, a Medicaid buy-in for multiple populations and state subsidies.6 Notably, the report evaluates how the programs can improve affordability, align with existing programs, leverage federal funding, minimize market disruptions and address health equity. The report does not make a recommendation for which affordability option the state should pursue, but notes that all policy options would reduce the number of Illinoisans who are uninsured and would make coverage more affordable relative to existing options.
States with legislation are also including authority to apply for a Section 1332 waiver in order to capture all applicable savings to the federal government from implementation of the public option to fund additional state programs. To date, Section 1332 waivers have been used almost exclusively to receive pass-through funding from state reinsurance programs. Waivers to achieve funding from a public option would follow a similar structure, but could include other novel and innovative provisions depending on state applications. President Biden has yet to outline a specific Section 1332 waiver strategy, but during the election he expressed interest in promoting state innovation to promote universal coverage.
1 Kaiser Family Foundation, Poll: Democrats Like Both the Public Option and Medicare-for-all, But Overall More People Support the Public Option, Including a Significant Share of Republicans, January 2020.
2 State officials estimate individual market reimbursement rates are 175% of Medicare; therefore, the public option was expected to result in 5%–10% premium savings. The legislation also includes minimum provider reimbursement thresholds; for example, plans may reimburse primary care providers no less than 135% of Medicare reimbursement.
3 Premiums represented here are for Silver-level coverage and vary by geographic region. Source: Public Option Institute. Washington Certifies Plan Offerings for the 2021 Marketplace, September 2020. For more information, see the Plan Year 2021 certified rates here.
4 The bill provides for an exemption if the reimbursement rate impinges on the carrier’s ability to meet network adequacy standards.
5 Thereafter, premiums may increase only up to the urban consumer price index (CPI) plus 1%.
6 The state also evaluated transitioning to a state-based Marketplace and increased state-supported marketing and outreach.