On the surface, the public option was an eminently sensible strategy. As a cost-cutting measure, it needed no revenue source. Politically, it had buy-in from legislative leaders and Inslee, who was considering a bid for the White House and eager to chalk up some “moderate” policy victories. True, some party progressives regarded the public option as too modest, but Cody and other supporters believed they could be kept on board by assurances of future moves toward "universal coverage."

Cody and Frockt also held out some hope of bipartisan support. Where some other public option plans call for the government to form its own insurance company, an idea many conservatives reject, Washington state would merely define standards for the program and contract private insurers to run it.

In other words, Cascade Care was about as close to a market-based insurance plan as a government-sponsored program could be. It was, in fact, a lot like some versions of Medicare itself, which contracts with private insurers to manage some of its programs.

Who would really pay?

Where Cody and other backers suspected they’d get pushback, however, was over the policy's cost-control mechanism. To force down premium costs, Washington’s public option would cap the rate at which contracted insurers could reimburse doctors, hospitals and other providers for treating public option enrollees.

The cap is a key point both for the policy itself and for the politics.

In health care policy circles, a reimbursement cap is the heart of a public option plan: In theory, it forces doctors and other health care providers to find ways to lower costs, rather than simply passing on cost increases to insurers, who pass them on to consumers in higher premiums.

But precisely for those reasons, the cap is anathema to many players in the health care business, and that aversion would become central to the public option fight in Washington state.

Initially, Cody and other public option backers proposed capping reimbursements at the level already used by Medicare, which some public option proposals in Congress have also proposed. Because Medicare rates are substantially lower than private insurers' reimbursement rates (by about 42 percent in Washington state) proponents hoped Cascade Care could offer premiums "at least 30 percent" less expensive than those available in the state's individual market, Cody says.

But that optimistic projection quickly faded as the industry's lobbying campaign got underway.

Much of the industry's resistance boiled down to a familiar disagreement over who should bear the cost of a public policy. Many Washington state physicians and hospitals felt that any kind of reimbursement cap would effectively force them to subsidize a reform policy that state Democrats were unwilling to fund but would benefit from politically.

"The legislators were at once saying, 'We want to improve affordability, we want to increase coverage options,' and 'There's no money in the state budget to support this,'" says Sean Graham, a lobbyist for the Washington State Medical Association, which lobbies on behalf of physicians and other providers. Instead of finding the funds to buy down premiums, Graham says, "legislators went to what's easy, which is capping reimbursement for physicians and health care facilities."

Lobbyists also feared a reimbursement cap would set a bad precedent and make it easier for future legislatures to lower the reimbursement rate even more—to Medicaid levels, for example. Lawmakers might also be tempted to impose reimbursement caps on other parts of the state's health insurance market.

But there were more fundamental objections that would ultimately prove far harder for lawmakers to overcome.

The fight over pricing power

The biggest was that Medicare-level reimbursements rates are simply too low for the health care services that Washington state wanted doctors and hospitals to provide under the public option.

That's not a new argument: Industry officials have long argued that Medicare rates don't actually cover Medicare patients' services and that providers make up the shortfall by billing private insurers at a higher rate for non-Medicare patients. In a recent RAND Corp. study of insurance plans in 25 states, for example, plans offered by private employers reimbursed hospitals at nearly 2½ times the Medicare rate in 2017. And as industry lobbyists in Washington state pointed out, the state's own public employee insurance plans reimbursed providers at around 1.6 times Medicare rates.

The Medicare-shortfall argument isn't universally accepted. Some industry critics say the shortfalls have less to do with Medicare's too-low rates than with the near-monopoly pricing power that many providers have gained as the industry consolidates into a smaller number of megahospital chains. Big, powerful hospitals that dominate local markets have the upper hand in negotiations with insurers; studies have shown that regions with only one or two hospitals command higher prices than regions with more competition.

Even so, in Washington state, insurance companies were adamant: Unless legislators set the reimbursement rate well above Medicare rates, insurers simply wouldn't be able to recruit networks of providers willing to participate in the public option plan.