Op-Ed

As with long-term care and other health care issues, Washington State is out in front with its plan to test a public option (of sorts) in the state-regulated individual insurance market.1 Earlier this year, the state legislature passed, and Governor Jay Inslee signed, a law calling for the development of a state-directed insurance offering, with implementation starting in 2021.

Washington’s reform is being watched closely because the public option is moving toward center stage in the national political debate. Former vice president, and current candidate for president, Joe Biden is championing the idea as part of his campaign2, as are several of his competitors, including Senator Michael Bennet. Bennet is the lead sponsor of a prominent public option bill in Congress—the so-called Medicare X plan.3

The public option is sometimes described as the relatively benign, and thus easier to enact, alternative to a full single payer plan. It would not displace the entire private health insurance industry with a state-run plan. Instead, it would allow consumers (and, perhaps, eventually employers) to voluntarily enroll in a publicly sponsored plan. Because consumers are not forced into the plan, advocates believe the public option will engender less opposition than single payer, and thus facilitate a gradual increase in public control of the insurance market without triggering a backlash.

They may be overly optimistic. While single payer is certainly more controversial, Washington State’s experience shows that the public option also must clear high political and practical hurdles. Opposition from physicians, hospitals, and private insurers forced such far-reaching changes to Washington’s plan that its viability and impact on the market are now uncertain.

The law passed by the Washington legislature is focused strictly on the individual insurance market, as regulated by the Affordable Care Act (ACA), and has the following key provisions:

Standardized Plans. Beginning in 2021, the law calls for three different standardized plans on the bronze, silver, and gold tiers of the state’s insurance exchange. Insurers wishing to offer coverage in this market must offer one of the standardized silver plans and one of the standardized gold plans. Insurers meeting this requirement also are free to sell nonstandardized plans on the exchange. Standardization—separate and apart from the introduction of a public option—has the potential to intensify insurance competition by making it easier for consumers to compare premiums without the complicating factor of differing plan designs. Numerous other states have implemented various versions of standardized designs in their individual insurance markets, including California, Connecticut, the District of Columbia, Massachusetts, Maryland, New York, Oregon, and Vermont.4

“State-Procured” Plans. Also in 2021, the state will contract with private insurance carriers to offer “state-procured” standardized plans on the state’s ACA exchange market. These are the products that are being billed as public option plans. The state is required to establish minimum qualification criteria for participating insurers, including the ability to deploy value-based payments for care that will reduce costs through effective management practices. State-procured plans must offer a product on the bronze, silver, and gold tiers of the ACA exchange. The state must approve all insurance carriers meeting the qualification criteria. The law also specifies that the state must contract with at least one carrier to offer state-procured products in at least one county in 2021.

An Aggregate Payment Cap. The state-procured plans will have a back-stop on their aggregate spending for patient care, set at 160% of what Medicare would pay for the same services. Spending on prescription drugs is specifically excluded from this cap. The state may provide targeted waivers for state-procured plans that are unable to meet provider network adequacy standards while still staying below the spending limit. The state may also waive the spending cap if state-procured plans demonstrate that other care management practices will reduce premiums by 10% compared to the prior year.

Minimum Reimbursement Rates. In addition to an aggregate cap on payments for services, state-procured plans will be required to maintain minimum payment rates for certain care provided to their enrollees. The plans must pay at least 135% of Medicare’s rates for primary care services, and 101% of “allowable costs” for care provided in critical access and sole community hospitals.

Although Washington’s plan is called a version of the public option, it would be more accurate to call it a privately-administered plan with publicly influenced payment rates. State officials chose to contract with private insurers because direct administration of the plan by state employees involved too much expense and controversy. Hence, the state’s public option is, ironically, a new choice for private insurers to consider, somewhat in the same way that private insurers are free to offer Medicare Advantage plans within the Medicare program.

Washington officials also found it difficult to deliver fully on a key potential benefit of a public option plan: low payment rates for a broad network of participating providers. A public option that ties payments for services to the regulated rates of Medicare or Medicaid can charge premiums that are below those charged by commercial plans. A recent study5 estimated that employer-sponsored plans pay, on average, 240% of what Medicare pays for inpatient care. If low payments are coupled with compulsory participation by providers, then a public option can claim to offer both low premiums and ready access to the doctors patients want to see.

That is the thinking behind Medicare X. Its key provision would require providers who participate in Medicare to participate also in Medicare X (Biden’s plan does not specify whether participation by physicians would be compulsory). Because Medicare is such a large source of revenue for most hospitals and physicians, most medical professionals and facilities would have no choice but to participate in both programs (at least in the short run).

A public option with voluntary participation by providers has less pricing leverage. Physicians can decide whether or not participating in the plan is advantageous to them, based largely on how much they would be paid for their services.

Washington’s new law allows physicians and hospitals to opt out of the state-procured plans. The state’s legislators also were forced to increase the basis for calculating the aggregate spending cap from 100% to 160% of Medicare rates. Consequently, the state-procured plans may not enjoy a substantial premium advantage over other offerings, and may have a limited, and thus less attractive, network of participating providers. Insurers may hesitate to become state-procured plans if they believe enrollment will be anemic.

Price regulation can reduce costs if existing networks of hospitals and physicians can be forced to accept lower fees for their services. But there are costs to price setting. In a voluntary market, physicians can opt out of providing services to public option enrollees, which leaves the patients with fewer options. If participation by providers is compulsory, then physicians have less flexibility in the short run. Over the long run, however, they can curtail their practices or perhaps retire early (which is equivalent to opting out). Unavoidable price cuts that impose permanent operating losses on facilities, though, will likely lead to closures.

Speculating on the fallout from a compulsory public option presumes that such a plan could pass in the first place. Washington State’s experience demonstrates that it is not a sure thing, in large part because physicians and hospitals know what is at stake.

References

Senate Bill Report 5526 (WA 2019). http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bill%20Reports/Senate/5526-S.E%20SBR%20FBR%2019.pdf. Accessed October 23, 2019.↩ Senate Bill Report 5526 (WA 2019). http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bill%20Reports/Senate/5526-S.E%20SBR%20FBR%2019.pdf. Accessed October 23, 2019.↩ Health Care. Biden for President website. https://joebiden.com/healthcare/. Accessed October 23, 2019.↩ Senate Bill Report 5526 (WA 2019). http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bill%20Reports/Senate/5526-S.E%20SBR%20FBR%2019.pdf. Accessed October 24, 2019.↩ White C, Whaley C. Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely. Santa Monica, CA: RAND Corporation; 2019. https://www.rand.org/pubs/research_reports/RR3033.html. Accessed October 23, 2019.↩

Published in 2019

DOI: 10.1111/1468-0009.12440