On Sunday, the Washington State legislature passed a bill to create standardized health plans in the state’s Exchange and establish new public option-ish plans that contract directly with its Health Care Authority, which operates the state’s Medicaid program. The hallmark of these new plans, and the foundation of their claim to the title “public,” is they are required to cap provider reimbursements at Medicare-based levels.

Bill sponsors, supporters, and the media are widely touting it as the first “public option” law in the U.S. Washington Governor Jay Inslee, a former member of the U.S. Congress and now presidential candidate, advocated for this policy and is expected to sign the bill any day. Funding for implementation of the measure must be appropriated by the state legislature by the end of June, however, or it will be rendered null and void.

While this legislation is far from a “pure” public option or, much less, Medicare for All or, still less, single payor, it reflects the very real and difficult negotiations and trade-offs that any policy claiming these monikers must traverse to gain enactment. In this instance, that has occurred in one of the bluer, if more practical, states in our union. As such, it presents a profound educational opportunity for all of us who are dedicated to achieving high-quality, affordable coverage for all Americans.

Standardized Plans

The bill would require inclusion of standardized plans in the Washington Exchange starting in 2021. This aspect of the law is not unique, as the approach of adopting “simple” or uniform plan designs in Exchanges has been implemented by other states. The goal of such a policy, as we can safely assume is the case here, is to alleviate the difficulty consumers may face in choosing among health plans whose benefit structures can vary widely despite their having approximately the same actuarial value.

The Washington bill requires the state Exchange, with input from the Authority, Office of the Insurance Commissioner, actuaries, and other stakeholders, to design a standardized health plan for each of the Bronze, Silver, and Gold tiers of coverage. The design of these plans includes setting deductible amounts, cost-sharing, premiums, etc., and must meet all requirements that otherwise apply to Exchange plans.

The Exchange is also encouraged, in designing the standardized plans, to reduce barriers to maintaining and improving health, choosing services based on value, and other broadly recognized health policy objectives. An opportunity for public comment on the proposed plan designs is required.

All of the insurance carriers currently offering plans in the state’s Exchange will be required to offer a Silver and Gold level standard plan come 2021, as well as a bronze one if they offer a product at that tier. They may continue to offer their “nonstandardized” plans alongside these standard ones, though the actuarial value of the former may not be below that of the latter, to prevent steering consumers into nonstandard plans. The legislation requires the Authority to report to the legislature regarding the potential impact of offering only standard plans beginning in 2025.

The “Public” Option

The innovation of the Washington bill relates to its requirement that the state Authority contract with at least one insurance carrier to offer a Bronze, Silver, and Gold standard plan in at least one county, with the goal of ensuring at least one of these state-contracted plan options is available in each county in 2021.

These plans are really where the “public” aspect of this policy comes more explicitly into play. While they must meet all requirements of other Exchange plans, the bill holds these them to a much higher standard than for those otherwise offered, including a robust contracting process that will include direct negotiation with the state Authority.

In those negotiations, the state may consider the plan’s rates, utilization management techniques, pharmaceutical costs, and other factors in determining whether or not to approve its participation in the Exchange market. These state-contracted plans – I’m going to go ahead and call them the “public option” – are also held to higher standards of transparency, reducing administrative burden, aligning with state value-based purchasing programs, etc., that befit a more publicly-interested plan.

Provider Reimbursement And Networking

Now for the part that is sure to be the most controversial aspect of the new policy and the one that truly makes the new plan options public. As is evident from a review of virtually any available proposal, the linchpin of the public option concept is that it integrates public sector reimbursement rates into the currently commercial market. All Federal Medicare for All proposals, including mine, do exactly this. The Washington public option is no exception.

The new policy requires that the total amount these state-contracted standard plans pay providers for all health care services (excluding pharmacy benefits) cannot exceed 160 percent of the total amount Medicare would have paid for the same services. Rates for certain rural hospitals are capped at 101 percent of allowable costs under existing Federal programs (including Medicare), while payment for primary care service payments must be at least 135 percent of Medicare. To address prescription drug costs, the state Authority may impose additional requirements on these public option plans, including increasing utilization of generics and application of evidence-based formularies.

With regard to the overall cap on what the plan may spend on providers, the requirement may be lifted under three potential scenarios: (1) doing so, by 2023 or later, would not increase premiums ; (2) the carrier is unable to form a provider network using these reduced reimbursement amounts; or (3) the carrier can achieve actuarially sound premiums that are 10 percent less than the previous plan year through other means. Keep your eye on number 2.

Pivotally, the legislation does not require providers to participate in the public option plan. It also prohibits carriers who offer such a plan from requiring providers to accept the public option plan rates as a condition of participation in other plans offered by that carrier.

Report To The Legislature

By December 1, 2022, the state Authority is required to submit a report to the legislature that addresses:

The impact on Exchange market choices, affordability, and stability of linking a carrier’s ability to offer a state-contracted public option with their participation in state employee benefit plans or Authority-run programs like Medicaid (I translate this as: “the impact of requiring plans that participate in these state-run programs to offer public option plans”); The impact on the Exchange market of requiring providers who participate in state employee benefit or Medicaid, etc., to participate in public option plan networks; Whether the utilization review process adopted by public option plans should match clinical criteria adopted by the Authority; and Other issues deemed relevant to implementation of the bill.

Additional Premium Subsidies

In addition to the standardization of health plans and launch of a public option, the Washington legislation requires the state Exchange to develop a plan to expand the availability of premium subsidies for market enrollees by raising the cap on eligibility from 400 to 500 percent of the federal poverty level (FPL). Those between 400 and 500 FPL would have their contribution to Exchange plan premiums capped at 10 percent of their household income. The plan should also assess expanding cost-sharing subsidies and the impact of premium subsidies on the number of uninsured in the state. The plan is due to the state legislature by November 15 of this year. Annual reporting on the number of Exchange plans offered in each county is also required.

Outlook

While it may seem relatively incremental to true blue public option or Medicare-for-All supporters, I submit that the Washington state legislature has taken remarkably courageous action. While I was not in the room, I can safely assure you that the discussions that accompanied specifying the caps on provider reimbursement were not without their share of dissent and perhaps acrimony, nor were those relating to mandating Exchange carriers to offer standardized plans. Anyone purporting to advance a public option or Medicare for All-like proposal should take careful note.

At the same time, as alluded to above, the state’s choice to refrain from requiring Medicare provider participation calls into question whether the public option plans will have sufficient leverage to build adequate networks. While we do not have access to data regarding provider reimbursement norms in the Washington Exchange market, the legislation’s stated goal of reducing premiums by 10 percent, while a very welcome improvement, calls into question whether the cost controls imposed are actually strident enough to justify the extraordinary effort and potential disruption associated with introducing these plans.

Regardless, I for one applaud the Washington legislature for acting boldly and acting first. For too long, the public option/Medicare for All/single payer debate has been steeped in theory and ideology. Now, thanks to Washington, it’s about to get real.