The plan also rewards hospitals with even higher reimbursement rates if they meet a number of factors that aim to benefit hospitals in rural areas as well as big safety-net institutions like Denver Health. Those points include: if the hospital is independent, if it provides critical access, if it has a high share of Medicaid or Medicare patients and if it is shown to be taking steps to manage the underlying cost of care.

According to the governor’s office, the formula is designed to aid each kind of Colorado hospital in ways that benefit them. Rural and critical access facilities would be reimbursed at rates designed to promote financial sustainability, independent hospitals would be compensated at levels allowing them to thrive, and large hospital systems would be offset at rates that cover average costs and allow for profitability.

In a statement from the governor's office, press secretary Conor Cahill said:

“This administration is working to save people across Colorado money on health care. The governor partnered with lawmakers to pass a bipartisan reinsurance program, end out of network surprise billing and to lower the cost of prescription drugs. We have made progress in just thirteen months but there’s more work to do. This thoughtfully crafted formula will help save Coloradans up to 20 percent on the individual market and bring transparency on costs for all consumers.

The formula also takes into account unique factors like whether a hospital is a critical access, independent or has a large number of patients on Medicare and Medicaid. We look forward to working with lawmakers on both sides of the aisle to create a Colorado Option and realize these savings for Coloradans — all for less money than special interests are spending to convince Coloradans that expensive premiums and out of reach health care is the best we can do.”

State Rep. Dylan Roberts, a Democrat from Avon, said the program will ensure that rural, critical access and independent hospitals can continue providing care and that no hospital will be put in a worse position.

“The formula is an accurate representation of the current reality in Colorado, and shows that we can pare back some hospital costs in order to save Coloradans money on their insurance while still protecting the hospitals that we all need in order to get our health care,” Roberts said.

The Public Option Bill is expected to be released in the coming week. The reimbursement formula and analysis will be included in that bill.

“If the insurance companies aren't willing to create competition themselves, which has been the case so far, we think by creating this state option that will inject some competition into the market,” Roberts said. “We'll have lower premiums for those who want to purchase the state option and hopefully the competition will also help the existing plans, lower their premiums as well. But we're also doing this in a really careful and deliberate way.”

Backers of the plan say it employs several strategies to cut consumer costs beyond limiting hospital charges. It’d increase the amount insurance companies spend caring for patients, by requiring 85 percent of an individual premium be spent on care. It’d require pharmaceutical rebates to pass rebates through insurance carriers to consumers. And it’d promote competition, especially in the 22 counties where residents have just one option on the individual market.

Gov. Jared Polis, a Democrat, has verbally sparred with hospitals for months over a number of groundbreaking new programs and proposals — and how to pay for them.

The Colorado Health Insurance Option is a key piece of the governor’s claim to lower insurance premiums. And he hasn’t been shy at pointing out what he views as a prime driver of high health care costs. Last month, for instance, he told CPR’s Colorado Matters that Coloradans are being “ripped off” by the health care industry and that the new insurance option could help cut costs.

The plan does include some mandates, including one that hospitals have bristled at: a requirement for hospital participation. Just how the state would compel that hasn’t yet been worked out, and is expected to become part of the upcoming legislation.

This proposal differs in significant ways from the public option concept popularized by Democratic presidential candidates Sens. Bernie Sanders and Elizabeth Warren. Their plans envision allowing people to buy into a public insurance program like Medicare.

Colorado’s version has been called a “state option.” It expands the role of private insurance carriers instead of carving them out, which is a key worry for opponents of a public option who don’t want to see an expanded government system.

Initially, only Coloradans who buy health insurance for themselves would be able to purchase a new state option plan. Private insurers that already offer plans on the individual market would be required to offer the state-crafted plan in counties where they sell plans.

Consumers would be able to buy the new coverage in 2022.

Editor's Note: Parts of this story, and the headline, were updated to clarify that a legislatively mandated piece of the overall plan was released on Monday.