Preparing to enter its second year, one of Gov. Jared Polis’ signature health care policies is now facing significant questions raised by insurers about its sustainability.
The dispute has to do with a health insurance program called the Colorado Option. The Colorado Option is a first-of-its-kind, state-designed insurance plan that private insurance companies are required to sell to people who buy health insurance on their own or to small companies buying insurance for their employees. It aims to offer better benefits at lower prices.
But new rate filings raise the question of whether insurers will be able to pull off that feat — and who is to blame if they can’t.
A setback for the Colorado Option would be a blow for Polis, who frequently celebrates the program as one of his administration’s major policy achievements.
“The Colorado option is driving down premiums, saving people thousands of dollars on health care coverage with more ahead,” Polis said at a news conference earlier this month.
The issue is this: State law requires Colorado Option plans to be sold at progressively lower rates for the first three years. In 2023, the first year the Colorado Option was sold, plans had to be priced 5% below an insurer’s 2021 offerings, after adjusting for inflation. For 2024, plans need to be 10% below 2021 rates.
This month, insurers were required to tell the state Division of Insurance if they could meet those 2024 targets. Only one — the Denver Health Medical Plan, which has a fairly small footprint in the market — said it could. All others said they could not.
“Colorado health insurance carriers continue to work to reduce premiums for Coloradans, and we have consistently stated that the premium reduction targets are arbitrary and unrealistic,” Brandon Arnold, the associate director of the Colorado Association of Health Plans, an insurer trade group, wrote in an email to The Sun.
Missing the targets
In one way, this wasn’t surprising. Insurers had a spotty record of meeting the 2023 targets. None other than the Denver Health plan met the targets in 2023 for every Colorado Option plan they sold.
But most were able to hit the targets for at least some of their plans in 2023. (Insurers sell Colorado Option plans in each of the three metal tiers — bronze, silver and gold — in every county where they operate. So insurers may price and offer dozens of Colorado Option plans across the state in a given year.)
That’s not the case for 2024. Every insurer other than Denver Health says it will miss the price-reduction targets on at least most of the Colorado Option plans they currently sell.
Of this group, which includes 11 separate rate filings by insurers across the individual and small-group markets, only two carriers — Cigna and UnitedHealthcare — said they could meet the targets on a handful of their plans. But Cigna and United expect to miss the targets on most of their plans, and the other nine insurers expect to miss the targets on all of their plans.
In explaining this, insurers offered withering criticism of the Colorado Option program.
“Colorado’s public option requires carriers to offer the standard plans at artificially and actuarially unsound premium rates,” one insurer, Rocky Mountain HMO, wrote in its filing.
In other words, insurers are saying they cannot sell Colorado Option plans at the required prices without losing money.
“The world has changed”
The insurers offer a number of reasons for not being able to reduce their Colorado Option premiums enough.
They say the state’s inflation calculation fails to take into account the actual increase in health care costs or what insurers call “utilization trend” — which is the increase in how much health care people use in a given year. The insurer Anthem, for instance, wrote in its filing that the state’s inflation calculation method was the “sole reason” it was unable to meet price goals on some plans in 2023 and that continuing to use the method “will cause even greater challenges with premium reduction requirements in 2024 and beyond.”
Insurers also say the benefits of the plans are too rich for the low prices. And they say the state’s mandated prices don’t take into account everything that has happened since insurers set the 2021 rates, which were assembled in early 2020 based on 2019 data — i.e. pre-COVID.
“The world has changed since the premium reduction targets were created,” Kaiser Permanente wrote in one of its filings.
Consumer advocates, though, see insurers’ explanations as flimsy. Mannat Singh, the executive director of the Colorado Consumer Health Initiative, which supports the Colorado Option program, said insurers at times included important consumer protections among the reasons for their inability to hit the price targets. As an example, she pointed to filings where insurers mentioned issues related to surprise billing laws, which protect consumers from receiving shock hospital bills.
“It’s disappointing that they are blaming consumer protections, and we expect insurers and hospitals to make more of an effort to meet those required reductions,” Singh wrote in an email.
Insurers mostly say hospitals not to blame
Perhaps most significantly, the filings try to blow a hole in one of the main arguments for why insurance prices are so high.
Only one insurer says it can’t meet the price targets because hospitals are charging too much. And that insurer, Cigna, says it would still miss the targets for many of its plans even if it could get hospital prices lower.
This is important because it potentially undercuts the state’s strongest tool for driving Colorado Option prices lower: setting hospital prices. The law allows the Division of Insurance to mandate cheaper hospital prices to help insurers meet their Colorado Option targets. But the law also puts a limit to how low the state can set prices.
A number of insurers wrote in their filings that their contracts with hospitals are already at or below that lower limit and they still couldn’t meet the Colorado Option targets. One insurer, Anthem, claimed that the limit had actually inspired a health care provider it contracts with to ask for a price increase — because Anthem had been paying the provider less than the state’s lower limit.
“The (Colorado Option) and its premium reduction and provider reimbursement methodologies are — by their very own terms — the factors which prevent us (and we submit, most other carriers) from providing an actuarially sound rate at the levels dictated by the state,” Anthem wrote in a filing.
So what will work to drive Colorado Option prices down further? For some insurers, the answer is nothing.
“We do not see a viable pathway to full compliance with the targets in the 2024 benefit year,” Kaiser Permanente wrote.
Public hearings coming
The insurers’ filings are just preliminary, though. That means something could still change to bring prices lower. And, if they don’t, state regulators may be able to find ways to push prices down.
One method could be through a new tool that lawmakers look poised to give to the Division of Insurance. House Bill 1224, which cleared the state House of Representatives earlier this week, would give more explicit authority to the state’s commissioner of insurance to limit how much insurers can withhold from Colorado Option premiums for profit and administrative expenses.
In filings, insurers reported budgeting for between 0.8% and 4.1% of premium dollars collected to go toward profits. That amount includes money insurers set aside for reserves to be able to pay medical bills in years in which they underestimate their claims costs. Insurers built in margins for administrative expenses between 8.6% and 16%.
The state also has another way to drive down Colorado Option rates. Regulators will hold rate-review hearings this summer, where the Division of Insurance will be able to question why insurers couldn’t meet the targets and insist on changes to their plan pricing. Members of the public will also be able to provide comments.
Singh, with the Colorado Consumer Health Initiative, said her organization hopes to hold insurers accountable through the hearings.
“As insurers are held to providing reductions on these plans, they will become more competitive with more affordable coverage options that are predictable for consumers,” she wrote.
Colorado Insurance Commissioner Michael Conway said the recent filings by insurers are just a first step in the process.
“These are the initial filings for 2024 for the Colorado Option,” Conway said in a statement. “The division looks forward to the opportunity for all interested parties and the public to have an opportunity to participate in the hearing process moving forward.”