The Commissioner of Insurance (“Commissioner”) is allowed to update the standardized plan annually through the rulemaking process.[12] He is required to contract with an independent third party to conduct an analysis of the impact of the Colorado Option on health plan enrollment, health insurance affordability, and health equity, with data disaggregated by race, ethnicity, immigration status, sexual orientation, gender identify, age, and ability. The analysis must include information concerning total out-of-pocket-care spending, to be completed by January 1, 2026.[13]
After conducting the rulemaking process during the fall of 2021, the Division issued Regulation 4-2-81, and subsequently amended it effective June 2023.[14] The rule establishes detailed rules for the required bronze, silver, and gold standardized plans to be offered by all carriers offering individual and small group health benefits plans issued or renewed after January 1, 2024.
a. Rate Reduction Requirements
A key feature of the Colorado Option requires carriers to sell Colorado Option plans at progressively lower premium rates for the first three years.[15] Beginning January 1, 2023, premiums for Colorado Option plans must be priced 5% below an insurer’s 2021 offerings, after adjusting for inflation.[16] By 2024, premiums must be 10% below 2021 rates, and by 2025, premiums must be 15% below 2021 rates.[17] After 2026, carriers are required to limit any annual premium percentage increases to a rate that is no more than medical inflation relative to the previous year.[18] These rate reduction targets apply to both the individual and small group markets.[19]
To achieve the Colorado Option’s premium reduction goals, the statute establishing the Colorado Option gives the Commissioner the authority to set lower reimbursement rates that carriers pay to hospitals and providers.[20] Each year, carriers must notify the Division whether their Colorado Option plans meet premium rate reduction targets.[21] If they anticipate missing the target, the carrier must offer an explanation and name any hospital or provider that caused their failure to meet the premium rate reduction requirements.[22] The Commissioner may then hold a public hearing with the carrier and both hospitals and providers to allow testimony and hear evidence related to the reason the carrier failed to meet the premium rate reduction requirements or the network adequacy requirements for the standardized plans.[23] Based on evidence presented at the hearing, the Commissioner may set new reimbursement rates that the hospitals and providers must accept and the carrier must use to recalculate premiums.[24] For hospitals, the Commissioner has the authority to set reimbursement rates that are no less than 165% of the Medicare reimbursement rate and no more than 20 percent lower than the rate negotiated between the carrier and the hospital for the previous plan year.[25] For providers, the Commissioner only has the authority to set reimbursement rates that are no less than 135 percent of the Medicare reimbursement rates within the applicable geographic region for the same services.[26]
Proponents advocate that the costs associated with the richer benefits required in Colorado Option plans will be offset by savings associated with the reduction in reimbursement rates carriers must pay to hospitals and providers. Ultimately, they argue, these savings will reflect in premium reductions to consumers. However, opponents point out that the concept only works if all representatives of healthcare cost drivers are involved in negotiating lower reimbursement rates – not just hospitals and providers, but also drug manufacturers and other groups that contribute to the rising costs of healthcare.
II. Status of implementation
In 2022, the Colorado Option’s first year, roughly 35,000 people signed up for a Colorado Option health insurance plan.[27] This number includes 25,000 people who signed up through the state’s health exchange, and another 10,000 were automatically signed up through OmniSalud, a program offering state-subsidized insurance plans to people who lack immigration documentation and thus are not eligible for federal subsidies. This combined number only accounts for 13% of total sign-ups on the state’s health exchange, which represents a small portion of the overall individual and small group markets.[28] Proponents say they are satisfied with inroads made into the overall marketplace to date, but critics cite low enrollment as evidence that traditional products are sufficient and more affordable than the Colorado Option plans.
Carriers are required to file rate filings with the Division for all Colorado Option plans they offer.[29] In rate filings for 2023, only one carrier’s plan met the targets for every Colorado Option plan it sold. Most carriers were able to meet the targets for at least some of their plans in 2023.[30] However, in March 2023 rate filings, 10 out of 11 carriers notified the Division they would not be able to meet the 2024 premium reduction targets on all the Colorado Option plans they will sell.[31] Only two of these 10 carriers indicated they could meet the targets on a handful of their plans; the others expected to miss the targets on all of their plans.
In the aforementioned rate filings, insurers were highly critical of the Colorado Option, arguing that the premium reduction targets were arbitrary and actuarially unsound.[32] They argued that the benefits required in the plans were too rich for the low prices, and that given the actual increase in utilization trend, the state’s inflation calculation was inadequate. Carriers also pointed out that program requirements were based on pre-Covid data, which no longer applies in today’s healthcare landscape. Carriers also shared that they had already negotiated the lowest-possible reimbursement rates with hospitals, and they still could not meet the Colorado Option targets. Insurers wrote that they did not see a viable pathway to full compliance with the targets in the 2024 benefit year.[33]
These filings triggered Colorado Option rate hearings with the Division, which were scheduled during the summer of 2023.[34] These hearings would have allowed for public comment and ostensibly would have given Commissioner Michael Conway authority to lower reimbursement rates that carriers pay to hospitals.
However, Commissioner Conway ultimately kept opportunities for public comment but canceled each of the hearings scheduled for this summer as it became evident that carriers had already negotiated the lowest-possible reimbursement rates with hospitals, and he lacked any leverage to further force premium rate reductions.[35] This dynamic leaves the Colorado Option in a quandary: if carriers and hospitals have already negotiated the lowest-possible reimbursement rates, yet carriers still cannot afford to offer actuarily-sound plans that meet 2024 premium-reduction targets, then where does the Colorado Option go from here?
The Division will continue to hold Colorado Option Advisory Board meetings and provide opportunity for public comment, and it will determine final 2024 rates later this year.[36] It remains to be seen whether Colorado can force carriers to lower premiums any further, while managing not to drive any insurance companies out of the state’s health insurance market.