What State Health Care Reform Proposals Could Teach Congress

Policymakers at both the state level and federal level are considering a variety of public insurance expansions. Given the Trump administration’s hostility toward such efforts, any federal action would need to wait until at least 2021 (depending on the results of the 2020 elections). But state legislators in at least nine states proposed “Medicaid buy-in” or “public option” plans during this year’s legislative sessions, and while most states are far from enacting workable plans and are debating barebones proposals or considering study bills, a handful have first-step bills that could get off the ground in the next year or so. The designs of these state options vary significantly, and so any forward movement made by states over the next year will not only provide new coverage options for their residents, but also generate momentum and policy lessons for future federal reforms.

Background

Thirteen years ago, Massachusetts reformed its health insurance system to offer subsidized private coverage, available to everyone through a “guarantee issue” requirement (that is, insurers have to issue plans to any eligible applicant, regardless of health status) on a state-run individual market exchange—all the while expanding its Medicaid program significantly to include more low-income state residents.The reform became the model for Congress as it debated the Affordable Care Act just three years later, providing a tangible example of what happens in an insurance market and to a state’s unisurance rate when it requires that residents enroll in coverage, ends pre-existing condition discrimination, discounts private health plans, and expands public coverage. Any state passing Medicaid buy-in or public option legislation could play a similar role in the coming years, and “Medicare for All” and “Medicare for More” reform advocates serious about the new federal efforts should do everything they can to support this state momentum.

What constitutes a state-level Medicaid buy-in or a public option plan? Just as federal policymakers have offered a range of ways to expand public coverage, state policymakers are also using a wide-angle lens in designing these publicly backed health coverage options. Some proposed plans rely extensively on a state’s Medicaid infrastructure, utilizing existing Medicaid rules and regulations, including a reliance on managed care organizations, Medicaid-level reimbursement rates, and Medicaid-type benefits packages. Others use Medicare, ACA plans, or even state employee plans as a starting point for building a benefits package or provider network. Still others instruct state agencies to construct a wholly new option.

Researchers at Manatt, Phelps & Phillips (Manatt) and at the State Health and Value Strategies Center (SHVSC) at Princeton have provided in-depth analysis to states considering buy-ins and have published the most comprehensive tracker of state action on the issue: in total, nine states proposed some form of legislation to pursue a public option or Medicaid buy-in in 2019. According to the SHVSC, an additional four states have completed studies on the topic, and several other states are pursuing studies in this year’s legislative session. A comprehensive analysis of the state proposals are provided in Table 1.

This state-level momentum takes place against a backdrop of at least eight legislative proposals from Democrats in the U.S. Congress that propose expanding publicly backed insurance options in some manner, be it through a Medicaid buy-in option, expanding eligibility for Medicare, providing a new public option on health care exchanges, or moving to a fully single-payer system. Indeed, many of the solutions to cost and access embedded in those federal plans attempt to answer similar questions that state legislators are tackling: who should run a new public plan, what benefits it should offer, how generously should it reimburse doctors and other providers for their services, how directly it should compete with private plans, if it all, and who should be eligible to sign-up.

Some of these proposals have stalled throughout the course of this spring’s legislative session (though even in those states, this year’s first steps may pave the way for further attempts next year). But even if just one or two states pass and implement new public options plans first, they can provide a range of useful lessons to federal reformers—including just how much variation a federal reform could, or should, allow at the state level.

Here are three big ways states, if they passed these proposals, could test public plan designs being debated in Congress and pave the way for federal reform.

State Proposals Would Test the Impact of Using Different Reimbursement Rate Benchmarks

The state reform proposals currently under consideration use a range of benchmarks in determining what they would pay doctors and other providers for treating patients, from Medicare’s rates, to Medicaid, to the creation of new provider fee schedules intended to maximize the state’s ability to build a comprehensive provider network. The major federal health reform proposals offering new public coverage pathways similarly vary in choosing Medicaid, Medicare, some combination, or a new benchmark; one proposal, Representative Pramila Jayapal (D-WA)’s Medicare for All bill, sets a global budget for costs and sends providers a lump sum based on the population they serve.

Determining how high to set reimbursement rates is a critical decision point for any federal or state public plan, and the question is a potential point of tension. Medicaid rates are lower than Medicare rates—but both are lower than those offered by private insurance, and therefore either could keep the cost of the program lower than private insurance. For example, Manatt’s cost modeling for Colorado projects that setting a public option’s reimbursement rates at Medicare levels would result in a 15 percent reduction in premiums as compared to individual market plans in the state.¹ Manatt’s modeling for a New Mexico targeted Medicaid buy-in, using Medicaid provider rates, estimated a savings of 23–28 percent, as compared to the average individual market plan—though that number also includes savings from taxes and margin for profits. But setting rates too low may limit the number of providers willing to participate in the public plan and result in a “narrow,” or limited, network of doctors and other health care providers available for patients to see, and it is unclear how that tension would play out for a public option.² In Washington State, the original proposal relied on Medicare reimbursement rates, but lawmakers altered the proposal to allow critical access and sole community hospitals to reimburse at higher rates. The debate on how to set rates is ongoing, and a critical point of contention.

Actual experiences with any new options will provide a window into how providers may respond to new, more universally accessible public plans with lower reimbursements. And new state pilots may also show us just how popular with consumers a state public option plan will or will not be if it ends up offering narrower networks than the new eligible enrollee population may be used to in the private market.

States Proposals Could Show the Impact of Public Plans on Improved Competition

Some state public options, such as the Washington State proposal, have been designed as ACA plan look-alikes, or “qualified health plans,” insofar as they are available on the exchange, meet the exchange requirements of a “single risk pool,” and would participate in share risk pooling provisions such as risk adjustment. Others, such as the New Mexico bill that died in this legislature but prompted the passage of a further study bill going into next year, create an off-exchange option, meaning that they do not have to meet all of the ACA requirements for selling on the exchange (which may also pull enrollees out of the state’s private insurance risk pool).³ Off-exchange plans could potentially limit who can enroll to certain segments of the population, or offer non-ACA compliant benefit packages.

Most federal public option proposals envision a public plan that participates on the exchange as a “qualified health plan.” While both on or off-exchange plans will almost certainly have an impact on the quality and cost of private market coverage, the impact of universally available, on-exchange state plans would be particularly informative to federal policymakers interested increasing marketplace competition through the availability of a universal public option.

States Could Offer a Range of Discounts to People Enrolling in Public Options

Some state proposals would offer their public option using repurposed federal tax credits, while others set premiums “at-cost.” For example, the Washington State plan expands tax credit to people earning up to 500 percent of the federal poverty level and guarantees that no family would pay more than 10 percent of income toward health insurance.

In order to allow enrollees to access federal tax credits available through the ACA, several state proposals, such as Colorado’s, would require a 1332 waiver—an exemption built into the ACA that allows states to experiment with their health insurance markets, as long as they meet certain consumer protection guardrails (guardrails that the Trump administration watered down through guidance released last year). Such a request takes time, and the likelihood of approval is unclear, given the administration’s guidance on the waivers.⁴ Other proposals do not rely on the assumption that they will obtain that waiver, and either attempt to design plans to meet the “qualified health plan” ACA definition in order to allow enrollees to access tax credits, or, if they are not offering a plan that meets certain ACA requirements, assume that their public option will provide an affordable option without those discounts at all. But this means less money for state policymakers seeking to provide discounts to enrollees, which has already posed a challenge: for example, lawmakers ended the push for Colorado’s second proposal, which would have created a pilot that expanded insurance provided to state government employees to 100 people with limited options, because the premiums would have been too high. (This was in part due to the likelihood that the plan would attract people with high medical needs.)

The variance in discounts would help determine whether the cost savings generated through increased bargaining power and lack of profit margins will be enough to alleviate the heavy cost burdens facing a range of individual market consumers—for example, those who currently do not qualify for ACA premium tax credits, but are still middle income—or whether additional dollars discounting coverage further based on income are critical to ensuring affordability. The level of discounting needed to create an affordable option (even after generating projected savings through lower reimbursement rates and a lack of profits or tax liability) could also inform federal proposals, which take a range of approaches to discounting coverage—from utilizing (and often slightly expanding) existing ACA discounts, to allowing states to discount even further than the existing tax credits.

States are often cited as the laboratories for democracy, and federal policymakers crafted the ACA regulatory structure—such as the allowance for1332 waivers—to specifically provide the flexibility for states to pursue such experimentation. Even while federal lawmakers look for the political opening to push forward new coverage expansions and improvements, there may be significant opportunity for and energy surrounding new coverage efforts at the state level. And the next generation of federal reformers could benefit greatly from the experience if states succeed.

Table 1

Acknowledgements

Thank you to Dr. Michael Sparer at the Columbia University Mailman School of Public Health for his helpful comments and input into this analysis.

Cover Photo: Pharmacist, William Hewitt, (R) speaks with Rebecca Allen about her Medicare prescription drug benefit program as she buys her drugs at Rosemont Pharmacy in Portland, Maine. Source: Joe Raedle/Getty Images

1. Colorado’s public option bill does not actually set rates at Medicare levels, but leaves the question open for the state’s agency to analyze and determine going forward.
2. Only the bills introduced by Senator Bernie Sanders and Representative PramilaJayapal envision a world where the public plan is “single payer,” meaning that no other plans would be available and providers would effectively have to participate in the public plan.
3. As Manatt describes in their analysis, the plan design, benefit package, and eligibility requirements of an “off-exchange” public option will determine whether that plan narrows the exchange population and reduces private plan participation and increases premiums, or whether the pubpc plan attract a more limited group of people, potentially with greater health risk, actually bringing down premiums on the exchange; see Manatt Health, “Medicaid Buy-In: State Options, Design Considerations and Section 1332 Waiver Implications,” State Health and Value Strategies, 2018, https://www.manatt.com/getattachment/fd64ec7f-de6f-448c-8579-7f37b185fcc3/attachment.aspx. This is similar to the effect that Medicaid expansion has had on state exchanges; see Larisa Antonisse, Rachel Garfield, Robin Rudowitz, and Samantha Artiga, “The Effects of Medicaid Expansion under the ACA: Updated Findings from a Literature Review,” Kaiser Family Foundation, March 28, 2018, https://www.kff.org/medicaid/issue-brief/the-effects-of-medicaid-expansion-under-the-aca-updated-findings-from-a-literature-review-march-2018/).
4. Democrat legislators in New Mexico are working off of the assumption that the Trump Administration will not approve waivers to allow states to capture cost savings from tax credits to help pay for the program. See Michael Ollove, “Medicaid ‘Buy-In’ Could Be a New Health Care Option for the Uninsured,” Pew, January 10, 2019, https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2019/01/10/medicaid-buy-in-could-be-a-new-health-care-option-for-the-uninsured.

Tags: health care, medicaid, medicaid expansion