In 2019, Washington State enacted a first-of-its-kind public option.* The publicly procured plans run by private insurers, which cap provider reimbursement rates in an attempt to reduce the cost of premiums, were offered for the first time in 2021. The inaugural year of Washington’s public option yielded underwhelming results – the plans were only available in 19 of the state’s 39 counties, and fewer than 2,000 people enrolled. And while the state-set standardized benefit designs proved popular and resulted in savings on out-of-pocket costs, public option plans were priced on average 4 percent higher than 2020 premiums.

State officials identified several barriers to the program’s success, including major hospital systems’ refusal to participate in the plan networks, the lack of state subsidies to make plans more affordable, and conservative pricing by insurers. To address some of these shortcomings, Washington enacted legislation this year to bolster the state’s public option and standard plan offerings.

What’s in the New Bill?

Tie-in Requirement for Hospital Participation

To incentivize hospitals to participate in public option plan networks, the new law requires them to contract with public option plans in certain situations. Starting in Plan Year 2022, if there are counties with no public option plans available, in subsequent plan years state-licensed hospitals that receive payments from the statewide school and public employee benefit pools or Medicaid, upon an offer, must contract with at least one public option plan to provide in-network services to enrollees. This “tie-in” requirement, which exempts hospitals owned and operated by a health maintenance organization, such as Kaiser Permanente-owned hospitals, received fierce opposition from the state hospital association, which asked Governor Jay Inslee to veto the provision. The hospital participation requirement, should it be needed, aims to help insurers build networks so the plans are available across the state.

Changes to the State’s Contracting Authority 

While the lower provider reimbursement schedule initially proposed did not make it into the final bill, the enacted legislation repeals one of the Health Care Authority’s (HCA) previous powers, scheduled to take effect in 2023, to waive the cap on reimbursement rates (set at 160 percent of Medicare by the program’s enacting legislation) if an insurer sets actuarially sound premiums that are lower than the previous plan year’s rates. HCA retains the authority to waive the cap on reimbursement rates if an insurer fails to meet network access standards due to the reimbursement standard (should the aforementioned tie-in requirement still leave network gaps) and the insurer can achieve actuarially sound premiums at least 10 percent lower than the last plan year by other means. The bill gives the HCA, in consultation with the state insurance department, authority to introduce fines or take other contract actions to enforce the hospital tie-in requirement. It also directs HCA to ensure availability of the public option statewide or in a given region of the state. Further, the bill prohibits hospitals and insurers from using the public option plan as a bargaining chip by conditioning participation in other commercial networks on participation in the public option plan. How this prohibition will work in practice, or be enforced, is unclear.

State-funded Premium Assistance

After the 2019 bill required a study to assess the impact of state-funded premium and cost-sharing assistance, the newly enacted legislation establishes a state premium subsidy beginning in 2023 (after the American Rescue Plan’s enhanced premium tax credits are scheduled to cease). They will be funded via a $50 million appropriation in the state’s biennial budget. The 2021 bill and budget act stipulate that premium subsidies will be available to those with incomes up to 250 percent of the federal poverty level that are enrolled in a silver or gold standard plan. It also restricts state assistance to those who are not eligible for minimum essential coverage through Medicare, Medicaid or a state premium assistance program for certain Pacific Islanders (known as the COFA program), and requires recipients apply for and accept all available federal premium subsidies. The state marketplace may establish additional eligibility criteria, and subsidies are subject to the availability of appropriations.

Legislation enacted this year also establishes a state cost-sharing reduction program, but the final state budget did not appropriate funding for this provision. This bill also authorizes the marketplace, in consultation with state agencies, to apply for a 1332 waiver under the Affordable Care Act (ACA) to receive federal pass-through funds for implementing the state subsidies, increasing access to marketplace plans, and establishing or expanding on other programs to increase coverage affordability and access. And the budget requires the marketplace, in consultation with HCA and the state insurance commissioner, to “explore opportunities” to enroll residents who do not qualify for non-emergency Medicaid or federal affordability programs, which may include undocumented immigrants, in a state-funded program.

While the American Rescue Plan (ARP) has significantly expanded federal premium subsidies, this expansion is currently set to end after next year. Although Congress is debating whether to extend the ARP’s enhanced subsidies, additional state-funded subsidies could help provide even more relief to lower income Washingtonians who rely on the marketplace for health insurance, and state-funded cost-sharing subsidies – if they are eventually funded through state resources or federal pass-through funding – would help reduce the burden of out-of-pocket expenditures.

Updates to Standard Plan Requirements

The 2019 legislation required Washington’s state-based marketplace to develop standardized plans. The new products available this year prescribed cost-sharing for a common set of benefits across insurers, offering on average lower deductibles and more pre-deductible services than non-standard plans. Among new customers who signed up for coverage through Washington’s marketplace during the recent open enrollment period, 40 percent selected a standardized plan.

The 2021 legislation builds on this by requiring insurers participating in the marketplace to offer a standardized silver and gold plan in every county they offer marketplace products, and a standardized bronze plan if they are offering any bronze marketplace plans. Beginning in Plan Year 2023, the bill sets a cap on the number of non-standard plans a carrier may offer, a strategy designed to streamline the shopping experience for consumers and provide the state with more power to manage its marketplace product shelf.

Study to Inform Possible Future State Action

Finally, the bill includes a directive to study the public option’s impact on hospitals, insurers and consumers, suggesting the state may consider future changes to the public option program. When enrollment in the public option plan exceeds 10,000 lives, the exchange and state agencies will evaluate rates paid by public option plans to hospitals and any impact on hospitals’ financial sustainability; the impact of public option plan enrollment on consumers; and recommendations, in consultation with other stakeholders, to address issues identified through the evaluation.

Takeaway

Washington is a leader in innovative health policy, and its public option plans are no exception. Other states are following Washington’s lead – Nevada recently enacted legislation to create a public option similar to Washington’s program that will become available in 2026, and in Colorado, the governor has signed a bill that requires insurers to offer standardized plans at lower premium rates. Several other states, including Connecticut, considered public option proposals that did not ultimately pass.

As the first of its kind, Washington’s program can offer insights and lessons learned for other states pursuing or implementing a public option. After a disappointing performance in its initial year, Washington officials identified policies to expand availability and improve the affordability of the state public option, including new incentives for hospital participation and state-funded subsidies to further reduce premiums. Time will tell whether Washington’s public option 2.0 will meet lawmakers’ original goals. But Washington’s experience will continue to shed light on how far a state public option of this kind can go in reducing gaps in coverage and improving access to care.

* Author’s note: This post was updated on June 28, 2021 to correct an error in the original post regarding the Washington State Health Care Authority’s (HCA) power to waive the provider reimbursement cap for state-procured public option plans. While Washington State’s 2021 legislation repealed a provision allowing HCA to waive the cap that would have taken effect in 2023, HCA retains its waiver authority in circumstances where an insurer cannot meet network access standards due to the reimbursement cap and sets actuarially sound premiums at least 10 percent lower than the prior plan year by other means. Thank you to our readers for alerting us to this error. This post was further updated on November 10, 2021 to clarify that the requirement for hospitals to contract, upon an offer, with at least one public option plan would not take effect until plan years following 2022 (the first year where public option plan availability would trigger the requirement).