The Nevada legislature is debating Senate Bill 420, legislation the authors say is designed to lower health care costs for consumers, reduce disparities for historically marginalized communities, and increase coverage choices for Nevadans (particularly those in rural areas). To achieve these goals, the legislation would create a “public option” plan. In this effort Nevada is following the path of Washington State, which implemented its public option plan beginning 2021. A handful of other states, including Colorado, Connecticut, and Oregon are also debating public option legislation, and Washington recently enacted a bill with several improvements to their public option program. In this blog series CHIR experts will spotlight each of these state efforts to lower health care costs and expand coverage choices by leveraging the purchasing power of state government. This post focuses on Nevada’s effort.

Is the third time the charm?

Leaders in Nevada’s legislature have been on the hunt for policies to improve coverage affordability for several years. With fourteen percent of Nevadans uninsured, the sixth highest rate in the country, state policymakers feel an understandable sense of urgency. In 2017, the legislature enacted first-of-its kind legislation to allow any Nevada residents, regardless of income level, to buy in to the state Medicaid program, but it was vetoed by then-Governor Brian Sandoval. In 2019, the legislature failed to pass the Medicaid buy-in proposal, but it did mandate that the state produce a study to examine either (1) allowing residents to buy into the state employee plan or (2) offering a public option plan through Nevada Health Link, the state-based Affordable Care Act marketplace. That study was submitted in January 2021, and subsequently legislative leaders have introduced Senate Bill 420, which, to survive, must be passed before the end of session on June 1.

Key elements of the proposal include:

• The state Departments of Health & Human Services (HHS) and Insurance (DOI) and Nevada Health Link must “establish and operate a public plan” by 2026.
• The plan would be offered through Nevada Health Link or for direct purchase in the individual market, although the state could also offer it to small employers.
• The state may contract with a private insurer to run the plan, and any insurer that has a Medicaid managed care contract with the state must submit a “good faith” bid to run the public option plan.
• The plan must meet all federal and state requirements for individual market insurance or small-group market insurance, if applicable, and offer at least one silver and one gold plan.
• The premiums for the plan must be 5 percent lower than the premiums for the benchmark Silver plan in each zip code, and must achieve a 15 percent premium reduction over four years.
• The plan must pay providers at least the Medicare rate for their services.
• Providers must participate in the public option plan network as a condition of their participation in the state employee health plan and Medicaid.

The bill further authorizes the state to pursue an Affordable Care Act Section 1332 waiver, which would allow the state to collect pass-through payments if the public option plan reduces the amount the federal government would have otherwise spent on premium tax credits. The bill also requires the state to seek a waiver to enable certain union health plans to offer coverage via Nevada Health Link.

Learning lessons from Washington State

Washington launched its public option in 2020, with coverage starting January 1, 2021. Although the state was hoping these plans would provide a lower cost option for individual market enrollees, in many areas of the state the public option plan was more expensive than the private market competition. Additionally, in its initial year, the public option is only available in 19 out of 36 counties in the state. Ultimately, only one percent of individual market consumers chose to enroll in a public option plan. Proponents point to several shortcomings in the legislation for the early less-than-satisfactory results, including:

• An increase in the provider reimbursement rate from the original target of 100 percent of the Medicare rate to 160 percent;
• Lack of interest among insurers in bidding to offer the public option plan;
• Providers’ unwillingness to accept the level of reimbursement required; and
• A requirement that the public option plan offer a more generous benefit package than competing alternatives.

Nevada legislators appear to have taken these lessons to heart, as their bill attempts to mitigate these issues. First, it establishes mandatory premium reductions (15 percent within 4 years) without changing the plan benefit requirements, meaning that insurers will have to find savings by reducing the amount they pay providers. While the legislation does not cap provider reimbursement as Washington does, the bill establishes the Medicare rate as an appropriate level of provider compensation. On average, private insurers in Nevada pay hospital providers 211 percent of the Medicare price. If the public option plan is able to reimburse providers at the Medicare rate, it could capture significant savings that could be passed onto policyholders.

Second, the bill attempts to strong-arm insurers and providers into participating in the public option. Any insurer that wants a Medicaid contract with the state must submit a bid to operate the public option. And any provider that wants to continue to treat either Medicaid or state employees must participate in at least one public option plan network.

Third, the bill does not require the public option plan to offer a beefed-up benefit package. The plan would still have to meet the Affordable Care Act’s essential health benefit and coverage generosity standards, but it wouldn’t be held to a higher standard than the plans offered by private insurers.

Looking ahead

Even with strong participation incentives, hospitals and physicians may still resist contracts with lower reimbursement rates, particularly in rural areas with provider shortages or monopolies. Additionally, the enhanced premium tax credits provided under the American Rescue Plan, if made permanent, could alter the cost-benefit analysis for policymakers. In this scenario, the federal government will be subsidizing affordable premiums for individual market consumers, making it perhaps less attractive for legislators to target providers’ reimbursement rates to achieve their affordability goals. However, federal subsidies only paper over the root of the affordability challenge, and do nothing to curtail the primary driver of high and rising health care spending: provider prices. This makes Senate Bill 420 a noble effort to lower Nevadans’ premiums by targeting the real source of our affordability challenges.