In late June 2022, the Centers for Medicare & Medicaid Services (CMS) approved Colorado’s Section 1332 waiver to implement the Colorado Option, moving the state closer to implementing the standardized health plan for individual and small group markets — aimed at lowering premiums and improving the affordability of health care in Colorado.
The Colorado Option is an innovative approach to tackling key challenges in the health care system: lowering insurance premiums, containing rising hospital costs, improving access to insurance, and integrating a stronger equity focus into insurance design. The timing for implementation may also be critical. Colorado, like many other states, is anticipating sharp premium increases for the 2023 plan year. The initial review of insurance companies’ filings for 2023 indicate that the average consumer premium increase will be 11.3% in the individual market and 9.2% in the small group market.
Background on Colorado Option & 1332 Waiver Approval
Established through legislation in 2021, the Colorado Option was designed to improve access to and the affordability of health insurance for Coloradoans in the individual and small group markets. The law required the Colorado Division of Insurance to design a standardized health benefit plan, essentially a common plan with the same benefits and cost-sharing across carriers. Final regulations outlining requirements for the standardized plan were effective as of June 30, 2022. The 2021 law also requires carriers to meet certain premium rate reduction (PRR) targets to lower insurance costs for consumers over time before benchmarking future premium growth to medical inflation. Together these provisions will make it easier for consumers to shop for and compare health plans, while also making coverage more affordable.
Colorado’s recently approved 1332 waiver establishes a shared savings agreement with the federal government. The Colorado Option standardized plan design with PRR targets is estimated to produce net federal savings of $214 million in 2023 and $1.62 billion over the 5-year waiver period. Because the Colorado Option lowers insurance costs there will be fewer federal dollars spent on premium tax credits for Colorado consumers. The waiver also extends Colorado’s existing reinsurance program through 2027, which stabilizes the insurance market and lowers premiums by subsidizing health insurers’ costs from covering consumers with high medical costs
Improving Affordability and Access to Insurance
As part of the Colorado Option, carriers must meet certain premium rate reduction (PRR) targets to reduce premiums for the standardized plans by 5% in 2023, 10% in 2024, and 15% in 2025 compared to premium rates in 2021. After 2025, premium rates may only increase by the rate of medical inflation relative to the previous year. Reducing premiums and then limiting premium growth rates will make insurance coverage more affordable and will rein in runaway growth in consumer health care costs.
Colorado released preliminary 2023 health insurance information in early July that showed 87% of individual market enrollees will have access to a bronze, silver, or gold Colorado Option plan that is at or below the 5% PRR target next year. In comparison, average consumer premiums in the individual market are estimated to increase by 11.3% increase over 2022 premiums.
Federal savings from the Colorado Option will be shared with the state to support its reinsurance program, which stabilizes the market and lowers premium costs. The pass-through funding will also be used to provide additional state-based subsidies for consumers that may not be eligible for federal, ACA-based premium tax credits. Colorado’s reinsurance program and its expanded tax subsidies intend to make insurance markets more accessible, affordable, and stable for consumers.
Containing Hospital Costs
If carriers do not meet the PRR targets by 2023 then the Insurance Commissioner has the authority to review plans’ premium rates. Based on evidence reviewed at a public hearing and other analysis, the Insurance Commissioner has the authority to establish reimbursement rates for hospital care, a core driver of high health care costs and rising premiums. These reimbursement rates will be based on Medicare, meaning the state could join several other states in exploring the use of reference-based pricing to Medicare.
This summer, Colorado began preparing for these premium rate review hearings. The Division of Insurance held a series of informational meetings for stakeholders to collect feedback on the Colorado Option hearing process which will begin in July 2023. The Division will hold more meetings this summer on establishing reimbursement rates for hospitals and providers.
The Colorado Option will also increase insurer competition across Colorado. For 2023, the Colorado Option is bringing 42 new individual health plans with increased benefits into the market, and 48 new small group plans. Coupling increased insurer competition with other policies designed to improve negotiations between insurers and providers could lower health care costs and ensure consumers benefit from the realized savings. Policies that level the playing field for negotiations to lower negotiated hospital rates, such as prohibiting anti-competitive contracting, will be even more effective in an insurance market with robust competition.
Improving Health Equity
In addition to affordability, the 2021 Colorado Option law aims to ensure new standardized plans are designed to improve health equity and better serve diverse enrollees. The law stipulates that provider networks for Colorado Option plans must be culturally responsive to, and when possible, representative of the enrollee community. Additionally, Colorado Option plans must support non-English speaking enrollees through enhanced language access and provider directory requirements.
Colorado Option plans will offer lower cost-sharing for several services which were targeted in part to reduce racial health disparities and improve health equity in the state. Plans will cover primary care, pre/post-natal, and mental health/substance use disorder visits at $0 cost-sharing. Additionally, plans will offer diabetic supplies, including glucose monitors, for $0 cost-sharing and diabetes self-management education for only $5.
To learn more about state efforts to curb rising health system costs and make health care more affordable for consumers, see the National Academy for State Health Policy’s state strategy implementation tracker or legislative tracker.
