Why a showdown over Jared Polis' big health insurance reform program fizzled — and what it means

Yesterday was supposed to be the day when the curtain lifted on the most momentous showdown yet for Gov. Jared Polis' health policy initiatives — when hospitals and insurance companies would have gotten hauled into a public hearing to explain why their prices aren't lower.

The showdown has to do with the Colorado Option, the Polis-backed, government-designed health insurance plan that private companies operating in the state are required to sell. Colorado Option plans are required to be sold at lower prices — for next year's plans, those prices are supposed to be 10% below a company's 2021 rates.

But most insurers have told state regulators they won't be able to meet those targets, and those notices triggered the Colorado Option's signature bit of regulatory theatrics: the public hearing where insurers and hospitals would have to explain themselves. At the end of the hearing, Colorado's insurance commissioner could have ordered hospitals to lower their prices or limited how much insurers could keep for profits or to cover administrative expenses, an almost unprecedented flex of regulatory muscle.

Insurance company Cigna was supposed to go first, with hospitals from the Intermountain Healthcare, UCHealth and HealthONE systems all also being called to account in a rate-setting rumble scheduled for Tuesday. But it didn't happen — at least not yet. Late last week, the hearing got postponed.

Here's a quick explanation of what we know and what it all means.

Wait, Colorado Option, what is that?

The Colorado Option is one of Polis' and legislative Democrats' biggest achievements in health policy legislation in the past few years. It's basically a way for the state to create a public option health insurance system without putting the state budget at risk.

Colorado Option plans have a standardized benefit design, meaning state regulators require them to all be built the same — the same services covered, the same copay structures, etc. — though specifics like which hospitals and doctors are included in-network will change. Insurers are required to sell the plans if they sell other plans in Colorado's individual or small-group markets — those are places where people who shop for health insurance on their own or people who are buying a health plan for the employees of their small business, respectively, go to get coverage.

And, as previously mentioned, they also have to be sold at progressively lower prices — 10% below 2021 rates for next year and 15% below for 2025, after adjusting for inflation. The Colorado insurance commissioner can use some regulatory might to make those prices happen.

Booorrriiinnnggg

No, wait! This is actually really interesting for a few reasons.

First, though other states have implemented or are considering similar programs, Colorado's is arguably the most aggressive. So that makes this a test case for systems that other states may want to set up.

Second, the program gives state regulators here an almost unheard of power — the ability to set hospital prices. So-called "rate setting" for hospitals has long been a goal of health system reform advocates who want to see the government take a stronger role in pushing down health care costs.

And, lastly, though Colorado Option plans are available only to a slice of Coloradans, supporters of the program hope that its benefits will percolate through the rest of the system. For instance, if insurers know that hospitals are willing to offer reduced prices for people on Colorado Option plans, it may encourage those insurers to negotiate a better deal for people employed by big companies.

The public hearings and the information they would reveal are key to all of this.

"The public hearings are really going to set the bar as far as what DOI expects to see for those finalized rates," said Adam Fox, the deputy director of the Colorado Consumer Health Initiative, which supports the Colorado Option.

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So, what's the problem?

Insurers have said these pricing targets for Colorado Option plans are unachievable.

They give a number of arguments for why: They say the state isn't calculating inflation in the right way, so it's not allowing insurers to price in the actual increase in the cost of health care services. They say the benefits covered in the plans are too rich for the required prices. They say they can't offer the plans at "actuarially sound" rates — in other words, they say they will go broke selling them.

"The public option law is deeply flawed," Saskia Young, the executive director of the Colorado Association of Health Plans, an insurer trade group, wrote in a statement.

Proponents and opponents have been making these back-and-forth arguments for years. Proponents say the health care industry is raking in too much money at the expense of patients. Opponents say the other side doesn't understand what it takes to run a health care business. Proponents say opponents are hiding their true finances behind complicated systems and well-appointed lobbying teams. Opponents say what the other side is proposing is unsustainable.

The public hearings were going to help clarify this debate.

OK, you have my attention. Why did Tuesday's health policy Thunderdome get canceled?

Well, if you read the filings leading up to the public hearings (which you can, right here), the process comes across like litigation. And, as with most litigation barreling toward trial, there was a settlement.

The first hearing involved Cigna, which said it couldn't meet the price targets for most of its plans. Cigna's hearing was slated to be extra interesting because it was the one insurer this year that blamed hospitals, in part, for not being able to reach those targets. Cigna cited three hospitals owned by Intermountain Healthcare (which used to be SCL Health in Colorado).

The Division of Insurance added its own complaint to the mix, pulling in some UCHealth and HealthONE hospitals. So that set the battle lines: The commissioner of insurance was going to decide if he should order those hospitals to reduce the prices they charged Cigna to treat Colorado Option patients.

(One of the quirks of the hearing process is that, while Division of Insurance staff members act essentially like prosecutors or plaintiffs in the case, their boss, Insurance Commissioner Michael Conway, acts as the judge. Conway, who has been a major supporter of the Colorado Option, says there are administrative firewalls in place in his office to preserve the integrity of the process.)

Last week, Cigna and the hospitals filed requests to vacate Tuesday's hearing, noting that they had reached a deal that should lower the prices on Cigna's Colorado Option prices.

Conway ordered the hearing to be postponed until June 13, though it could be canceled altogether if Conway verifies the information in the motions.

"Assuming all of that is correct, everything kind of worked exactly like we expected and they've reduced rates as far as they possibly can reduce rates," Conway said in an interview.

What does he mean "as far as they possibly can"? Did they hit the targets or not?

See? We knew you'd find this story interesting.

Don't tease me, I'm invested now.

Conway can't tell hospitals to charge whatever he wants.

There's a lower boundary to the prices he can set through these hearings, something he calls "statutory floors."

Those floors are generally around 165% of what Medicare allows for the same service, though they can vary based on a few factors. So, if Medicare allows a hospital to charge it $100 for a certain service, the lowest Conway can set a price for a Colorado Option patient for the same service is $165. Conway also can't slash prices more than 20% below what the hospital charged the insurer in the previous year.

As part of the settlement, the hospitals all said they had either reduced their prices below the statutory floors or had reduced them as much as they could without breaking their business. So, if there are no prices for Conway to set, there's no need to hold a hearing.

A spokeswoman for Intermountain Healthcare said she could not comment on the proceedings, and a request for comment to Cigna went unanswered. A spokesman for the Division of Insurance said he also couldn't comment.

It's unclear whether this means Cigna's Colorado Option plans for next year will actually hit their price targets.

Cigna wrote in a filing that it expects the lower hospital prices to create "an expected premium reduction of at least 0.3%." Conway still has authority to limit Cigna's profit and administrative margins or to push rates down if he feels other factors that go into them are inflated. Final rates for 2024 plans won't be approved until later this year.

Is this going to happen with all the hearings?

There are currently public hearings scheduled throughout June for insurers operating in the individual market. But all of those show signs of settling.

While Cigna was the only insurer to blame a hospital's prices for its failure to hit the Colorado Option price targets, the Division of Insurance has filed its own complaints against hospitals contracted with three other major insurers in the state — Anthem, Kaiser Permanente and Rocky Mountain Health Plans.

That means three other high-stakes showdowns are on the calendar. But filings in each of those cases show that insurers and hospitals are talking and that, in many cases, hospitals are either dropping their prices or arguing that they are as low as they can be. So this could lead to more hearings getting axed.

Hearings for Denver Health Medical Plan, which said all of its Colorado Option plans would meet the price targets, SelectHealth, which is brand new in Colorado, and Friday Health Plans, which is in the process of going belly up, have already been canceled or are moving in that direction. While public hearings are on the calendar in July for the small-group market, there are currently no complaints against hospitals in those cases, making it unclear if those hearings will go forward.

So it's possible that the first year of Colorado Option public hearings could produce a giant goose egg — no dramatic hearings and a rather ordinary regulatory review process.

Is that … a good thing? Is the Colorado Option working?

Conway says this is the Colorado Option process functioning as intended. The goal, after all, was to get hospitals to lower their prices and insurers to sell more affordable plans.

"We always knew that the last pressure point for getting them to do that was going to be the hearings," he said.

Fox, the consumer advocate, is equally as enthusiastic.

"This is a good sign that the Colorado Option process is working to achieve the premium reductions and is making better coverage more affordable for Coloradans," he said in a statement. "It's clear the process leading up to a hearing is working as intended, and is bringing insurers and hospitals to the table to negotiate lower health care costs for Coloradans."

But folks on the insurance side aren't so sure. They say all this shows is that insurers and hospitals had already negotiated pretty tight deals and didn't need the threat of public hearings.

"The hospital reimbursement rates delineated in statute are generally higher than what most health plans have negotiated in partnership with hospitals well before and independent of the public option law," said Young, the Colorado Association of Health Plans executive director.

So what comes next?

For now, the June 13 hearing is still on the books. Members of the public who want to testify at that hearing — yes, there is an opportunity for public comment — have until Friday to sign up. There is a link to the sign-up form at the top of this Division of Insurance website.

Otherwise, keep watching that page to see what happens with the other hearings that are scheduled.