As CO option stumbles, inflation spikes, we pay more

Though it has not made headlines in recent months, the government-run health insurance plan dubbed the “Colorado Option” is quietly being implemented by the state.

Our work on this issue began in 2019. Since then, we’ve fought a global pandemic, experienced dramatic changes in our workforce, grappled with supply-chain issues and faced the highest inflation in decades. As implementation moves forward, the problems with the plan are increasingly magnified.

The Colorado Option is built around regulating what coverage the government plan must include and implementing price controls on private insurance carriers. Ultimately, the legislation dictates that health-insurance carriers must sell the new plans for 15% less than the 2021 rate through next three years.

As the state acts to develop and implement layers of rules and regulations for the new plan, they are not fully considering the impact, nor are they considering one of the most glaring economic realities: inflation.

In our latest study, we find that inflation is not adequately reflected as a variable in the consideration of price setting despite the supposed attempts in the law. The Colorado Option Plan premiums can grow at the rate of the 10-year average of national medical inflation, or 2.7% in the current year. That is simply not feasible as inflation in the past 12 months has been three times that rate.

Though the decision by lawmakers to cap the allowable growth of Colorado Option plan premiums at the average annual rate of national medical inflation over the previous 10 years may sound like a good way of keeping costs in line, the real-life consequences will put Coloradans’ access to affordable, high-quality care at risk.

Put simply, the Colorado Option’s allowable growth formula wildly underestimates the actual costs healthcare providers will face in coming years — from medical supplies to workforce and more.

As we have estimated in our previous research, this failure of the Colorado Option to meet the underlying costs of care will force difficult choices across the market. Providers — doctors, nurses, hospitals and caregivers — will be forced to choose between cutting services or passing costs on to the remaining private insurance market, thereby increasing rates on everyone else.

The huge task of developing a government-run health-care option has also led to months-long delays in the system’s implementation as the state struggles to establish clear guidelines under which insurers and health-care providers would be expected to carry out the policy. A letter to the Colorado Division of Insurance (DOI), the Colorado Hospital Association, Colorado Association of Health Plans and the Colorado Medical Society warned insurance carriers may not be able to meet their statutory obligations due to the lack of regulatory guidelines. Later this summer, we will understand whether or not carriers can meet the first-year premium targets.

If the state presses forward with this deeply-flawed system, Colorado could be on the same track as Washington — the only state in the country that has implemented a public option. Since its inception, Washington’s public-option system has been far from successful. As NPR reported earlier this year, just 1% of consumers in the state exchange enrolled in a public option plan in 2021, and the average public option premium was 11% higher than the lowest silver plan premium.

Though the cost of health care is a real concern for Coloradans, evidence continues to mount that strict government price controls in the Colorado Option may save a small number of people but shift those savings on to other people’s bill. More important, it will put patients’ access to quality health-care services at risk.

Chris Brown is the vice president of policy and research at the Common Sense Institute.