Since 2010, 23 states have introduced a total of 49 bills to create a public health plan option within their respective marketplaces, according to a March report from the Harvard Journal on Legislation.
Three states have passed and have or will enact a public option: Washington began offering coverage in 2021, Colorado will begin in 2023 and Nevada in 2026.
But Washington state's public-private plan, Cascade Care, has struggled to attract providers amid low reimbursement rates. The report suggests state-sponsored public option plans will be successful only if they cover a large segment of the population and offer competitive provider rate controls. Legal challenges are "inversely related to the scope" of a plan, meaning broader plans face fewer legal hurdles.
"In short, for state public option plans to be worth it, bigger is better," the report's authors conclude.
The report defines a state-sponsored public option as "a state-initiated health insurance plan that is offered to a significant share of the private health insurance market — the individual, small group or large group market — and pays publicly determined rates."
The need for a public insurance option was never more apparent than during the first stage of the COVID-19 pandemic, when 5 million Americans lost their jobs and their employer-sponsored health coverage during the worst public health crisis in more than a century.
Thomas Rice, PhD, is a professor in the Department of Health Policy and Management and the University of California Los Angeles. He said in an interview with Becker's that gridlock at the national level has left states with the realization that if a public option is even viable, it will need to take place on the state level.
"And the states really have two motivations," Dr. Rice said. "One motivation is to try to get more of their residents covered and the other is to see if they can try to save some money."
3 options in focus
After analyzing the 49 bills introduced in state legislatures from 2010-21, the Harvard report identified three proposed models: Medicaid buy-in, Marketplace-based and comprehensive. Sixteen introduced Medicaid buy-in plans, 10 introduced marketplace-based plans and five introduced comprehensive plans.
A Medicaid buy-in plan would offer an expanded plan within that program to residents without health coverage using state subsidies, though the report concludes allowing people to simply "buy in" to Medicaid is not viable due to federal constraints. The second option, and the one playing out in Washington state, would create a contract with commercial payers to offer a public option on the state's marketplace. The third proposal is where the state creates its own health plan and offers it to employers on the marketplace.
"In Washington state, they already have the middle option, where there is a collaboration between the state and the private plans, and that's Cascade Care," Dr. Rice said. "But not many people are in Cascade Care. … So it's faced a lot of barriers in becoming a big player in the state."
Commercial payers are not required to participate in Cascade Care, and the plan limits provider reimbursement in the aggregate to 160 percent of Medicare reimbursement rates for the same or similar services.
According to the Harvard report, "Washington’s experience highlights the difficult balancing act of setting provider rates and ensuring provider participation."
Beyond Cascade Care, any state plan is going to face political and fiscal challenges, Dr. Rice said. Not only will the state plan compete directly with commercial and marketplace plans, providers are unlikely to participate if reimbursement rates are too low — a reality that may be difficult to avoid if the goal of cost savings is implemented.
Nevada lawmakers, meanwhile, are considering designing their plan to make insurance providers join the public option.
"It's not clear what political hurdles they'll face when you try to make providers join a plan that doesn't pay as much, so there's really a bevy of challenges here," Dr. Rice said.
There are additional hurdles states will face in their pursuit of a public option, according to the Harvard report. Plans that target small populations, such as residents who do not hold citizenship, are more difficult to legally pursue and may never garner enough support or market share to have a meaningful effect.
"A weak public option may exert little competitive pressure on private health plans and do little to control costs or expand coverage," the report said. "Since a weak version of the public option requires nearly as much political capital as a bolder version, it may only be worth the fight to establish a weak public option if the state plans to increase cost control measures over time."
States largely on their own
As for funding a state plan, there is little offered by the federal government beyond marketplace subsidies, and relying on member premiums would likely make any such plan too expensive.
A broader plan that draws on pass-through federal marketplace funds via a Section 1332 waiver, individual premiums and new state revenues from payroll taxes to capture the employer contributions may be the only viable path toward a financially stable state plan.
Finally, states must decide how much they want their plan to disrupt the state's commercial insurance market. If a state pursues stringent controls over provider rates and forces the cost of healthcare and premiums to go down, the state's marketplace may face displaced commercial options and fewer plans overall. But preserving commercial offerings may sacrifice the intent of decreasing costs, the report said.
As for Cascade Care, Dr. Rice said the state and payers are generally satisfied with the plan and it has endured — a victory in its own right.
"But I don't think that the upside for Cascade Care is very high because they're using insurers and they're paying 160 percent of Medicare," Dr. Rice said. "There's nothing very fundamental about this reform."
"Though states have a path forward, they remain constrained by current fiscal and legal federalism," the Harvard report concludes. "Thus, for states to function as true laboratories of health reform, they need greater flexibility from Congress and the administration in the forms of broad statutory waivers and new legal pathways to prove whether a public option is indeed worth it."