Colorado receives federal green light to launch state-sponsored health plan

HHS has approved Colorado's plan to launch a state-sponsored health plan on the ACA marketplace that payers will be required to sell at a lower cost.

With the federal agency's approval of the state's Section 1332 waiver, the new "Colorado Option" will be allowed to circumvent certain provisions of the ACA and pursue more innovative strategies to provide health coverage for residents. The move also allows the state to utilize federal funds to implement the new program, according to a June 23 news release.

The state legislation to create the new plan was introduced in March 2020. Now approved, payers operating in the state will be required to sell the plan on the marketplace beginning in 2023 and price premiums at 5 percent less than what they charged for plans in 2021, after adjusting for inflation. By 2025, premiums must be priced 15 percent less.

The Colorado Option will only be sold to individuals and small employers with fewer than 100 employees. In tandem with an existing state reinsurance program, HHS expects the plan to lower premiums by an average of approximately $132 per person per month, or 22 percent. The state estimates that around 10,000 Coloradans will gain access to health insurance under the new plan in 2023, and up to 32,000 people by 2027.

The federal government expects to save from the plan by what it calls "pass-through funding," or dollars that it already spends on premium subsidies that will go back to the state. An actuarial analysis that was included in the state's waiver application estimated those savings could reach $13.3 million in 2023 and $147.9 million by 2027. The state plans to use that funding to provide additional subsidies to low-income residents and those who are not U.S. citizens, according to the Colorado Sun.

The new plan will cover all health benefits required by the ACA, including primary care, behavioral health and prenatal visits, at no cost. Rates and final details about the plan are expected later this summer.

The plan has raised concerns among Colorado payers about being able to implement the cost cuts to premiums.

"CAHP remains concerned about the ability of carriers to meet the premium target reductions given the standardized plan benefit design, the lack of appropriate credit for current inflationary trends, and the outstanding rate setting process for providers. We expect savings from the federal waiver to be driven by the ongoing reinsurance program and not from the Colorado Option," a spokesperson with the Colorado Association of Health Plans told Becker's.

Colorado is among two other states, Washington and Nevada, that have or plan to enact a state-sponsored health plan in their respective marketplaces.

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