Washington pioneers public health care option, but controlling costs remains tricky

The Evergreen State is the first to authorize the creation of a state-run public health insurance option on its Affordable Care Act exchange. Gov. Jay Inslee, a 2020 Democratic presidential candidate, signed legislation on Monday that will make the option available in 2021.

The move comes as Democrats on the campaign trail and in Congress debate how best to expand health care in the US -- ranging from a complete overhaul through "Medicare for All" or more gradual shifts through ideas such as the public option.

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Passing a public option wasn't that easy on the state level, either. A delicate balance had to be struck between trying to control spending and making sure hospitals and doctors were willing to participate. The Washington plan, dubbed "Cascade Care," is only expected to reduce premiums by 5% to 10% after lawmakers boosted payment rates to providers.

In addition, the state's efforts lay bare the challenges of getting the government more involved in health care.

The Affordable Care Act bill originally contained a public option, but the contentious provision was ultimately struck before it became law amid opposition from the industry and some members of Congress. Some argued that a public option wasn't needed to boost coverage, said Chiquita Brooks-LaSure, managing director at Manatt Health, who worked on the law's passage and implementation for the Obama administration.

"Ten years later, we may feel differently about what's necessary," she said.

With little movement on health care coverage issues on the federal level, states are well positioned to take action, said Heather Howard, director of State Health & Value Strategies at Princeton University. Several blue and red states, including Colorado, New Mexico and Maryland, are looking to test innovative methods of broadening access to health insurance.

But so far, Washington is the only one to make a big move.

The state's primary goals are to rein in soaring costs for consumers, but also make sure that everyone has at least one set of plans to choose from on the exchange. Premiums in the state's individual market soared about 50%, on average, over the past two years, said Jason McGill, Inslee's senior health policy adviser.

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Also, about one-third of the state's counties have only one insurer participating in Obamacare, and some residents faced the threat of having no options for 2018 -- though at least one carrier stepped in before open enrollment began. Roughly 201,500 people enrolled in exchange plans this year, down 4% from a year ago. Total enrollment in the individual market comes to just under 300,000 when those in off-exchange policies are included, McGill said.

Here's how the public option will work: The state will contract with insurers to provide a standardized set of policies -- which state and exchange officials have yet to develop -- on the Obamacare exchanges to compete with the plans already offered by private carriers. Premiums for the public option policies will vary by area, but deductibles and co-pays are expected to be the same in each plan tier across the state.

The state's insurers have mixed feelings about the public option, and the national industry group called for Inslee to veto the bill, saying it will "limit access, stifle innovation and reduce choices" for residents. But the state is wielding a big stick: Carriers that cover state workers and public school employees in a county must participate if they want to keep the business.

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An even larger sticking point is how Washington plans to reduce costs -- by capping payment rates to doctors and hospitals at an average of 160% of the federal Medicare rate, with some exceptions for the state's roughly 50 rural hospitals, which are generally more financially stressed. It is one of the main reasons why the state's hospital and medical associations oppose the idea, warning that it could reduce the number of providers willing to join.

"The imposition of a rate cap would jeopardize physician participation, leading to health plans with limited access to care for patients," said Sean Graham, director of legislative and political affairs for the Washington State Medical Association.

Also, providers are upset that no restraints were put on insurers or drug makers and that the law doesn't address other problems that affect spending, such as residents' health status. Also, it doesn't enhance the federal subsidies that have made Obamacare more attractive for those who qualify, though the state plans to try to bolster that assistance.

"We are concerned that one of the precedents that this bill sets is that health care costs may only be controlled or reduced by capping reimbursement rates to providers and hospitals, instead of looking at all of the cost drivers in health care," said Chelene Whiteaker, senior vice president of government affairs for the Washington State Hospital Association.

The rate cap is actually much higher than originally planned. Initially, lawmakers were looking to pay providers the same as Medicare, which would have reduced costs somewhere in the 40% range, McGill said, adding the state can't do much about drug prices though it will try in the future.

However, the legislature then boosted the cap to an average of 160% of Medicare rates to bring in more providers -- but that reduced the savings projection to only 5% to 10%.

"We all wish we could do more for consumers," McGill said. "It's balancing that cost savings with ensuring that there is a provider network. It's a first step. So we'll see how this works."

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