Most Colorado Option health insurance plans aren’t hitting state’s cost-reduction requirement

Most health insurance companies say they can’t lower monthly premiums to the level required by the state-designed Colorado Option next year, but advocates think insurers could strike deals to get closer to cost-saving targets as key public hearings near.

If they don’t reach agreements, the state could force some hospitals to accept lower rates to bring premiums down for the Colorado Option health plans, which are required to show a 10% reduction in 2024.

Last year, insurers didn’t face penalties for falling short of the premium targets, meaning that hearings coming up this month will be the first test of whether the Colorado Option can meet lawmakers’ goal of providing more affordable insurance plans. Significant money is on the line for health insurers, hospitals — and customers.

The law allows health insurers to file complaints against hospitals that they say prevented them from meeting the Colorado Option targets, but most instead blamed either general trends in health care, or the state itself for setting targets they said they couldn’t meet.

The Colorado Division of Insurance opted to file its own complaints against hospitals — a step the hospital industry argues it doesn’t have the authority to take.

And while most hospitals have taken the position that they’ve done enough and shouldn’t be dragged into an issue between the state and insurance companies, one system pointed the finger back at the insurer that filed a complaint against it.

State Rep. Iman Jodeh, an Aurora Democrat and one of the sponsors of the bill that created the Colorado Option, said she wasn’t surprised insurers didn’t immediately meet next year’s target.

“We’re going to face the argument of profit,” she said. “The amount of profit that insurance companies make has become an epidemic in the United States, and it’s creating barriers to care.”

The Colorado Option is a standardized insurance plan sold by private companies that was created by a law passed in 2021 after a push to create a true public option fell apart. It requires companies selling health insurance on the individual marketplace to offer plans that cover some services, like mental health visits, without out-of-pocket costs.

The plans’ monthly premiums were supposed to fall 5% in 2023. Few met the target, but there were no penalties this year.

Premiums in Colorado Option plans were supposed to be 10% lower in 2024 than in 2021, after adjusting for inflation, but only Denver Health Medical Plan met that goal for all the plans it sells, according to documents filed with the Colorado Division of Insurance.

The Division of Insurance is scheduled to hold public hearings on the proposed rates starting Tuesday and running through at least June 22. Colorado Insurance Commissioner Michael Conway could order hospitals to accept lower rates from insurers if he determines the rates are keeping them from meeting the Colorado Options’ premium requirements.

Representatives from the Division of Insurance declined to comment on the process.

The state set a “floor” rate that’s the minimum a hospital could be forced to accept. The floor is at least 165% of what Medicare would pay for services, with higher rates for independent and rural facilities. The state can’t require a drop of more than 20% in one year, though. For example, if a hospital was receiving 200% of what Medicare pays, it couldn’t be required drop below 180% in 2024, even if the floor is lower. Insurance companies and hospitals can independently negotiate lower rates.

Only one company, Cigna Healthcare, blamed its inability to lower premiums far enough on hospitals, but the Division of Insurance filed complaints alleging that about 20 hospitals’ rates were too high, based on an analysis it commissioned.

The Colorado Hospital Association disputes the accuracy of the analysis and said the Division of Insurance only has the right to file a complaint if an insurance company identified a hospital as the reason that it couldn’t hit the premium reduction target.

Tom Rennell, senior vice president of financial policy and data analytics at the Colorado Hospital Association, said it was a surprise the Division of Insurance decided to single out hospitals when the insurance companies didn’t.

The insurers “pointed to many other aspects of the health care system and to flaws in the design of the targets,” including that they don’t account for financial challenges in health care since 2021, he said.

Rennell said he expects most hospitals and insurers to reach agreements on rates putting them somewhere near the minimums the state could require.

“It’s still unsure whether that would be enough to achieve the rate targets under the public option,” he said.

Adam Fox, deputy director of the Colorado Consumer Health Initiative, agreed that settlements are likely, but said the insurance companies’ filings suggest that lowering rates paid to some hospitals would get some of them to the goal and bring others closer. The prospect of a public hearing is a powerful motivator to bring costs down, because it costs money to prepare for one and requires greater transparency than businesses want, he said.

“The traditional arguments, let the market work and let competition work, haven’t led to cost reductions,” he said.

Fox said he’s not sure how much effort the companies made, since they attributed the shortfall to trends he said the state adjusted for, such as medical inflation and patients being sicker than before the pandemic.

“The fact that Denver Health continues to meet the targets and Cigna was able to meet it on their silver plans shows it is possible,” he said.

Six companies will sell health insurance on the individual market in Colorado in 2024, including newcomer SelectHealth, which is affiliated with hospital system Intermountain Health. Denver-based Friday Health Plans won’t be selling next year because it’s shutting down in the six states where it now operates.

About 35,000 people, or 13% of those buying on the individual marketplace, chose Colorado Option plans in 2023. Jodeh said the legislature took steps this year to make the plans easier to find and to compare to other choices, but she was pleased with that market share in the first year.

Here’s what individual insurers are saying about their efforts to reach the Colorado Option requirements:

Cigna

In filings with the Division of Insurance, Cigna Healthcare reported its silver plans would meet the requirement to reduce premiums 10%, but that its gold and bronze plans wouldn’t in five of the state’s nine regions.

Cigna blamed the state for setting what it considers an unrealistic goal, and Intermountain Health for not accepting lower rates at three of its Denver-area hospitals.

By requiring reductions from 2021 premiums, the state didn’t account for all of the changes in health care since 2019, Cigna said in its filings.

“These conditions and the other challenges identified in this narrative make it extremely difficult for any carrier to meet the premium rate reduction required by the Colorado Public Option in (plan year) 2024,” it said.

It also said Intermountain Health, which merged with Broomfield-based SCL Health last year, refused to take lower rates at Good Samaritan Medical Center, Lutheran Medical Center and St. Joseph Hospital. It asked the Division of Insurance to order Intermountain to accept rates close to the floor the division identified.

Intermountain countered in its filings that Cigna’s rates are already insufficient, and that the insurance company could meet the requirements by dipping into its profits, which it estimated were about $6.7 billion in 2022. Representatives for the health system declined to comment further, citing ongoing negotiations.

The Division of Insurance filed its own complaint, arguing additional hospitals that Cigna contracts with should lower their rates. An analysis commissioned by the state found that if rates were lowered to the floor at six additional hospitals, premiums would drop less than 1% in Boulder County. In contrast, they’d fall more than 15% in Weld County, while the Denver area would see a more-modest 2.6% decrease. Two more plans available in Larimer and Weld counties meet the 10% reduction, as would two for sale in El Paso and Teller counties.

Kaiser Permanente

Kaiser Permanente Health Plan reported none of the plans it sells will meet the rate reductions. It cited inflation, rising prescription drug costs, additional costs related to COVID-19 and that the population covered by small group health plans would continue to get sicker.

Kaiser Permanente didn’t file complaints against any hospitals, but the Division of Insurance did. The state’s analysis found premiums could be about 5.9% lower if Kaiser Permanente negotiated rates near the floor the state set with seven hospitals. That wouldn’t be enough to meet the rate requirements, though.

Last week, Kaiser Permanente and the hospitals filed statements that they had already reduced rates by 20% — the most the state could legally ask for — or weren’t in-network, meaning the insurer and the hospital hadn’t agreed on any rates.

In a statement Friday, the health system said it was continuing to negotiate with hospitals to lower rates, but that the state’s target was too low because it hadn’t adequately accounted for inflation. It estimated it had a profit margin of about 1.5%.

“It’s critical to offer a plan that is actuarially sound, and Kaiser Permanente simply can’t charge less than it costs to deliver the care,” the statement said.