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Washington state enters the private insurance game

Washington state enters the private insurance game; offers a public option to compete with private insurers

Washington state has become the first state to create a publicly funded health insurance option for its individual health insurance market. The program, Cascade Care, will compete with private insurers in that market beginning in 2021. Cascade Care hopes to attract customers by offering individual health insurance policies at a price the state expects to be 10% cheaper than policies offered by private insurers.

Lockton comment: The state hopes to achieve the cost savings by capping payments to doctors, hospitals and other healthcare providers at an amount equal to 160% of what Medicare pays. That reimbursement rate is higher than the rates being considered by other states, but reflects the conundrum facing lawmakers: If the rate is set too high (e.g., 200% of Medicare rates) it won’t achieve desired savings; but if the rate is set too low, doctors and hospitals may refuse to accept Cascade Care insurance.

The state’s entrance into the private health insurance market won’t be patently obvious. The state will set the healthcare benefits payable by Cascade Care and design at least three benefit packages within each of the Affordable Care Act’s bronze, silver and gold metal tiers (generally speaking, 56-65%, 66-72% and 76-82% actuarial values, respectively; a policy’s actuarial value reflects the portion of expected covered medical claims the policy is designed to pay).

Although the state’s taxpayers will take on the insurance risk, the state won’t sell the coverage directly. Rather, it will pay private insurance companies to offer and administer the coverage, that is, to accept premium payments and pay claims.

The new state law does not provide for state-backed group insurance of the sort some employers purchase for the benefit of their employees, and the law is likely to have little impact on the group insurance market.

Anyone can buy … and taxpayers will help pay the premiums for more people

Unlike current government-provided healthcare coverage where eligibility depends on age or disability (Medicare) or low income levels (Medicaid), any state resident will be able to buy a state-backed Cascade Care policy, which will be available via Washington's ACA health insurance marketplace. While the ACA offers taxpayer-provided premium subsidies for individuals with household incomes up to 400% of the federal poverty level, Washington’s marketplace will begin to offer taxpayer-provided assistance to those with incomes up to 500% of the poverty level.

Lockton comment: Using 2019 federal poverty guidelines for the lower 48 states, the ACA provides for premium subsidies for individuals earning up to $49,960, and a household of four earning up to $103,000. Washington’s new law expands the subsidy eligibility window to individuals earning up to $62,450, and households of four earning up to $128,750. According to federal census figures, the median household income in Washington in 2017 was $70,979.

Changing the dynamic of private markets

The state will design what it calls “standardized health plans,” providing for specific healthcare benefits the state believes a health insurance policy should contain. Cascade Care options will be standardized health plans; that is, they’ll satisfy these new state requirements.

The new state law includes a pair of rules to ensure an apples-to-apples comparison between Cascade Care and private insurance options. Private health insurers offering their policies in Washington’s ACA marketplace must also offer standardized health plans in at least the silver and gold standardized plan tiers. And although for a while the state will allow private insurers to sell nonstandardized policies, the insurers can’t sell a silver level nonstandardized policy with an actuarial value lower than the standardized silver plan with the lowest actuarial value.

Free market advocates warn the state’s venture into the private insurance markets is another step in the direction of government-run healthcare. That’s because the public option creates an unlevel playing field, allowing the state – backed by tax revenues from taxpayers – to compete with private companies.

How much will this cost?

The expected cost of Cascade Care is not clear. The state has apparently budgeted a million dollars over the next two years simply to get the program going (program design, contracting with insurers, etc.). Additional funding, and a lot of it, will be necessary to establish reserves and pay claims and administrative expenses, not to mention the additional premium subsidies payable to enrollees with household incomes between 400 and 500% of the poverty level.

Edward Fensholt, J.D.
Compliance Services

Scott Behrens, J.D.
Government Relations

Not legal advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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