colorado careThis November, Colorado voters will have the opportunity to vote on Amendment 69 known as ColoradoCare.  The amendment would create a non-profit state-based insurance option governed by a 21 member board of trustees covering all residents of the state.

ColoradoCare would serve as the primary insurance option to the state’s residents and be supplemental to Medicare, Tricare and Medicaid which would all remain in place.  If adopted, ColoradoCare would replace the state’s current Health Insurance Exchange.  Colorado would seek a waiver from the Affordable Care Act (ACA) and repurpose ACA government funding to help pay for Colorado care.

The plan is a comprehensive medical plan covering the items consumers expect: primary care, inpatient care, outpatient care, maternity care, prescription drugs etc. The plan claims that there will be no copays or no deductibles under the plan when an individual goes in for care.

The program will be funded between a shared payroll tax of 3.3% to the employee and 6.7% to employers.  Individuals 65 and above would also be subject to the tax if their retirement income is above $46,000 for individuals and $75,000 for joint filers.  The program plans to be primarily funded via these payroll taxes.

Employers will still have the choice to sponsor a health insurance plan for their employees but they will be subject to the tax regardless.  It’s not likely that many employers will want to pay “twice” for health insurance coverage. The 6.7% payroll tax could be a considerable expense depending on the wages of their workforce.  For some employers it could be less than what they are paying now for health insurance.  For profit companies would also lose the tax deduction they currently receive for sponsoring health insurance.  ColoradoCare, if passed, is expected to increase taxes by 25 billion dollars in Colorado, however ColoradoCare claims the state’s population is currently spending 30 billion on health care and expect this program to save roughly 5 billion dollars a year.

How will these savings materialize?  Insurance cost can be simplified to three categories: administration, stop loss/pooling protection and claims.  ColoradoCare contends that it will decrease all three components.

How? First of all, proponents claim that administrative and claims costs will be reduced based on the collective purchasing power of the state program.  For example, the Board of Trustees will be responsible for ensuring the acquisition of pharmaceuticals and medical equipment.  Similar to how other countries purchase pharmaceuticals e.g. Canada or the U.K.  Additional administrative savings will be garnered by eliminating the insurance company networks and the current payment and billing processes that can be administratively burdensome to providers.  In other words, the program would eliminate the insurance carrier as the third party payer freeing up administrative expenses to the hospitals and providers.

ColoradoCare’s website does not mention any kind of insurance protection to be purchased to protect from catastrophic claims so the assumption is that there is none and the cost of insurance will be out of the equation lower costs.

From a claims perspective, it is difficult to determine if Colorado care will somehow impact utilization or lower the unit cost of care.  This is the huge question that remains to be answered. Providers will be reimbursed directly from ColoradoCare and not by an insurance company.  This is a material change to the current system of healthcare purchasing.  ColoradoCare claims that providers will be fully reimbursed as the program realizes it must provide competitive reimbursement rates similar to what they receive now if they want to keep quality physicians in the state.  If prescriptions and medical devices are acquired directly and at a lower costs, this will have a direct impact on claims costs but what about other areas like inpatient/outpatient/mental health?

Regarding utilization, if a participant has open access to providers and no cost share for many services, what mechanisms are in place to prevent the over utilization of medical care?  Other questions arise on how to handle care for a Colorado resident who leaves the state for treatment.

The financing of ColoradoCare leaves a lot of questions unanswered.  Will it reduce costs for all?  The state is bracing for a monumental vote in November.  The rest of the country will be watching the results.

Mike Beck

Mike Beck

Area VP, Health & Welfare Consulting provides expert consultation to clients in helping them to create and manage a customized benefit strategy for their employees. Mike’s active and dynamic approach to work and getting things done makes him a perfect fit in the HCW family.
Mike Beck