Director’s Corner

The Colorado Purchasing Alliance and the Colorado Public Option:

Different Programs.  Different Approaches.  Common Goals.

Last May Governor Polis signed into law a bill (HB19-1004) directing state officials to create a public health insurance option.  Typically referred to as the “Public Option” and putting Colorado at the center of National attention, the Advisory Board summarized this approach to controlling health care as follows:

The state would structure the public option as a public-private partnership by requiring all insurers selling individual health plans both on and off Colorado’s health insurance exchange to offer a public health insurance option. The proposal stated that the plans would be available to “all Colorado residents who buy their own individual health insurance,” and individuals who qualify for federal subsidies to purchase exchange plans would be able to apply those subsidies to the public option plans.

Shortly after signing that bill, I had a call with Governor Polis and Insurance Commissioner Michael Conway in which we discussed a completely unrelated topic: restructuring the Colorado Business Group on Health so that it could function as a statewide “healthcare purchasing cooperative” under CRS 10.16.1001.  (This is existing legislation recognizing that “increasing healthcare costs represent a threat to the economy of Colorado” and encouraging “collaborative arrangements” by healthcare purchasers in order to “promote market-based competition among healthcare providers.”)  Then, in July, the Insurance Commission proposed to the CBGH purchaser members that CBGH form a statewide (TCPA) “purchasing alliance.”  In December, the CBGH Board created “The Colorado Purchasing Alliance” and in January, The Colorado Purchasing Alliance was awarded a Certificate of Authority under CRS 10.16.1001.

Given the Administration’s commitment to improving healthcare affordability and value and in light of the fact that these two approaches are taking shape simultaneously, I am consistently asked three related questions:

Click here for answers to these legitimate questions.

Is the Public Option related to The Colorado Purchasing Alliance?  No.  Comprised of and governed by public and private employers, a Taft-Hartley plan, and employer trusts, The Colorado Purchasing Alliance is a purchaser-led, market-based approach to reforming healthcare. Funding for TCPA was provided solely through CBGH reserves and a grant from The Robert Wood Johnson Foundation.  Other than the participation of the State of Colorado as an employer-purchaser, The Colorado Purchasing Alliance has no formal relationship with the State.  It requires no additional legislation, no State funding, no regulatory mandates, and no support from the State other than participation as an employer/purchaser.

Does CBGH support the Public Option?  The CBGH Board has not voted on or yet discussed the public option.  So, neither “CBGH” nor its members have taken any position – pro or con – on the Public Option.

Is the 155% proposed by the Public Option a fair price?   The formula proposed in the Public Option would set the base hospital reimbursement rate at 155% of Medicare payment rates.  Is that fair?  I’ll turn that around by asking this:  How could we not consider 155% fair, reasonable, and even responsible when impartial healthcare economists and researchers have thoroughly quantified that:

  1. Efficient hospitals in 2017 lost but 2% on Medicare. Average hospitals lost but 9%.  In other words, at 155% of Medicare, efficient hospitals should make about a 53% margin and even average hospitals should make a 46% margin.  (Granted, with 25% higher expenses than non-profits nationally, many Colorado hospitals – particularly large systems – would not do this well.  However, that’s an expense problem, not a revenue problem.)
  2. Colorado hospitals that are currently being paid in excess of 400% of Medicare have no better overall performance profiles than hospitals being paid 150% (or even less) of Medicare.  Clearly, excess revenue doesn’t produce or even incentivize exceptional quality.
  3. Not having to pay either shareholders or taxes, “non-profit” hospitals that are paid significantly more than 100% of Medicare have nothing else to do with excessive net incomes than to increase administrative expense, duplicate services and facilities, and build reserves.
  4. Compensation that is significantly above the costs of providing care simply exempts hospitals from addressing the oftentimes difficult question that every other business in our state operates under – e.g., “What goods and services can we provide at a high enough quality that enough people will select over competitors in large enough numbers so that we can provide a competitive price and still stay in business?” Why would we not want hospitals to operate this way?

Next month’s Director’s Corner will address a fourth question we are frequently asked:  “Since all healthcare is ‘local’ and since every community is different, why do we need a ‘statewide’ solution?  Why would we want a “one-size fits all” approach to health reform?”

Good questions.  Stand by.

Bob Smith, CBGH