Health Reform WK-EDGE Colorado reveals public option hospital reimbursement formula
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Thursday, March 12, 2020

Colorado reveals public option hospital reimbursement formula

By Rebecca Mayo, J.D.

The reimbursement formula for the state’s new public option aims to ensure that hospitals remain profitable while also cutting costs to consumers by up to 20 percent.

The rising cost of health care has become a hot topic in the 2020 election year as more voters express that it is one of their top concerns. The state of Colorado has some of the most expensive hospitals in the country but is hoping that will change under the newly proposed Colorado Health Insurance Option. The state has revealed a proposed hospital reimbursement base rate that would be adjusted up for hospitals that meet certain criteria. The state hopes that this formula will help lower costs for consumers while also providing smaller, rural hospitals financial stability.

Public option. Initially, the Colorado Health Insurance Option would be available only to those buying policies on the individual market, which was established by the Patient Protection and Affordable Care Act (ACA). However, state officials plan to expand to the small-group market and expect that the lower prices would put pressure on rates for large-group employer-sponsored plans as well. It is estimated that between 4,600 and 9,200 people, or less than seven percent of the state population, would buy insurance through the plan. However, the state anticipates that the monthly price of insurance could fall anywhere from 7-20 percent with bigger decreases in rural areas.

Proposed reimbursement. Based on annual data that Colorado hospitals submit to the Colorado Hospital Association (CHA), on average, Colorado hospitals are able to cover their costs when they are reimbursed at 143 percent of Medicare rates. The proposed formula would set a base rate of 155 percent to cover costs and provide a modest profit. Independent hospitals and critical access hospitals would receive a 20 percent increase, or a 40 percent increase if they qualify as both. Hospitals with a higher share of Medicare/Medicaid patients could receive and increase of up to a 30 percent and hospitals that have kept their underlying costs of care below the state average could receive an increase of up to 40 percent. According to the state, the formula ensures that rural and critical access hospitals are reimbursed at rates that promote financial sustainability, independent hospitals are reimbursed at rates that support their independence, and that large hospital systems are reimbursed at rates that cover average costs and allow for profitability.

Issues. While 155 percent base payment may seem like a fair rate to cover expenses and provide a modest profit, Colorado hospitals reportedly received about 269 percent of Medicare rates from private insurers in 2017. Hospitals are concerned that they will have to increase prices for the privately insured patients to make up for Medicare, Medicaid, and now public option patients paying much less.

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