CMS approves first-ever public option plan for Colorado's ACA exchange

Colorado can now create its own state-specific public option Affordable Care Act plan starting next year after getting key approval from the Biden administration. 

The Department of Health and Human Services (HHS) granted a Section 1332 state innovation waiver to create the state-specific health plan. It is the first state to get approval for a public option plan. 

“Through this new model, Colorado leverages federal savings to expand affordability and coverage in the state like no other state has done before,” said Centers for Medicare & Medicaid Services (CMS) Administrator Chiquita Brooks-LaSure in a statement. “We encourage all states to consider innovative ways to use section 1332 waivers in the future to expand and improve coverage and lower costs for their residents.”

The plan will be sold on the ACA’s exchanges and is expected to lower premiums by an average of 22%, or approximately $132 per person a month.

Colorado’s plan must cover all essential health benefits required by the ACA and establish premium reduction targets. Any county that has an ACA insurer offering a plan on the individual or small group market must also offer the Colorado Option plan. 

Under state law, the option plan also must lower premiums by 5% in 2023, 10% in 2024 and 15% in the third year. The state’s public option plan will operate within Colorado’s reinsurance program, which is authorized to continue under the waiver through 2027.

CMS will pass through any savings that the federal government receives onto the state, which will in turn use that money to offer subsidies to further lower the cost of healthcare. 

“As a result, individual market consumers are expected to continue seeing lower premiums, which should attract new consumers while also keeping current consumers enrolled in coverage,” HHS said in a release.

Colorado may not be the last state to get approval for a public option plan. Washington state has introduced its own public health option in 2019.

A federal public option was originally considered as part of the Affordable Care Act but was nixed in the final version. While President Joe Biden has supported a public option in the past, the policy wasn’t included in the previous budget request to Congress.

Although House and Senate leadership also explored an idea of a federal public option, it got significant pushback from the hospital industry worried about cuts to providers.