Washington State’s Health Insurance Exchange Expansion: Substance and Semantics

At the beginning of the 2019 state legislature session, Washington State faced a health care crisis. In the individual market, there were multiple insurance plans in urban counties, while people in fourteen rural counties had only one choice.

To address this problem, Governor Jay Inslee sent the legislature SB5526 to create Cascade Care, a set of standardized plans that insurers would have to offer statewide if they were going to offer any insurance on the exchange. The achievement in this bill is that residents of rural counties can be assured of coverage. The evolution of the bill from the version introduced into the legislature to the version actually passed and signed demonstrates what can be achieved in practice, but also raises questions about semantics.

The new law requires the state to establish up to three standardized plans for each of the bronze, silver, and gold actuarial value tiers. Beginning on January 1, 2021, any health carrier that seeks to offer plans in the Exchange must offer one standardized silver and one standardized gold plan on the Exchange.  If a health carrier offers a bronze plan on the Exchange, it must offer one bronze standardized plan.

Consumers also won expanded coverage because the ceiling for premium subsidies is defined as 500 percent of the federal poverty level, instead of 400 percent level in the Affordable Care Act. Another win for consumers is a clause allowing the standardized plans to be linked to state employee benefit plans. At a public forum sponsored by Health Care for All on January 26, 2019, State Sen. David Frockt, who introduced the legislation on behalf of the governor, said that as the procurement entity for Medicaid, Exchange plans, school employee benefits and public employee benefits, the state government would be in a strong position to drive the terms of engagement with insurers.    

The original form of the bill required Medicare reimbursement rates, an attempt to move towards a Medicare for All model. But after insurance carriers and health care providers objected at committee hearings, the legislature compromised at 160% of Medicare reimbursement rates in an aggregate form statewide.  This cap can be lifted if carriers cannot, as a practical matter, form a provider network and the carrier is able to achieve premiums that are 10 percent lower than the previous plan year through other means.  In practice, 160% is unlikely to be reached, providing ample freedom in reimbursement rates.

Also in the final bill, the reimbursement rates for critical access hospitals and sole community hospitals would have a floor of not less than 101 percent of allowable costs.  The reimbursement rates for primary care would have a floor of at least 135 percent of Medicare rates. These are all wins for carriers and providers.

The requirements for standardized plans address the issue of actuarial value. Actuarial value refers to the percentage of cost covered by the plan, averaged out across the entire plan. If a plan has an actuarial value of 70 percent, the insurance company would pay an average of 70 percent on a claim, with the subscriber responsible for 30 percent. In practice, some services may be covered at 100 percent while others are covered at 50 percent.

The original bill required that a silver standardized health plan must have an actuarial value between 68 and 70 percent and would have gradually phased out all non-standardized plans as of 2025. The final bill did not specify a percentage and allowed carriers to continue offering non-standardized plans, as long as their actuarial value is not less than the actuarial value of the silver standardized plan with the lowest actuarial value. Actuarial values are defined in the Affordable Care Act, however.

Another win for insurance companies in the final bill is a business and occupation tax exemption.

From the time of its original introduction, the set of standardized plans has been referred to as a “public option.”  At the January 26 Health Care for All forum and in hearings before state legislature committees, individuals and health care activist groups argued that this bill is not really a public option and that it “entrenches” private insurance companies in the health care market. One attendee praised the bill but asked Sen. Frockt not to call it a public option.  Normally the term “public option” refers to a health care plan in which the government is both the payer and the administrator.

In contrast, the terminology was praised by strategist DJ Wilson, whose company, State of Reform, organizes industry stakeholder conferences. In his e-mail newsletter, he defended the use of the term as softening opposition from the left. “I think the lesson for advocates is to work to define what the term means, rather than fighting the term.”

Wilson’s report, however, implies that the redefinition of the term was intentional, regardless of the reason. The bill is a huge leap forward for health care throughout the state, but the semantics may fail once consumers realize the problems of executive salaries and claims denials didn’t go away.

The program that the community members on the left obtained as part of the compromise among multiple forces was the Pathway to Medicare for All. This legislation establishes a commission to design a future state program that would implement Medicare for All, if such a bill succeeds at the federal level.

Cascade Care is the centerpiece in a set of bills designed to stabilize the Affordable Care Act in Washington State.  The legislature enacted provisions of the ACA at the state level so that if the federal program is weakened, the system would still exist as state law. For example, the state now assures guaranteed issue so that subscribers cannot be excluded based on pre-existing conditions, claims history, and genetic information. The legislature also limited out-of-network rates so that patients do not receive surprise medical bills.

The enactment of Cascade Care is a demonstration of what is possible as a compromise to get a meaningful bill passed in the presence of competing interests.