Colorado will be the first state in the nation to amend a federal waiver to create a public health insurance option for 2023, the Health and Human Services Department announced Thursday.

HHS greenlighting the state’s amended Section 1332 State Innovation Waiver will create a “Colorado Option,” which will use federal funds to create a public health plan intended to narrow the state’s uninsured rate and provide more affordable coverage for residents. In 2021, 6.6% of Colorado residents lacked health insurance, according to a survey conducted by the Colorado Health Institute.

The Colorado Option will be available to residents who enroll in health plans on the individual market and small employers with fewer than 100 employees. Insurers must offer Colorado Option plans in every county they operate and meet premium reduction targets by 2025. If carriers fail to cut premium costs during that time frame, the state’s insurance commissioner can order healthcare providers to join Colorado Option plans at set rates, following a public hearing.

The Colorado option is expected to lower average exchange premiums for consumers by 15% by 2025, HHS said. By 2027, the state expects the program will provide insurance to 32,000 previously uninsured residents, increasing enrollment in its state exchange by 15%.

“We are thrilled to partner with Colorado in our shared commitment to lowering healthcare costs and ensuring greater access to quality, affordable care,” HHS Secretary Xavier Becerra said in a news release. “The Colorado Option will help thousands more families sign up for health coverage. I applaud Governor Jared Polis and encourage all states to pursue innovative ways to ensure health care is within reach for their residents.”

Colorado’s legislature passed a bill authorizing the state to create a public option in May 2021, and the state applied for the 1332 innovation waiver in November. The waiver allows the state to use premium tax credit pass-through funding to implement the public option, since the federal government is expected to spend less on the credits under the waiver than it otherwise would. Colorado plans to use the federal dollars to create subsidies for residents enrolling in coverage, including those ineligible for federal subsidies.

The Centers for Medicare & Medicaid Services said no other state has applied for a 1332 waiver.
However, the state is not the first to offer a government-run health plan for its residents.

In 2021, Washington State contracted with private insurers to launch a public option, named Cascade Select, for the individual market.

In 2026, Nevada will contract with private health plans and managed-care organizations to offer a public option in the individual market and potentially the small group market.

Oregon and Vermont are also considering launching a public option for residents.
“The Colorado Option is groundbreaking and a step in the right direction to reduce the uninsured rate, while investing in health insurance coverage affordability and improvements, and advancing health equity,” Centers for Medicaid and Medicare Services Administrator Chiquita Brooks-LaSure said in the news release. “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.”

But healthcare providers and insurers have previously expressed skepticism that Colorado’s program can achieve its goals. For instance, insurance trade group AHIP said the waiver’s structure depends on the continuation of enhanced exchange plan subsidies passed in the American Rescue Plan. Congress has not committed to extending the subsidies beyond 2022.

“Colorado, like many states, is experiencing an increase of health plans and policies being offered in the individual market. This means Colorado consumers have access to more choices and benefit from lower premiums which are driven by competitive market dynamics,” Kris Hathaway, vice president of state affairs at insurance trade group AHIP, wrote in a November comment letter on the waiver. “New public policies should promote competition in the marketplace, not through the stringent parameters implementing the Colorado Option through the draft waiver which is likely to increase premiums for all Coloradans.”

If Congress fails to extend the subsidies, Colorado’s 1332 waiver will still decrease premiums, according to an analysis by actuarial firm Wakely.
The Colorado Hospital Association took a “neutral” stance on the proposal in April 2021.

“The affordability improvements intended by this bill are dependent on the sacrifice and management of Colorado’s hospitals,” Chris Tholen, CHA president and CEO, said in a news release last year. “It is critical that we carefully implement this legislation and monitor it to be sure that hospitals can continue to be vital resources for their communities.”