Employers Fear Costs as States Adopt Public Option Health Plans


June 30, 2021 11:21 am

Businesses are worried that public option health plans taking shape in some states may end up costing them more than the high premiums they already pay.

Employers increasingly have been open to government involvement in the health-care system out of frustration for high costs that they have been largely unable to rein in. But they fear plans being put in place by states could result in higher taxes on them or hurt their own plans by peeling off young, healthier workers.

“It will affect our risk pools,” said James Gelfand, senior vice president of health policy for the ERISA Industry Committee. “We need not only as many people as we can get in those pools, but we especially need young, healthy people, and it’s generally predicted that when other options are put on the table, the people who are most likely to take other options tend to be the healthy people.”

Employers worry they will be left with a “sicker, older group of people, and once you cross a certain line there, the employer plans just won’t be viable anymore,” Gelfand said. His group represents companies that provide benefits such as health plans.

Employers pay more for health care than any other payers. Since 2010, average family premiums have increased 55%—at least twice as fast as wages (27%) and inflation (19%)—and hitting over $21,000 in 2020, according to the Kaiser Family Foundation, which tracks the cost of employer coverage.

A public option, which would allow consumers to buy Medicare-like plans in the Affordable Care Act exchanges, was embraced by President Joe Biden in his 2020 campaign platform. However, he didn’t include one in his fiscal 2022 budget. He did express support for the idea of providing premium-free, Medicaid-like coverage through a federal public option plan in states that haven’t expanded Medicaid.

In the absence of federal action, a number of states are taking the lead in setting up their own public option plans, and Washington state is expanding the program it already has in place.

Concern Over Increased Costs

In Washington state, which started the first state public option program in 2021, businesses fear it will lead to higher costs. The program was not as successful as Democratic proponents had hoped it would be at reducing premiums.

Gov. Jay Inslee (D) signed legislation (S.B. 5377) in May that would increase state-financed subsidies in 2022 for ACA exchange enrollees earning up to 500% of the federal poverty level, or $132,500 for a family of four. The law will also expand the public option in 2023 to require hospitals to contract with at least one public option carrier in every county in order to participate in public programs like Medicaid if public option programs aren’t available.

“It’s going to increase the cost of employer-sponsored insurance” to pay for the public option and subsidy programs, Amy Anderson, government affairs director for health care and federal issues of the 7,000-member Association of Washington Business, said.

“There was a premium tax that was proposed this session,” she said. That didn’t pass, but “the concern is as you start to provide more on the public option, increase the subsidy, the state will start taxing the premiums” on each person covered, she said.

But state Sen. David Frockt (D), sponsor of S.B. 5377, said in an email that the premium assessment was intended to fund an expansion of the state’s public health program rather than other programs covered by the law.

“Preliminarily we are seeing public option plans now being proposed to be offered in six additional counties, bringing the total to 25 of our 39 counties, from 19,” Frockt said. “But it’s pretty clear we are not going to see them offered in every county next year, which is the trigger,” so the requirement is likely to kick in, he said. 

New Plans for Nevada, Colorado

Nevada and Colorado are the latest states to enact their own plans that are similar to public options.

The Vegas Chamber, Nevada’s largest employer group, opposed the state’s legislation (S.B. 420) because of “unintended consequences that we saw,” Paul Moradkhan, senior vice president of government affairs, said.

Under the Nevada law, signed June 9 by Gov. Steve Sisolak (D), individuals and small businesses will initially be allowed to buy plans on and off the state exchange by 2026. Insurance companies that want to bid as Medicaid providers in the state would have to offer a public option plan for the individual market at premiums that are at least 5% lower than average benchmark ACA premiums in the same area, and 15% lower than average benchmark premiums in the state. Benchmark premiums are for plans on which ACA subsidies are based.

An actuarial study is required before the public option can go into effect, and the bill requires there be no disruption to the market, Nevada attorney James Wadhams, who lobbied for state hospitals and the Vegas Chamber, said in an email.

Nevada businesses fear that costs for people who choose public option plans would be shifted to the private sector, and they worry about the impact it could have on small business plans, Moradkhan said. Many chambers in the state offer association health plans, which cover about 10,000 people, and they fear the costs of those plans would rise, he said.

“Someone’s got to make up for that cost” to cover the 5% reduction for public option plans, he said.

Support From Small Business

Not all businesses oppose public option plans. Small Business Majority (SBM), which has a network of more than 85,000 small business members, has supported the ACA as well as a public option.

Sarita Parikh, co-founder of glow + gather, a four-person family-owned and operated manufacturer of self-care and home goods based in Castle Rock, Colo., is an SBM member who supports Colorado’s law (H.B. 21-1232) signed June 16 by Gov. Jared Polis (D). The law isn’t a full-scale public option, but it requires insurers in the state’s individual and small group markets to offer plans in 2023 at premiums 15% below 2021 rates on an inflation-adjusted basis.

Parikh, who also has her own physical therapy practice, has continued to buy her own UnitedHealthcare Golden Rule Insurance Co. plan that she’s had since before the ACA was enacted in 2010. She said she hasn’t been able to find an ACA exchange plan that matches her need to keep her long-term neurologist to treat her epilepsy and that would save her money.

Parikh sees a public option as “necessary.” 

“I think that we have such limited resources as small businesses for what our options are in health care,” she said. “For small businesses to be competitive and to be able to grow and also attract quality employees, we have to be able to provide health-care, and we don’t have those options and resources.”

She said she hopes the law also will live up to its goal of offering higher-quality plans than those currently on the state exchange.