The federal Centers for Medicare & Medicaid Services granted Colorado’s request for a waiver for the Colorado Option, allowing the state to move forward on implementation plans for Colorado Democrats’ signature health insurance bill.

The Colorado Option will be a state-designed health plan, mandated under House Bill 21-1232 to be offered by health insurers in the individual and small group insurance market beginning in 2025. That mandate goes into effect if insurers are not able to lower premiums by 5% per year, or a total of 15%, over 2021 rates by 2025.

The waiver sought by the Colorado Division of Insurance is known as a section 1332 federal Innovation Waiver. Section 1332 is part of the Affordable Care Act, and allows states to “pursue innovative strategies for providing residents with access to high quality, affordable health insurance while retaining the basic protections of the ACA,” according to CMS. The waiver allows states to waive certain parts of the Affordable Care Act.

That innovation, according to Healthier Colorado, is because the Colorado Option intends to lower both health insurance premiums and out-of-pocket costs while improving health outcomes for people who face historical health disparities.

According to the governor’s office, approval of the waiver could provide up to $135 million annually in federal funding to expand access to health insurance. This will amount to more than $500 million between now and 2027.

Healthier Colorado Executive Director Jake Williams said in a statement that “with the approval of the Colorado Option federal

waiver, we are now on track to significantly lower monthly insurance premiums, reduce out-of-pocket costs, and put money back into the pockets of hardworking people. Small businesses and families deserve forward thinking solutions to counter the rising cost of living, and the Colorado Health Insurance Option is delivering them just that.”

“I’m thrilled that Colorado’s waiver has been approved — allowing us to move forward with this historic money-saving and forward-thinking program in Colorado,” said Gov. Jared Polis. ”Saving people money on health care couldn’t come at a better moment.”

“Colorado is pursuing innovative strategies to reduce the uninsured rate and improve affordability in the state,” said CMS Administrator Chiquita Brooks-lasure. “Everyone is entitled to quality health care, and I hope the Colorado Option will serve as a catalyst to advance health equity and a model for other states.”

Insurance Commissioner Michael Conway said the approval

“is recognition that Colorado is on the right path in building a health care system that works for all Coloradans. The Colorado Option and other efforts like the Reinsurance Program, are key building blocks in increasing access to quality health insurance and making that coverage more affordable through lower premiums.”

But whether this will work is a huge question for the health care insurers mandated to provide the state-designed standardized plan.

Amanda Massey, executive director of the Colorado Association of Health Plans, said insurers are telling her they do not believe they will be able to meet those premium reduction targets, particularly given the standardized plan benefit design, lack of appropriate credit for inflationary changes and the rate-setting process for providers. The legislation also left out any requirement for pharmaceutical companies to reduce their costs, and the General Assembly continues to add more benefit mandates for health insurers. All those higher costs are passed on to insurers, at the same time requiring those reductions in premium costs.

In their public comments and letters, CAHP and the insurers have consistently said that if DOI wants insurers to meet the targets, there would need to be a less rich plan, and accountability for inflation.

“I don’t see how we’ll meet those targets,” Massey said.

Failure to meet premium reduction targets could have grave implications for the federal pass-through money the state is counting on to help reduce premiums for the Colorado Option plan.

If health insurers do not meet those targets, the federal money could either be substantially reduced or nonexistent, Massey explained. That’s because the waiver is based on carriers meeting those targets, she said, adding her organization believes there will be savings, but are “skeptical” it will be as much as is promised by DOI.

“When you look at the plan design, it’s extremely rich,” meaning the standardized plan has more benefits along with a higher actuarial value. That will make the plan more expensive, which is what happened with Washington State’s plan, Massey said.

“We’re being asked, based on 2021 rates, with a different plan, to reduce what that plan should have been, adding in new benefits and inflation, and then reducing the premiums by 5%,” she said.

Massey added that DOI estimates the standardized plan will increase enrollment in health insurance by 10,000, though Massey said she has no idea where DOI got those numbers.

The other issue is what happens to those who enrolled in Connect for Health Colorado during the pandemic, because federal American Rescue Plan Act money provided subsidies to cover some of those health insurance premiums. Those subsidies go away at the end of the year, Massey said, and that will mean big hikes in health insurance costs for those Coloradans who want to remain insured.