The State of Play: A Midyear Update on the Public Option at the Federal and State Levels

Health Highlights

Editor’s Note: In a new “Expert Perspective” prepared for the Robert Wood Johnson Foundation’s State Health and Value Strategies program, Manatt Health provides a midyear update on the public option at the federal and state levels. The article, summarized below, describes public option legislation that has advanced in Colorado, Nevada, Oregon and Washington and envisions how states may use Section 1332 innovation waivers to partner with the new federal administration moving forward. To access a free copy of the full “Expert Perspective,” click here.

In the ten years since the passage of the Affordable Care Act (ACA), 18 million Americans have gained access to health insurance.1 In 2019, however, more than 26 million Americans remained uninsured2—and people who are Black, indigenous, or people of color (BIPOC) are still more likely to be uninsured compared to white Americans.3

The 2020 election marked a pivotal point for state policymakers with an interest in the public option. At the federal level, President Biden’s health reform platform included support for a federal public option based on the Medicare program and offered on the ACA Marketplaces. Since the election, the administration and congressional leaders have continued to seek input on what a federal public option might look like. At the same time, President Biden and Congress are pursuing other health reform priorities through the reconciliation process, including a two-year expansion of premium subsidies in the American Rescue Plan (ARP)4 and ongoing efforts to make those new premium subsidies permanent.

At the state level, Washington implemented the nation’s first public option for the 2021 plan year, and in the first six months of 2021, states made significant progress in advancing public option proposals. The administration could play a decisive role in how public options develop at the state level through its approach to Section 1332 innovation waivers.

What Is the Public Option?

A “public option” typically refers to a new coverage option that leverages government (either state or federal) bargaining power to offer a more affordable coverage plan for consumers. Since 2017, nearly a dozen states have considered or passed legislation to study or implement a state-based public option program.

Washington Implements the First State Public Option for 2021 and Strengthens Law With New Legislation

Washington State residents had the option to enroll in the nation’s first state public option plan in 2021. Under the initiative, passed in 2019,5 the Washington Health Care Authority (HCA) contracted with five health insurance carriers to provide bronze-, silver- and gold-level qualified health plans (QHPs) in the state-based Marketplace. These public option plans had a standardized plan design and were offered in 19 of 39 counties in the first year. The initiative also simultaneously introduced other standardized plan designs in the Marketplace with higher-value silver and gold metal tiers, which were offered alongside the public option during the state’s 2021 open enrollment period (OEP).6

This year, Washington’s legislature enacted new legislation,7 which strengthens the public option by:

  • Adding state-financed premium and cost-sharing subsidies for certain individuals purchasing standardized silver or gold plans,8
  • Requiring certain hospitals that participate in other public programs to participate in at least one public option plan by 2023 in all remaining counties without a public option plan,
  • Giving state regulators authority to issue fines and take other actions to enforce the hospital tie-in requirement,
  • Limiting carriers’ non-standardized plan offerings, and
  • Authorizing state officials to seek pass-through funding through a Section 1332 waiver. 

Nevada Becomes Second State to Enact a Public Option

In June 2021, Nevada became the second state to enact a law establishing a public option, with a Marketplace public option plan slated to begin in 2026.9 The legislation requires a competitive bidding process to select carriers for administration of the public option. Managed care organizations (MCOs) are required to participate in the competitive bidding process, while participation by commercial insurers is optional.

Premiums for the public option plan are required to be at least 5 percent lower than the benchmark premium in each ZIP code and cannot increase by more than the Medicare Economic Index each year. Providers participating in Medicaid, the public employees’ benefits program (PEBP), and state workers’ compensation programs will be required to enroll in at least one network of providers established for the public option. Additionally, provider rates under the public option plan must be, in aggregate, “comparable to or better than” Medicare reimbursement rates.

Colorado and Oregon Also Approve Public Option Initiatives

The other two states to advance public option legislation in 2021 to date are Colorado and Oregon:

  • The Colorado legislature passed and the governor signed a compromise version of the public option in 2021, requiring carriers to offer a standardized health care plan and to achieve annual premium reductions of 5, 10 and 15 percent, respectively, beginning in 2023 until 2025. For 2026 and beyond, carriers would be required to limit annual premium increases at rates no greater than medical inflation. 
  • The Oregon legislature approved a second public option study bill in the 2021 state legislative session, directing the Oregon Health Authority (OHA), in collaboration with the Department of Consumer and Business Services (DCBS), to create an implementation plan for a public health plan for individuals and families in the individual health insurance market and for small employers.10 The OHA and the DCBS must analyze, among other variables, the impact of the ARP and other federal program changes that may improve coverage affordability and access, how these changes inform state policy options, the effect a public health plan may have on the state’s insurance markets, and any adverse consequences of public option design elements.

Looking Ahead

States will continue to be an active arena for exploring how state-based public option plans can ensure coverage across geographies and improve affordability through increased competition and cost containment. As these public option initiatives progress, states are likely to seek partnership with the new federal administration, including assistance with development and approval of Section 1332 waivers to support public option implementation.

The Biden administration has shown strong support for the ACA through increased premium subsidies and enhanced enrollment support but has not yet indicated what its approach to Section 1332 waivers will be. The administration’s interpretation of Section 1332 guardrails, as well as its interest and capacity in negotiating Section 1332 innovation waivers with states, will impact the next phase of state individual market reforms.11

The Biden administration’s efforts to make the ARP premium subsidies permanent will also have a major impact on how states view and design a state-based public option. If premium subsidies are permanently expanded, states may look to public option designs and other reforms that reduce cost sharing or reach targeted populations, such as people who are unsubsidized.

To date, public option proposals have been crafted without relying on significant federal partnership or potential flexibilities and funding available through Section 1332 waivers. States will be breaking new ground with the Biden administration as they continue to innovate as laboratories for health care reform.

1 U.S. Census Bureau, American Community Survey, 2010 and 2018. These figures represent the civilian, noninstitutionalized population.

2 U.S. Census Bureau, Health Insurance Coverage in the United States: 2019, September 2020.

3 Between 2010 and 2018, Blacks were 1.5 times more likely to be uninsured than Whites, the Hispanic uninsured rate was over 2.5 times higher than Whites, and the American Indians and Alaska Natives rate grew to 2.9 times higher compared to Whites. For more, see Kaiser Family Foundation, Changes in Health Coverage by Race and Ethnicity since the ACA, 2010-2018, March 2020.

4 U.S. Congress, H.R. 1319: American Rescue Plan Act of 2021, March 2020.

5 Senate Bill 5526, State of Washington, 66th Legislature, 2019 Regular Session.

6 Under Washington’s “Cascade Care,” standardized plans are referred to as “Cascade” plans, and public option standardized plans are referred to as “Cascade Select” plans.

7 Senate Bill 5377, Washington State, 67th Legislature, 2021 Regular Session.

8 For the 2021–2023 biennium, the legislature appropriates $30 million for a pilot premium assistance program for child care workers up to 300% FPL for 2020–2021, and $50 million for broader premium subsidies for those up to 250% FPL beginning in 2023.

9 Senate Bill 420, State of Nevada, 81st Legislature, 2021.

10 House Bill 2010, 81st Oregon Legislative Assembly, 2021 Regular Session. Oregon’s first public option study was conducted by Manatt Health in 2020.

11 CMS, Patient Protection and Affordable Care Act; Updating Payment Parameters, Section 1332 Waiver Implementing Regulations, and Improving Health Insurance Markets for 2022 and Beyond Proposed Rule, June 2021.



pursuant to New York DR 2-101(f)

© 2022 Manatt, Phelps & Phillips, LLP.

All rights reserved