When Eileen Cody, the most senior Democrat in Washington state’s House of Representatives, arrived in Olympia this year for the start of the legislative session, she knew health care reform would be at the very top of the agenda.
Although Washington had embraced the Medicaid expansion under Obamacare, the state was still reeling under double-digit insurance premium increases and a depressingly large number of uninsured residents. For years, the Legislature had been too divided to push through a meaningful policy fix. But 2018’s blue-wave elections had given Democrats large majorities in the Statehouse, and many members were eager to use that political capital to do something big in health care.
Just how big was made clear to Cody at the first meeting of her new caucus. Standing before the 56 new and returning members in the party’s main chambers, Cody took a quick poll. "How many of you guys all think ‘Medicare for All’ is a good idea?” Cody recalls asking. "And they all raised their hands."
Cody, chairwoman of the Health Care Committee and a veteran of many health care battles, knew Medicare for All was simply too big an ask for a state Legislature in a single session. But she had another idea she thought might work: creating the nation’s first "public option"—essentially, cost-contained health insurance that any Washington resident could buy.
Cody knew such a policy would be a complicated goal, even in a state with a blue Statehouse and a supportive Democratic governor. Other states had experimented with some version of government-sponsored insurance in recent years but with little success. Even in Vermont, the home state of Bernie Sanders, who popularized the term “Medicare for All,” legislators approved a single payer system in 2011 only to have it collapse four years later. And not so long ago, the public option itself was considered too radical even for moderates: a public option was dropped from Obamacare in 2010.
Last May, after five months of legislative wrangling, Cody got her public option over the line, making Washington the first state in the country to provide a state-sponsored health care plan and putting Washington state squarely at the center of the national debate over health care reform.
But the actual policy Democrats were able to deliver, and the compromises they had to make, offers an object lesson in the realities of health care politics in America — and, perhaps, a warning for Democrats in 2020.
Since Sanders popularized Medicare for All during the 2016 Democratic primary, the notion has caught on with many Americans frustrated over the shortcomings of the U.S. health care system: expensive premiums, high out-of-pocket costs, denied claims, limited access and complicated rules, to say nothing of subpar outcomes. Americans pay twice as much for health care as citizens of other developed nations and have poorer health—lower life expectancy and higher infant mortality, to point to just two metrics.
Yet as the scale of the health care crisis has become clearer, so have the challenges of real reform. Sanders’ version of Medicare for All would eliminate private health insurance, fully fund all medical and dental care and even pay for long-term care for the frail and disabled; in other words, a fully nationalized single-payer system with no out-of-pocket costs for patients and families. Elizabeth Warren has estimated her version of Medicare for All would cost $20.5 trillion. By any measure, that’s a huge ask.
By contrast, at least on paper, the public option concept represents a pragmatic intermediate measure, an "electable" approach to health care reform.
That’s partly because it aims at a much smaller slice of the population: people who don’t have insurance through their employer or through a public program like Medicare or Medicaid and instead need to buy their insurance on the individual market. Washington’s law, for example, targets around only 4.5 percent of the state’s residents.
As important, the public option is less disruptive: Public option plans don’t replace private insurance companies, as Medicare for All would, but simply compete with them.
This less sweeping approach has made the public option idea attractive for more moderate Democrats like Joe Biden and Pete Buttigieg—and, tellingly, it was the policy Warren recently turned to when she needed to signal her recognition that Medicare for All wouldn’t happen overnight. For many, including Warren, a public option health care system would be the first step toward the single-payer system they’d like to eventually achieve.
As important, the public option’s sensible, small-bite approach makes it an easier lift for legislators, in Congress or in states like Washington, who have to translate the idea into a workable law.
Or, least, that was the theory.
But an easy lift isn’t what Washington state lawmakers got. To the contrary, despite Democratic control of both legislative chambers, and strong support from Democratic Gov. Jay Inslee, the public option Washington ultimately settled for was far weaker than its authors had hoped.
When the law goes into effect in 2021, the actual savings projected for Washington enrollees might be barely a sixth of what Democrats were hoping for at the start of the session. And, crucially, even those modest results assume insurers, doctors and hospitals will participate in what is essentially a voluntary program—hardly a certainty, given how bitterly many of them opposed it in the Legislature.
That points to a key takeaway from Washington’s public option ordeal: Any real effort to impose a cost-containment mechanism, which is essential for any reform aimed at skyrocketing prices, will meet deep and potentially fatal resistance from the health care industry. "They fought us tooth and nail on having any kind of referenced pricing mechanism," says Sen. David Frockt, who was Cody’s counterpart in the state Senate, where opponents were able to hold up a stronger measure.
Another takeaway: Medicare, long seen as the gold standard for calculating those health care costs you’re trying to contain, may not be as useful a benchmark as reformers often assume. That could be a critical lesson for other public option initiatives, such as those in Congress and in other states, such as Colorado or Massachusetts. But it may also apply to more ambitious measures, including Warren’s Medicare for All proposal, which also use Medicare as a guide for setting prices.
Cody, Frockt and other Washington state public option advocates are proud of the law they wound up with. They see it as a critical first step toward long-term reform as well as a near-term effort to, as Cody puts it, "put some guardrails around [health care] costs." But they acknowledge that much of the law’s impact will depend on factors outside their control—not least the law’s reception by a health care industry that seems little interested in being reformed.
"So, yeah," Cody acknowledges, with characteristic understatement, "it’s bit of an experiment."
Running on fiscal fumes
In many ways, Washington was the ideal setting for such an experiment. The state has a history of progressive health care reform, including the nation’s first "managed competition" law, enacted in 1993, that sought to cap insurance premiums.
But Washington has also confronted the limits of health care reform. Even with Obamacare, some 400,000 state residents, or around 5.5 percent, remained uninsured. Many are unable to afford market-rate insurance but are too well off to qualify for subsidies offered through the state‘s health care exchange. And many of the roughly 200,000 who do buy their insurance through Washington’s Obamacare program have seen such massive premium hikes (35 percent in 2018 alone) and such high out-of-pocket limits (almost $8,000 in 2019) that many don’t use the insurance or drop the program entirely. "It’s insurance in name only," says Cody, who, as a retired nurse of 40 years, knows just how serious the situation is.
For many of the state’s health care advocates, the scale of the crisis more than justified a Medicare for All-style reform like Sanders and Warren were calling for and which progressives like U.S. Rep. Pramila Jayapal of Seattle were already pushing in Congress. In fact, many incoming Statehouse Democrats had campaigned on platforms calling for Medicare for All, universal coverage or other significant reform.
Although Cody, 65, also favors a much deeper reform, she was keenly aware of the limits to the party’s political power. For starters, Cody and her allies knew they didn’t have the votes for such a sweeping measure, especially in the state Senate, which tends to be more moderate than the House.
Nor, as a practical matter, did Democrats have the money. Any state-level Medicare for All-style program would need massive federal funding, along with waivers from various federal health care rules, which wasn’t likely to happen under the Trump administration.
In fact, any proposal that depended on more state spending—some advocates, for example, want to use public subsidies to "buy down" individuals’ premiums—was also a nonstarter. Washington state, which relies heavily on sales, business and property taxes and which has no income tax, had just committed billions of dollars to a huge education overhaul. The state was already running on fiscal fumes and lawmakers "just did not want to spend the additional dollars on the health care system," says Jason McGill, who as Inslee’s chief health care adviser helped craft the public option.
Instead, Cody, Frockt and other Democratic legislators began working with Inslee on something that could thread that political and fiscal needle. By launching a government-sponsored insurance program, they could—in theory—offer all those uninsured people an affordable alternative to privately run insurance plans. They dubbed the state program Cascade Care, after the mountain range that runs like a backbone down the length of the state.
On the surface, the public option was an eminently sensible strategy. As a cost-cutting measure, it needed no revenue source. Politically, it had buy-in from legislative leaders and Inslee, who was considering a bid for the White House and eager to chalk up some “moderate” policy victories. True, some party progressives regarded the public option as too modest, but Cody and other supporters believed they could be kept on board by assurances of future moves toward "universal coverage."
Cody and Frockt also held out some hope of bipartisan support. Where some other public option plans call for the government to form its own insurance company, an idea many conservatives reject, Washington state would merely define standards for the program and contract private insurers to run it.
In other words, Cascade Care was about as close to a market-based insurance plan as a government-sponsored program could be. It was, in fact, a lot like some versions of Medicare itself, which contracts with private insurers to manage some of its programs.
Who would really pay?
Where Cody and other backers suspected they’d get pushback, however, was over the policy’s cost-control mechanism. To force down premium costs, Washington’s public option would cap the rate at which contracted insurers could reimburse doctors, hospitals and other providers for treating public option enrollees.
The cap is a key point both for the policy itself and for the politics.
In health care policy circles, a reimbursement cap is the heart of a public option plan: In theory, it forces doctors and other health care providers to find ways to lower costs, rather than simply passing on cost increases to insurers, who pass them on to consumers in higher premiums.
But precisely for those reasons, the cap is anathema to many players in the health care business, and that aversion would become central to the public option fight in Washington state.
Initially, Cody and other public option backers proposed capping reimbursements at the level already used by Medicare, which some public option proposals in Congress have also proposed. Because Medicare rates are substantially lower than private insurers’ reimbursement rates (by about 42 percent in Washington state) proponents hoped Cascade Care could offer premiums "at least 30 percent" less expensive than those available in the state’s individual market, Cody says.
But that optimistic projection quickly faded as the industry’s lobbying campaign got underway.
Much of the industry’s resistance boiled down to a familiar disagreement over who should bear the cost of a public policy. Many Washington state physicians and hospitals felt that any kind of reimbursement cap would effectively force them to subsidize a reform policy that state Democrats were unwilling to fund but would benefit from politically.
"The legislators were at once saying, ‘We want to improve affordability, we want to increase coverage options,’ and ‘There’s no money in the state budget to support this,’" says Sean Graham a lobbyist for the Washington State Medical Association, which lobbies on behalf of physicians and other providers. Instead of finding the funds to buy down premiums, Graham says, "legislators went to what’s easy, which is capping reimbursement for physicians and health care facilities."
Lobbyists also feared a reimbursement cap would set a bad precedent and make it easier for future legislatures to lower the reimbursement rate even more—to Medicaid levels, for example. Lawmakers might also be tempted to impose reimbursement caps on other parts of the state’s health insurance market.
But there were more fundamental objections that would ultimately prove far harder for lawmakers to overcome.
The fight over pricing power
The biggest was that Medicare-level reimbursements rates are simply too low for the health care services that Washington state wanted to doctors and hospitals to provide under the public option.
That’s not a new argument: Industry officials have long argued that Medicare rates don’t actually cover Medicare patients’ services and that providers make up the shortfall by billing private insurers at a higher rate for non-Medicare patients. In a recent RAND Corp. study of insurance plans in 25 states, for example, plans offered by private employers reimbursed hospitals at nearly 2½ times the Medicare rate in 2017. And as industry lobbyists in Washington state pointed out, the state’s own public employee insurance plans reimbursed providers at around 1.6 times Medicare rates.
The Medicare-shortfall argument isn’t universally accepted. Some industry critics say the shortfalls have less to do with Medicare’s too-low rates than with the near-monopoly pricing power that many providers have gained as the industry consolidates into a smaller number of megahospital chains. Big, powerful hospitals that dominate local markets have the upper hand in negotiations with insurers; studies have shown that regions with only one or two hospitals command higher prices than regions with more competition.
Even so, in Washington state, insurance companies were adamant: Unless legislators set the reimbursement rate well above Medicare rates, insurers simply wouldn’t be able to recruit networks of providers willing to participate in the public option plan.
That warning was also conveyed to legislators by doctors and hospitals in their districts. "The docs have a lot of influence," Cody says. The message was especially effective on lawmakers from rural districts, where hospitals and physicians are already struggling to stay in business. "Any of our rural guys were worried about their hospitals," Cody acknowledges.
Cody and her allies never wavered in support of a reimbursement cap: It was seen as the foundation of the entire public option enterprise. But Democratic leaders could see caucus support slipping for a Medicare-level cap in the Senate. With an eight-seat majority, Frockt says, Democrats could lose no more than four votes and still pass a bill with a cap.
Ultimately, Cody, Frockt and their allies had to give in to get the bill through the Senate. To save the state’s public option, they raised the average reimbursement rates up to 160 percent of Medicare. "We wanted to go lower on the cap," Sen. Emily Randall says. But "this is just the cap that worked, that got us the votes."
"It’s all about who has the negotiating power," Frockt adds. At the national level, Medicare can offer its low rates because it has 44 million members and controls 15 percent of the market, and doctors and hospitals have little choice but to participate. But "we don’t have that kind of leverage at the state level," Frockt says.
After the bill’s passage in May, policy experts gave it mixed reviews. With the higher reimbursement rate, the law’s projected cost savings would be much smaller than initially hoped—current estimates run between 5 and 10 percent. There was no guarantee that providers or hospitals would play ball or even that enough insurers would respond when the state asks for bids this winter. In fact, the law allows the state to waive the cap if an insurer can’t form a provider network.
Even the law’s authors tamped down expectations. Frockt told The New York Times in June, “This bill is important, but it’s also relatively modest.”
To be fair, Washington’s public option law was never billed as a fix in itself. Cody says the law can be tweaked in future sessions. She notes that legislators can always adjust the cap if it’s not working. They can also entice more insurers to participate by offering incentives: Cody says the state could require that insurers that want to bid on state employee health plans also participate in the public option. "We’re not stopping here," she says.
And, certainly, there is always the possibility of much more ambitious reform altogether. "We [still] do have a lot of interest in the single payer," Cody says, noting that members in her caucus haven’t stopped pushing for it. For all the focus on Medicare shortfalls, Cody says, "You don’t see a lot of [members] saying that they’re feeling sorry for the insurance industry."
As important, the legislative experience provided important lessons that could help get more ambitious health care initiatives passed in the future.
One thing Cody and other reformers realize they needed is better data about what health care actually costs to deliver, so legislators know when to hold the line on things like reimbursement rates. Cody says Washington state could benefit from something like Massachusetts’s "health care cost growth benchmark" initiative, which tries to drill down into the true costs of the entire health care process—everything from the provider’s actual costs and total out-of-pocket costs for patients to net costs for private insurers.
Washington’s public option fight also forced policymakers to acknowledge the real limitations of any given policy prescription. It’s a bit like whack-a-mole: Cut costs in one place and patients lose access somewhere else. "You can’t just cap cost and assume that folks … can afford health care and that they can find a doctor to use their coverage," Randall says. At some point, the state will need to find the funding to help subsidize poorer consumers’ premiums.
Perhaps most important, the resistance that legislators in Washington encountered from providers on the public option is merely a preview of what they’ll experience on a more ambitious overhaul. "The most contentious issue is going to be, how do you compensate the providers and the hospitals?" Frockt says.
Frockt says those questions could be relevant for public option efforts underway in other states, such as California and Colorado (which has proposed a public option that, tellingly, is considering reimbursement rates capped between 175 percent and 225 percent of Medicare). But he also thinks they have relevance for federal health care reform. Frockt notes that Warren’s recently released plan for Medicare for All would pay physicians at Medicare rates and hospitals would get 110 percent of Medicare. "We’ll have to see how that plays out," he says.
Cody is more direct: Warren’s plan would “never get the votes." It’s likely that few state legislators were surprised when Warren recently shifted from a full-scale Medicare for All plan to one that’s more incremental, calling for implementing a public option first followed by bigger reform over three years.
In fact, for Cody, the need to shift to a more incremental strategy is one of the key lessons to emerge from Washington’s public option experience. In her view, something as complex and massive and ubiquitous as the health care system can’t be fixed all at once, no matter how energized your caucus is.
Cody says she learned this the hard way in 1994, when state Democrats lost 21 House seats and their majority, in part from a voter backlash over the state’s 1993 health care reform. "It was a bloodbath," Cody says, noting the party’s losses paved the way to a partial repeal of the 1993 reforms that plunged the state’s insurance market into a half decade of turmoil. It took years to get "the caucus back into wanting to work on health care again," she says.
Even something as modest as a public option—not one that overhauls private insurance or eliminates employer programs but simply sets up a government-sponsored alternative—will take multiple sessions to rollout, test and amend.
While others call for transformational change, Cody says her habit, after 25 years pushing for health care reform in the Statehouse, is to ask, "What’s the next incremental move?" She laughs. "And that’s probably why I’m still there [after] this many years."
Article originally published on POLITICO Magazine
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