Colorado Option broken, and controls won’t fix it

Rick Taggart

Both the legislative and executive branches of the Colorado government are full of well-intentioned people who routinely pass laws and introduce programs with the intention of correcting economic or social ills. However well-intentioned these efforts might be, often the prescribed government solution doesn’t solve the issue. At times, the solution can end up making the original problem even worse.

Few sectors of the economy are immune from this tendency for government intervention. In an effort to arrest the gestating costs of health insurance, the Legislature created at the direction and encouragement of the Colorado Division of Insurance a state-backed health insurance option. All carriers doing business in Colorado were required to offer individual and small group plans known as the “Colorado Option.”
The idea was quite simply the government plans would bring generous benefits to consumers with lower premiums. The crafters believed this would put downward pressure on consumer prices for private plan offerings.

Unfortunately, the real world doesn’t work that way. The state-backed plans did indeed put financial pressure on the marketplace, enough so it contributed to making Colorado a risky place to sell health insurance. The plans have not, however, reduced prices for consumers.

An actuarial study conducted earlier this year by NovaRest on the Colorado Option found the program failed in reducing the cost of health insurance. In nearly every county of the state in every health insurance tier, the Colorado option wasn’t even the least expensive plan offered. Furthermore, the study found few of the Colorado Option plans introduced to the market met the state-mandated 5 percent premium reduction target for the first year.

It’s no great mystery as to why this was so. The Colorado Option was developed and designed by well-meaning bureaucrats to offer generous benefits with artificially low mandated premiums. This approach conflicts with the realities of economics. One of the reasons health care has become so expensive over the decades is because of the overregulation of governmental entities. For years, governments have on one hand piled on new mandates on both insurance carriers and health care providers and then on the other hand tried to address rising costs with arbitrary and artificial price controls. Price controls don’t reduce costs. All they do is hide them. Someone somewhere still pays — either through higher prices or reduced services.

The Colorado Option hasn’t worked because the premise for the program was unsound. No amount of official government wishing, mandating or price setting can make it so. The fact an insurance plan is created and backed by the state government doesn’t exempt it from the laws of economics.

At a public hearing held by the Division of Insurance a few weeks ago, backers of the Colorado Option opined the reason the government plans didn’t sell well was because insurance brokers failed to market them aggressively. That’s not true. They were offered, just as other plans were. They didn’t sell well because the state one-size-fits-all plans failed to meet the needs of Colorado citizens and in most cases were priced higher than private plans.

The Division of Insurance has alternated between trying to desperately spin the Colorado Option as a success while simultaneously blaming everyone for its failures — insurance brokers and carriers as well as doctors, hospitals and patients.

The real reason for its shortcomings is its unrealistic structure. What the Colorado Option has contributed to is the exit of several insurance carriers from the state. In the end, this reduces competition rather than enhancing it. The plans mostly failed to hit their statutory 5 percent premium reductions in the first year. This makes it unlikely the plans will reach the more aggressive price reduction goals of 10 percent and 15 percents for years two and three, respectively. In response to these potential shortfalls, the Division of Insurance is reportedly considering more regulations and price controls on hospitals to rectify the problem.

Price controls and cost-shifting aren’t going to fix the structural issues inherent in the Colorado Option. Nor will they provide a sustainable solution to the problem of rising health care costs. Instead, like most well-intentioned government solutions, they will bring on a flurry of unintended consequences.

State Rep. Rick Taggart, represents District 55. A Republican from Grand Junction, he serves on the business affairs and labor: finance; and transportation, housing and local government committees.