New Actuarial Analysis Warns ‘Colorado Option’ Could Result In Fewer Affordable Health Coverage Choices, Plans That Are ‘Not Actuarially Sound’

Feb 1, 2022

DENVER – As Colorado’s Division of Insurance seeks a federal waiver to enact a new state government-controlled health insurance system known as the “state government option” or “Colorado option,” a new analysis by NovaRest, an independent actuarial consulting firm with extensive experience supporting state and federal insurance regulators, warns of serious potential risks to Coloradans’ access to affordable, high-quality health coverage and care.

The actuarial analysis demonstrates that the creation of the Colorado Option carries significant risk for the health coverage market in Colorado, with potentially serious negative consequences regarding Coloradans’ access to coverage choices. The ability for carriers to meet the state government’s premium reduction requirements is tied to their ability to offer non-standard plans in the market, they point out, and the state government’s unrealistic requirements could force some carriers to exit certain counties.

Additionally, NovaRest’s report warns that the state’s proposed reimbursement reduction floors and limitations for hospitals and physicians, combined with actuarial issues in the allowed adjustments, will make it difficult for health insurance carriers to achieve the targeted premium reductions throughout Colorado while still offering actuarially sound premiums

Specifically, NovaRest finds:

  • Hospital and physician reimbursement reductions likely will not be sufficient to reduce premiums by 15 percent by 2025 in several regions in the state, a conclusion that actuaries with Milliman, Inc. also reached in an earlier analysis.
  • The state government’s use of the Federal Actuarial Value Calculator (AVC) to adjust for plan design differences between the Colorado Option and the 2021 benchmark plans is inappropriate, and the state’s premium reduction requirements will be more difficult to achieve if the resulting standardized plan premiums are required to be actuarially sound.
  • The state government’s use of the Medical Component of the Consumer Price Index (CPIM) is not an appropriate proxy for medical cost trend and could contribute to an overall result of premiums that are not actuarially sound and will not be sufficient to cover claims, administrative costs and risk margins.
  • The state government’s benefit mandate adjustments are inadequate, failing to account for all applicable benefit mandates, and “will present even further problems with being able to achieve actuarially sound premiums for the Colorado Option Standardized Plans which meet the premium reduction requirements.”
  • The state government’s waiver analysis fails to account for all of the above factors and likely significantly overstates the size of the federal passthrough savings they expect to receive. As NovaRest writes, “many of the other assumptions in the CO 1332 Amendment such as assuming that premium reduction requirements can be realized, not accounting for new benefit mandates, and using the federal actuarial value in place of a pricing actuarial value significantly impact the federal passthrough projections in the CO 1332 Amendment.”

This new actuarial analysis provides the latest evidence that creating a new state government-controlled health insurance system like the Colorado Option could have serious negative consequences that limit Coloradans’ access to affordable, high-quality health coverage and care, including those in vulnerable or underserved communities. Based on the facts uncovered by this actuarial analysis and the risk the state government’s proposed actions pose to Colorado patients and health care consumers, federal regulators should not approve the state government’s waiver amendment request.

NovaRest’s analysis, performed with the support of the Partnership for America’s Health Care Future Action, builds on a previous in-depth analysis of the potential impact of Colorado HB 21-1232 by the actuarial firm Milliman, Inc. and provides a deeper analysis of some of the aspects of the law that the Milliman report did not address.

  • To read the full report of NovaRest’s actuaries, who have previously worked with state regulators, the National Association Of Insurance Commissioners (NAIC), and the Department of Health and Human Services (HHS) to implement the Patient Protection and Affordable Care Act (PPACA), CLICK HERE.