The Public Option Finds An Uncommon Ally In Medicaid In Nevada

Thanks to the American Rescue Plan Act, much-needed temporary relief is available for millions of people with Marketplace coverage or continuation coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). Even so, premium affordability and out-of-pocket costs remain a challenge for millions of uninsured and underinsured people across the country. In response, states, such as Nevada, are developing new state-based tools and solutions to help control costs and bring more accountability to their individual and small-group markets.

These state experiences are particularly relevant as federal policy makers in Congress and the White House consider additional affordability measures and federal public option proposals to control the rising costs of health care. A public option was a key component of President Joe Biden’s campaign platform, and congressional leaders have already put forward several public option proposals. Most recently, Sen. Patty Murray (D-WA) and Rep. Frank Pallone Jr. (D-NJ)—chairs of the Senate Committee on Health, Education, Labor, and Pensions and House Committee on Energy and Commerce, respectively—asked for public input on a federal public option by July 31, 2021.

This request—and future federal and state efforts to advance public options—can be informed by state experiences. This post highlights Nevada’s second-in-the-nation public option legislation, which was adopted during the 2021 legislative session by the nation’s first female-majority legislature.

The Basics

Although Nevada has fully embraced the Affordable Care Act (ACA) and expanded Medicaid, it consistently has one of the highest uninsured rates in the nation, with about 350,000 Nevadans going without insurance. And the uninsured population in Nevada is disproportionally people of color, with nearly 22 percent of Hispanics uninsured versus 9 percent of White Nevadans.

The purpose of Nevada’s new public option is to provide more affordable, quality coverage options with all the benefits and protections afforded to consumers under the ACA. This public option will uniquely leverage the state’s billion dollar contracts with health plans through its Medicaid program by requiring health plans that want to serve Medicaid enrollees to also submit competitive bids to offer the public option plans. According to state officials, the state’s most recent managed care contracts are currently worth nearly $2 billion. To ensure premium savings for Nevadans, public option plans must submit rates that are at least 5 percent lower than the previous year’s rates for a benchmark Marketplace plan; annual premium increases must be no higher than the Medicare Economic Index for that year. The state may revise these requirements if it ensures at least a 15 percent reduction in premiums over the first four years. A parallel requirement will require physicians and hospitals to take public option plan enrollees if they wish to participate in Nevada’s other public coverage programs.

Starting in 2026, consumers will be able to purchase the new public option plans online through the state’s exchange, Nevada Health Link, or directly from health plans offering public option plans. State officials may also allow small businesses to buy a public option plan for their employees.

Nevada’s Approach

Nevada’s approach is unique when compared to other public option models being explored and implemented in states. It builds off lessons learned from other states, such as Washington’s first-in-the-nation public option, Cascade Care. Washington State passed its public option in 2019, and the legislature amended the law during the 2021 legislative session to address challenges in the first year’s implementation. Washington’s early experiences, including early challenges, informed Nevada’s policy. 

New Tie To Medicaid To Leverage State Buying Power

Nevada’s public option will uniquely leverage the state’s contracts with health plans through its Medicaid managed care program by requiring health plans that want to serve Medicaid enrollees to also submit competitive bids to offer public option plans. Medicaid is the largest health insurance program nationally (exceeding Medicare) and is usually the largest single payer of health care in states. It is responsible for managing billions of federal and state dollars, and, as of February 2021, covers about 81 million Americans. This dwarfs the estimated 12 million people who enrolled in individual Marketplace coverage under the ACA in 2021; even with more than 2 million enrollees added during the COVID-19 special enrollment period, Medicaid enrollment is far greater.

Medicaid is also increasingly delivered by health plans through state managed care programs: States pay fully insured premiums (or capitation payments) to Medicaid managed care plans (for example, health plans), which, in return, agree to take on financial risk for their Medicaid members. As of July 2019, all but 10 states use capitated Medicaid managed care to deliver services to eligible residents. An estimated 69 percent of all Medicaid beneficiaries nationwide get their health care coverage through managed care plans.

Through their Medicaid managed care programs, states play the role of the buyer (or purchaser) of health insurance on behalf of Medicaid enrollees. They do this through a process called a procurement, under which states request bids from health plans and may ask them to compete on price for a contract award. States also provide oversight of managed care plans, and some require a greater level of accountability and transparency for these plans when compared to those sold in the individual market.

Because of their sheer size, state Medicaid managed care programs translate into billions of dollars’ worth of contracts for health plans. In Nevada alone, the state’s Medicaid managed care contracts are worth about $2 billion a year for more than 500,000 Medicaid beneficiaries, compared to the estimated 82,000 individuals who enrolled through Nevada Health Link for 2021. The size of Nevada’s Medicaid program (and the billions of dollars spent on managed care) is what gives the state the potential to leverage health plans in the individual and small-group market.

Nevada’s new law captures this leverage for the public option by aligning future Medicaid managed care procurements with a new state procurement for the public option. Washington also has a state procurement for its public option, but Nevada’s approach uses a new kind of hook to get health plans to participate. Specifically, it ties health plan eligibility to bid on Medicaid managed care contracts to their bids for the public option. In other words, to begin (or continue) to do business with Nevada’s Medicaid managed care program—a significantly large share of the market and health plan business—health plans must offer a good faith bid to provide public option plans to consumers in the private market.

This “tying” requirement also gives Nevada the opportunity to develop a more unified statewide strategy for purchasing health coverage. While questions remain about what this strategy looks like, it will be further defined in the forthcoming procurement process led by the Medicaid agency, which will need to begin in 2025 to provide public option plans by 2026. Examples of cross-market strategies that Nevada may want to use include combining its purchasing strategy for pharmacy services in both markets to save on prescription drug costs; requiring greater transparency from health plans regarding their administrative costs and spending; requesting more value-based payment arrangements between health plans and providers; and aligning financial incentives for providers and health plans to achieve more efficiencies in the system and to address state priorities—such as increasing affordability and quality of care and addressing provider workforce challenges and health disparities in Nevada.

Another important reason for contracting with health plans for the public option is that the Medicaid agency in Nevada (like in most other states) does not, at this time, satisfy all state requirements for insurers in the individual market. This includes the millions needed in financial reserves (that is, the money health plans must have on hand) to “insure” consumers in the individual market. By contracting with health plans, Nevada’s public option avoids this current problem and leverages the reserves and capacity of its contracted health plans to offer public option plans in the individual market.

New Premium Reduction Targets To Increase Affordability

Nevada policy makers also wanted to ensure that public option plans approved by the state would result in lower premiums and capture federal pass-through funding that could be reinvested in other state initiatives for improving access to health care. Thus, the new law requires public option plans to offer premiums that are at least 5 percent lower than the previous year’s rates; premiums must not grow at rates that are greater than the Medicare Economic Index in future years. And because traditional private plans will have to compete against the new public option plans secured through a new competitive bid process, Nevadans may see lower premiums across the board.

As with the provider and plan participation requirements, the premium reduction target was adopted in response to Washington’s experience. For a variety of reasons, premiums for the Cascade Care public option plans were generally higher than existing products in the individual market for 2021. By adopting specific premium reduction goals, Nevada’s legislation is designed to avoid this challenge.

Provider Participation Requirements To Ensure Consumer Access To Care

The success of the public option relies on more than just the affordability of the new plans; the public option also needs to make health care more accessible for consumers. Nevada’s public option directly addresses this issue, which plagued Washington’s rollout of Cascade Care. In Washington, some providers—mainly hospitals—chose not to participate (or even negotiate to participate) in the public option networks, making it difficult for health plans to build robust networks. As a result, Cascade Care plans were available in only about half of all counties in 2021, leading to very low enrollment in the program’s first year.

To avoid this challenge, Nevada included new participation requirements designed to ensure consumers enrolled in public option plans have access to health care. Similar to the requirement used to tie health plan participation in Medicaid managed care to the public option, the new law creates a separate “tying” requirement for providers. Specifically, it requires providers who contract to serve enrollees in networks for the state’s Medicaid program, the state employee health plan, or the state worker’s compensation program also to be in at least one network for the public option. This requirement—where a provider that sees patients enrolled in existing plans offered through public coverage programs must also serve patients enrolled in the public option plan—is modeled after a similar long-standing provision in Minnesota and will help ensure this newly enrolled population has access and coverage like other Nevadans with public health insurance.

Nevada providers subject to this requirement will continue to negotiate and contract with health plans as they do today. Also, the new law includes new protections for these providers by requiring health plans to reimburse providers at rates that meet or exceed rates paid by Medicare. This rate floor will prevent health plans from offering unrealistically low rates to providers participating in public option networks. Furthermore, for certain safety-net providers—such as critical access hospitals, federally qualified health centers, and rural health clinics—public option health plans must offer these providers more generous cost-based rates like the rates paid under Medicare today. (These Medicare cost-based rates are based on actual costs reported by providers on annual cost reports.)

New Paths For Future Innovations In Nevada

Because reduced premiums, cross-market purchasing, and increased competition are expected to result in savings to the federal government (through lower premium tax credits), Nevada intends to pursue a state innovation waiver under the ACA and draw down federal pass-through funding. These federal funds are to be collected in a trust fund and may be used by the state to make premiums and out-of-pocket costs even more affordable for Nevadans, particularly for those who are low income but not eligible for Medicaid or tax credits. This includes people with a current immigration status but who are under the federal five-year ban that makes them ineligible for Medicaid.

Nevada’s legislation also contemplates a future where—if the state can build up a large enough financial reserve and meet all state regulatory standards—it could offer public option plans on its own (via its Medicaid agency) without the need to contract with one or more health plans. Doing so is optional, and the state may choose not to explore this option fully, especially if operating the public option via contracts with health plans is efficient and effective enough to meet the state’s goals and priorities for the individual market. But by preserving the state’s option to operate the public option itself, the Nevada legislature signaled its willingness to entertain a world where that might be necessary. This potential threat could incentivize health plans to submit good faith bids and successfully operate public option plans in the state’s individual market.

Nevada’s new law also gives the state the option of combining future risk pools for its Medicaid managed care program and public option if doing so will lower state and federal expenditures (and premiums) in both markets. Understanding whether this option is viable will require some experience with the public option in the Marketplace and specific analysis by both state and federal officials.

Informing Federal Approaches

Nevada’s new public option legislation—and its decision to leverage its Medicaid program—can help inform renewed federal and state discussions on ways to expand coverage and increase affordability, including through a federal public option. While Nevada’s public option plans will not be available until 2026, much work and analysis must be done between now and then to make its public options plans a reality for Nevadans.

Authors’ Note

Liz Hagan is director of policy solutions at the United States of Care, which works to advance policies, such as public options, that make health care more affordable. United States of Care—in partnership with Stacie Weeks and Marie Zimmerman, senior consultants at Aurrera Health Group—provided support for the design of the public option policy in Nevada. Katie Keith, faculty at Georgetown’s Center for Health Insurance Reforms, testified at a legislative hearing regarding Nevada’s unique health care environment and the public option legislation.