Last week, Gov. Jay Inslee, D-Wash., signed a bill to create a state-chartered insurance plan to be sold on the state’s insurance exchange. That makes the Evergreen State the first in the nation to offer a “public option.”
State officials claim the new plan gives consumers one more option on the individual insurance market, one that’s presumably cheaper. But they’ve set the stage for the destruction of the individual market, where the public option ends up as the only option.
Here’s how Washington’s public plan, dubbed “Cascade Care,” will work. State officials will dictate the broad terms of the plan and contract with private insurers to handle tasks like enrolling patients or paying out claims. They expect Cascade Care plan premiums to be 5%-10% lower than those of comparable insurance plans.
They’ll achieve those savings by capping payment for doctors and hospitals at no more than 160% of Medicare’s rates. Officials argue that’s a fair rate; after all, private insurers in the individual market reimburse providers at 175% of Medicare rates.
That might not seem like a big difference. But if a significant number of Washingtonians opt for the state-sponsored plan, doctors and hospitals could find themselves in financial trouble.
Providers depend on higher payments from private insurers to make up for the losses they incur treating Medicare and Medicaid patients. Indeed, hospitals report they’re reimbursed just 87 cents for every dollar they spend on Medicare beneficiaries’ treatment.
If people leave private insurance plans for the cheaper and lower-paying public option, then providers will raise their prices for private insurers to make up the difference. Private insurers will pass those price hikes along to consumers in the form of higher premiums. Those higher premiums will cause yet more people to switch to the public option, and the cycle will repeat.
Eventually, private insurers will withdraw from the market, unable to attract customers. Then the public option will be the only one remaining.
A handful of other states are considering public options of their own. If they proceed, they’ll follow Washington down the path to destroying their private individual insurance markets.