Washington’s Public Option Is Nothing To Cheer About

When Washington’s Democratic Governor Jay Inslee signed the nation’s first public health insurance option into law in 2019, he claimed it’d ensure that “all Washingtonians have high-quality health-care insurance, an option they can afford that is available across the state.”

Three years in, it hasn’t. Advocates for a public option would do well to take note—and refrain from replicating the policy elsewhere.

Washington’s public option is administered by private insurance companies. It debuted on the state’s individual exchanges in 2021 with two types of publicly-funded plans: “Cascade Care” and “Cascade Select.”

Cascade Care plans have standardized benefits, with an emphasis on lower deductibles and offering access to care before the deductible is met. Every insurer offering a plan on Washington’s exchanges must also offer a Cascade Care plan. Because the plans have standardized benefits, state officials argue that it’s easy for consumers to compare Cascade Care plans from different insurers.

Cascade Select plans are the true “public option” plans. To keep premiums low, they pay providers no more than 160% of what Medicare does—lower than the 174% that other plans on the state’s exchanges pay, on average.

Put another way, state officials gambled that providers would accept low payments in exchange for a guaranteed flow of patients with the public option plan. They’re losing that bet.

A critical mass of hospitals has refused to participate in the state-run scheme. So the public option plans are having trouble building provider networks. That’s part of the reason Cascade Select plans were available in just 19 of Washington’s 39 counties when the public option first launched.

Today, residents of five counties still do not have access to a Cascade Select plan.

Lawmakers have responded by passing legislation mandating hospitals in counties where there’s currently no plan available to participate in the public option.

In other words, the state is forcing hospitals to accept the public option’s low payment rates, even if those rates don’t cover their costs.

Hospital balance sheets in Washington are already in rough shape. In the first nine months of 2022, operating costs exceeded profits by $1.6 billion. Some have cut essential services. Others may face closure if they don’t stop bleeding money.

Any additional service reductions or closures will only make it harder for Washingtonians to get timely care. More than half a million state residents already live more than a 30-minute drive from the nearest hospital.

Despite having the power to dictate reimbursement rates and mandate participation, public-option plans are failing to out-compete private plans on premiums. In some parts of the state in 2021, public option premiums were nearly 30% higher than other private insurance premiums.

That’s not what state officials had in mind when they implemented the public option. Gov. Inslee’s office estimated that premiums for the state-sponsored plans would be up to 10% lower than privately administered ones.

Officials also said the public option would dramatically reduce the number of uninsured Washingtonians. But just 2,630 individuals newly enrolled in a public option plan last year. Even if we assume that all those new enrollees were previously without insurance—a dubious assumption—that amounts to a reduction in the uninsured population of no more than 0.6% from 430,000 in 2021.

Lawmakers also wagered—incorrectly—that the public option would inject competition into the healthcare market, thereby inspiring private plans to cut their prices. Premiums for the average 40-year-old adult are up 8% across the state this year compared to 2022.

It’s not surprising that Washingtonians aren’t flocking to public option plans. Just 3% of the state’s exchange enrollees—6,335 people—chose a Cascade Select plan last year. That amounts to less than 0.1% of the state’s population.

State lawmakers are working to sweeten the pot by offering subsidies to residents making less than 250% of the federal poverty level—about $70,000 for a family of four. But paying people to sign up won’t address the systemic problems that have made the public option so unappealing in the first place.

Democrats—including President Biden—have proposed several variants of a federal public option over the past few years. Washington’s failures should rid them of the notion that a government-run health insurance option could work on a national scale.