A bill that would extend a program to lower health insurance costs for some Coloradans with a new fee on insurance companies is awaiting Gov. Jared Polis’ signature.

Senate Bill 125 also directs a board appointed by the governor to figure out ways to further lower the cost of insurance, either by cutting monthly payments or reducing how much people pay out of pocket when they go to a doctor or hospital, said Vince Plymell, spokesman for the Division of Insurance. The board also would consider financial assistance for undocumented people who don’t qualify for tax credits to buy health insurance. A spokeswoman for Polis said he intends to sign the bill.

The program, called reinsurance, only applies to plans on the individual marketplace, so people who get their coverage through a job wouldn’t see savings. It’s estimated to cost about $265 million in 2020 and 2021, with about $175 million coming from federal savings.

The average monthly bill for health insurance on the individual market decreased from to $510 to $407 in the program’s first year, according to Connect for Health Colorado. Some people received a higher bill, though, because they received smaller tax credits to buy their insurance.

How it works

It might seem counterintuitive to lower insurance costs through fees on insurance companies and hospitals, but what reinsurance does is remove some uncertainty.

When you buy health insurance, you and many other people pay a monthly rate, and everyone’s payments cover much of the cost of treatment for the unlucky few who have serious illnesses or injuries. Under reinsurance, the health insurance companies, hospitals and federal government also pay into a state fund, and insurers get reimbursed for some of the cost of covering those unlucky customers.

Since they won’t have to pay as much out of pocket, and federal law limits how much they can keep as profit or spend on administering their plans, insurance companies have to pass at least some savings on to customers under a reinsurance plan.

While hospitals pay a fee, they also could benefit if insurance is cheaper, because more people will buy coverage and the hospitals won’t have to provide as much charity care. The federal government also saves money, because if insurance is cheaper, it’s not paying as much in tax credits for people buying coverage on the marketplace.

What’s changing

The fee on insurance companies is new. Nonprofit insurance companies will have to pay the value of 1.15% of the premiums they collect, and for-profit insurers will pay 2.1%. If a nonprofit and a for-profit insurer both collected $100 million in premiums from customers, they would pay the state $1.15 million and $2.1 million, respectively. The bill’s fiscal note estimates the fee will bring in about $95 million in the 2021-2022 fiscal year, with the total rising to about $110 million two years later.

Insurance companies and hospitals will pay the fees from 2021 to 2023, and hospitals will only pay in the second two years, Plymell said. The fees will provide enough funds that the state won’t need to kick in $40 million in the next budget year to keep the program going, as previously anticipated, he said.

The bill would also cut fees on hospitals in half, and delay them until next year. Hospitals had initially agreed to pay up to $40 million per year starting in July, but now they’ll pay $20 million per year starting in 2021. The Colorado Hospital Association had sued the state over a proposal to collect the fee sooner, but dropped the suit earlier this year to continue negotiating.

Cara Welch, director of communications for the Colorado Hospital Association, said the bill satisfies the association’s concerns about the fees.

“Because the timing of the payment has been pushed back even further, this eliminates the concern we had this winter about the timing,” she said.

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