Denver: Competitive Insurance Market Awaits National Health Reform

Although Colorado waited until nearly the last moment to approve a Medicaid expansion, the state was at the forefront of national health reform preparation relative to many of its peers, according to a Center for Studying Health System Change (HSC) study of the Denver region's commercial and Medicaid insurance markets. Colorado was among the first states to pass legislation creating a state-run health insurance exchange. Even before the 2010 Patient Protection and Affordable Care Act (ACA) passed, the state had proactively reformed the small-group insurance market and broadened Medicaid and Children's Health Insurance Program (CHIP) eligibility for low-income adults and children. Though initially undecided on the full Medicaid expansion scheduled for January 2014, Democratic Governor John Hickenlooper, supported by a broad coalition of health care providers and advocates, secured legislative approval.

Market Background and Competitive Dynamics

The Denver insurance market was characterized by the absence of a dominant insurer. Three national for-profit carriers -- Anthem, Cigna, and UnitedHealth Group -- along with Kaiser Permanente divided the commercial market, with competition focused primarily on price. The area's four hospital systems held significant negotiating leverage over payment rates, which health plan respondents believed contributed to higher insurance premiums. This leverage appeared to be growing as hospital systems strengthened their positions by employing physicians, upgrading facilities, and expanding geographically through new construction and affiliations.

Denver-area employers had been paring back employee benefits, embracing high-deductible health plans, adopting defined-contribution strategies, and most recently turning to limited-physician networks to moderate rising premiums. However, the commercial market showed little movement toward innovative provider payment arrangements as a cost-control strategy. The state had also adopted a Medicaid Accountable Care Collaborative model, under which Regional Care Collaborative Organizations (RCCOs) linked Medicaid enrollees to health care and social services in a coordinated manner, with the goal of improving outcomes and reducing state costs.

State Prepares for Reform

Colorado created Connect for Health Colorado as its state-based insurance exchange. The state's small-group market had already undergone significant reform, including modified community rating and guaranteed issue requirements that predated the ACA. Colorado expanded Medicaid eligibility to 100 percent of the federal poverty level for adults before the ACA, and the state's CHIP program covered children in families with incomes up to 260 percent of poverty.

Despite these early reform efforts, Denver-area stakeholders expressed concerns about market readiness for exchange enrollment. Top worries included uncertainty about reform's impact on risk selection and premium costs. Health plan executives faced considerable actuarial challenges in setting premiums for exchange products, uncertain about the health profile of enrollees who would enter the market and the extent of pent-up demand for services among the newly insured.

Employer Benefit Strategies

Employers in the Denver market had been shifting more costs to workers for several years, and reform was expected to accelerate this trend. Many employers were adopting high-deductible health plans paired with health savings accounts as their primary or sole coverage offering. Some were moving toward defined-contribution models, giving employees a fixed amount to purchase coverage independently. Limited-network products, which offered narrower provider choices in exchange for lower premiums, were gaining traction as employers sought to balance affordability with adequate coverage.

Market observers predicted that ACA requirements for more comprehensive benefits and stricter limits on patient cost sharing would drive up premiums, particularly for younger, healthier individuals. If significant numbers of healthy people chose to pay the tax penalty rather than purchase coverage, plans risked adverse selection -- attracting sicker-than-average enrollees -- which could push premiums even higher.

Medicaid and the Safety Net

Colorado's Accountable Care Collaborative model for Medicaid represented a departure from the state's earlier experience with risk-based Medicaid managed care, which had ended after financial difficulties for participating plans. Under the RCCO model, regional entities coordinated care for Medicaid enrollees without bearing full insurance risk, though respondents expected RCCOs to eventually assume financial risk and possibly operate within the state insurance exchange.

Significant plan interest existed in participating in the exchange. The four large carriers serving the individual and small-group markets, along with potential new market entrants, were expected to offer exchange products. Several issues warranted ongoing monitoring: how hospital consolidation would affect insurance premiums, whether exchange enrollment would attract a balanced risk pool, how employer benefit strategies would evolve under reform requirements, and whether the RCCO model would prove effective in managing costs and improving outcomes for the Medicaid population.

Sources and Further Reading

HSC study of commercial and Medicaid health insurance markets in eight U.S. metropolitan areas as part of the Robert Wood Johnson Foundation's State Health Reform Assistance Network initiative. Based on interviews conducted in the Denver region between September 2012 and January 2013.