The Colorado Health InsuranceOption would, among other actions, reduce reimbursement rates tohospitals so that they're more in line with Medicare rates. (Image:Shutterstock)

While politicians in Washington are still sparring about whethera public option should even exist when it comes to health care,Colorado is already moving down that road with the release of itsnext step toward creating a public option that it estimates couldsave consumers as much as much as 20 percent on their monthlypremiums.

According to Colorado Public Radio, the state's Democraticgovernor, Jared Polis, has been developing a plan to do just thatin his efforts to cut insurance premiums—although his efforts toaddress costs with hospitals have been somewhat adversarial.

Related: Connecticut's public option stymied by insureropposition

"We always like to see what it looks like in black and whitebefore we pass judgment," Katherine Mulready, senior vice presidentof the Colorado Hospital Association, told CPR. "However, what wehave heard directly from the sponsors and certainly from thegovernor's office is that the proposal will include hospital ratesetting with pretty significant cuts to hospital reimbursement thatare not acceptable to Colorado hospitals and really shouldn't beacceptable to Colorado consumers, either."

The Colorado Health Insurance Option would, amongother actions, reduce reimbursement rates to hospitals so thatthey're more in line with Medicare rates; on Monday the formulareleased by the governor's office proposed setting a basereimbursement rate of 155 percent of Medicare rates. According toCPR, that's more generous than "both the average at which Coloradohospitals break even—currently 143 percent—and at which hospitalsnationally turn a profit."

The new formula was calculated based on annual data provided bystate hospitals to the Colorado Hospital Association and theColorado Healthcare Affordability Sustainability Enterpriseboard.

"Every county will have a new insurance option in that county,but we're not going to require every insurance company to move intoevery county,"  Rep. Dylan Roberts told The Denver Post. "We're going to allow someflexibility in that we'll look to find out which insurancecompanies are best situated to move into each individualcounty."

However, despite hospitals' objections, it actually provides forhigher reimbursement rates for those that can meet a number offactors: independence, providing critical access, having a highshare of Medicaid or Medicare patients and able to demonstrate thatit's working to manage the underlying cost of care.

The plan also incorporates other actions meant to drive down thecost of care, such as boosting how much insurers spend on patientcare by requiring 85 percent of an individual premium be spent oncare. It would also require pharmaceutical rebates to be passedthrough insurers to consumers, and stimulate competition, inparticular in the 22 counties where residents have only one optionon the individual market.

If the plan advances, consumers could buy the new coverage in2022.

Read more: 

• Support for a public option isgrowing
• 5 notes about Washington's public option, foragents
• Study: Public option plans could bring premiumsdown