DENVER — Before the pandemic, Colorado looked set to become the second state to pass what's known as a "public option" health insurance plan, which would have forced hospitals that lawmakers said were raking in obscene profits to accept lower payments. But when COVID-19 struck, legislators hit pause.

Colorado legislators had tried to walk a tightrope, targeting their criticism toward the business side of the industry while continuing to praise front-line health workers and trying to get buy-in from all sides. But on Monday, Democratic legislators said they'd made a deal with the health industry to scrap the public option and instead mandate lower premiums for those buying coverage on the individual or small-group markets. The bill still must be approved.

Colorado's compromise highlights the political tap dance likely to play out across the country as the pandemic changes the political discussion on health care costs. With states including Connecticut, Nevada and Oregon also considering public option plans this year, Colorado's example may be a sign that major health care upheavals will be delayed for at least another year as hospitals, providers and insurers unite and push back together.

"Nationally, there's little appetite to pursue policies that would potentially cut revenues for hospitals and other providers," said Sabrina Corlette, research professor and co-director of the Center on Health Insurance Reforms at Georgetown University. "It's very hard to do when the public sees these providers as true heroes."

At the start of this year's legislative session, Colorado Democrats had proposed giving the health industry four years to reduce health insurance premiums by 20%. Failure to meet that target would have triggered a state-designed public option plan in 2025 that would likely undercut the cost of private insurance plans. Proponents argued that as a nonprofit-run plan without the need for hefty spending for administration, marketing and profit, it could pass on significant savings to consumers. To lower premiums, insurers would have to pressure providers into taking lower payments for their services.

Instead, under the deal reached with the health industry this week, insurance plans would commit to reducing premiums by 18% over three years. If they fail to do so, insurers would have to justify their premiums and state officials would get some say over provider payment rates. Those rates would not dip below 165% of Medicare rates for hospitals, or 135% for other health providers. Hospitals had been pushing for a floor of 200% of Medicare, and physician groups are still negotiating with the bill sponsors to increase their minimum rates.

The state would design a standardized benefit plan that would limit the insurance companies' ability to skimp on benefits or increase cost-sharing to make up for the drop in premiums.

Democratic Rep. Dylan Roberts, the legislation's lead sponsor, said the compromise would offer significant cost reductions for Coloradans, a benefit that was ultimately more important to him than how those savings were achieved.

"Health care access is the No. 1 thing I hear from my constituents," Roberts said. "Do they care whether their health insurance product is coming from a public entity or a private insurance company? I don't think they care as much about that as whether it's affordable."

But some disconnect may be occurring between what people say they want and the political will at the Statehouse to take on the unified health care industry. According to a November poll by Healthier Colorado, 66% of Coloradans supported the public option plan, including 78% of Blacks and 76% of Hispanics. That's virtually unchanged from polling done before the pandemic and after a hefty advertising campaign against the legislation.

Kyle Piccola, spokesperson for the advocacy group, said polling in some of the more rural, conservative districts showed 57% to 66% support. About 40% of those identifying themselves as Republicans supported the bill as it was.

"This data point," he said, "is really showing that everybody, regardless of who you are, is really feeling the high cost of care."

Democrats have the votes to push just about any bill through the House and Senate on their own, and Democratic Gov. Jared Polis had supported a public option after campaigning on the issue. But Joe Hanel, spokesperson for the nonpartisan Colorado Health Institute that analyzes health policy, said the sponsors likely courted industry and Republican support to avoid having opponents undermine the effort for years to come, as happened on the federal level with the Affordable Care Act.

"It just really seems like they just want buy-in to make this be more durable, and not be a lightning rod, not have millions of dollars of ads out there against them for years, like they are right now," Hanel said.

Industry groups had opposed last year's bill and the initial proposal this session. National groups ran a campaign with TV ads and mailers warning consumers a public option would put hospitals out of business. With the compromise, Colorado hospital, insurance and other provider associations have withdrawn their opposition.

Still, the new proposal passed its first test along a strict party-line vote in a House committee on Tuesday, as the pandemic loomed heavily over the debate. Republicans argued health care is dramatically different now than when a 2019 actuarial analysis suggested hospitals could easily absorb lower payment rates.

"And nothing has changed in the medical world since 2019?" Republican Rep. Hugh McKean asked the sponsors, tongue in cheek. "There hasn't been any big stuff that we're still in the middle of?"

Hospitals have also taken every opportunity to remind legislators of their role in battling the challenges of the past year.

"These are the very same hospitals who supported Colorado at every turn during the covid-19 pandemic. They were and continue to be there for their communities," said Chris Tholen, president and CEO of the Colorado Hospital Association. "It is critical that we carefully implement this legislation and monitor it to be sure that hospitals can continue to be vital resources for their communities."

An analysis done on behalf of the Colorado Business Group on Health found that Colorado hospitals averaged a 15.6% profit margin in 2018, beating out Utah and California for the highest margins in the country. While financial data for 2020 has not yet been released, Roberts said, many of the larger hospital systems did well amid the pandemic. They also benefited from millions in federal relief money. The bill would provide additional support for many of the smaller or rural hospitals that have struggled.

Those provisions were not enough to assuage Republicans.

"If we want to have good health care providers in Colorado, we can't cut their funds while they are recovering from covid," said Colorado GOP chairperson Kristi Burton Brown. "This bill completely disregards our health care workers and our health care facilities. At a time when we should be ensuring they can operate in Colorado, the Democrats are working to shut them down."

Colorado has been aggressive on health care policy in recent years, pushing through measures aimed at reducing health care costs for its residents. Proponents of the public option bill have played up the example of the Peak Health Alliance, in which communities in seven counties in western Colorado negotiated price concessions from hospitals, lowering premiums by 20% to 40%.

Tamara Pogue, a Summit County commissioner and former CEO of the alliance, said she saw similarities between the bill's approach and the Peak Health model. "It's creating incentives for the industry and the communities to work together," she said.

The Peak Health example helps to fend off criticisms that cutting costs would close hospitals and reduce access.

"We don't even have to entertain hypotheticals," Roberts said. "We have a real-world example there."

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation. It can be republished for free.

Read more: 

• CBO sketches out public option health plan possibilities
• States ready to take on health insurers in fight for a public option
• Connecticut's public option stymied by insurer opposition