Nevada Actuarial Study Projects Significant Savings from Public Option Plans

Last week, the Nevada Department of Health and Human Services (DHHS) released the results of an actuarial study projecting hundreds of millions of dollars in savings from the state’s Public Option plans within the program’s first few years. The state intends to invest these savings in a new premium assistance “wrap” to supplement federal subsidies, making coverage more affordable for marketplace enrollees beginning in 2027. Together, Nevada estimates that these reforms could bring in up to $344 million to the state and decrease the uninsured rate among people currently eligible for but not enrolled in subsidized marketplace coverage by up to 12 percent over five years. Nevada also projects that the public option would have a minimal impact on provider revenue since it will initially be limited to the state’s individual market, which makes up a small portion of the provider payor mix in Nevada.

Nevada to Launch Lower-Premium Public Option Plans in 2026

Nevada is one of three states that has enacted a public option-style law, alongside Colorado and Washington. All three state laws rely on private health insurers to offer new health plans in partnership with the state. A key goal of these laws is to provide consumers with more affordable, higher-quality coverage options than the private market currently offers.

Nevada DHHS will contract with one or more private entities to introduce the new public option plans in the individual market beginning in 2026. (The law allows DHHS to extend the public option program to the small group market, but the agency does not plan to use this authority during the first procurement cycle.) Nevada will require all health plans seeking to participate in its Medicaid managed care program to submit “good faith” bids to administer the public option plan; other private insurers also may submit bids. Priority will be given to applicants who demonstrate the advancement of key state goals, including alignment with Medicaid provider networks and value-based payment targets, strengthening the rural health care workforce, and reducing disparities.

Under Nevada law, premiums for public option plans must be at least 5 percent lower than a reference premium, set at the lower of the inflation-adjusted premium of the benchmark plan in the same zip code in 2024 or the year immediately preceding the plan year to which the premium applies. However, state officials can adjust this requirement so long as average premiums for the public option will be at least a 15 percent lower than reference premiums over four years. DHHS plans to hold public option plans to roughly 4 percent instead of 5 percent premium reduction targets over the first four years (2026 through 2029). Some of these savings will be generated through reductions to provider reimbursement, but, to ensure the premium reduction targets achieve systemwide savings, DHHS is proposing to cap how much public option plans can spend on profits and administrative expenses—a heightened version of the Affordable Care Act’s medical loss ratio standard. Plans participating in the public option program will need to agree to these standards and requirements as part of their contract arrangement with the state.

Nevada’s actuarial study anticipates that these lower premiums could generate up to $341 million or $464 million in savings to the federal government (via lower federal premium tax credits) in the first five years of the program and $952 million or $1.3 billion in the first ten years. The higher savings reflect a scenario where Congress extends enhanced federal premium tax credits—initially provided for under the American Rescue Plan Act (ARPA)—beyond 2025.

With Savings from Public Option Plans, Nevada to Offer New State Subsidy Beginning in 2027

Nevada intends to capture the savings generated by the public option program under a Section 1332 waiver. If its waiver is approved, Nevada must use the funds to further increase affordability and access. Nevada currently intends to do this by implementing a state premium wrap beginning in 2027, as well as expanding support for marketing and enrollment activities. The extra state subsidy would be available to enrollees of all marketplace plans, not just public option plans as a way to maintain the stability and health of the marketplace. Income-based eligibility for the state premium wrap would vary based on whether enhanced ARPA subsidies are available beyond 2025. In the absence of extended ARPA subsidies, the premium wrap would be targeted only to those earning up to 250 percent of the federal poverty level in an effort to replace expired ARPA subsidies for Nevada consumers. If the more generous federal subsidies continue, Nevada would further subsidize marketplace premiums for individuals and families earning between 150 and 400 percent of the federal poverty level.

Nevada’s Approach Projected to Generate Hundreds of Million in Savings in First Five Years While Expanding Access to Coverage

Nevada’s actuaries estimate that implementation of Nevada’s public option plans, coupled with a state premium wrap, could yield $344 million in federal savings in the first five years if ARPA’s enhanced subsidies remain in place. In ten years, the actuaries project Nevada’s savings could reach nearly $1 billion. If the ARPA enhancements expire, the program’s savings would be cut nearly in half.

Because of how Section 1332 waivers are structured, Nevada’s pass-through funds could be even greater—the aforementioned $464 million in the first five years—if state officials do not seek to further expand coverage by investing in a state premium wrap. While the public option plans are expected to generate savings by reducing plan premiums, Nevada’s actuarial study suggests that it is primarily the state premium wrap that will meaningfully increase marketplace enrollment among individuals and families who are currently eligible for but not enrolled in subsidized marketplace plans, due to the increased affordability of coverage. And because increases in enrollment among tax-credit eligible individuals results in greater federal expenditures, any improvement in coverage among this population generates lower total federal savings and thus lower pass-through funding to the state under a Section 1332 waiver.

The report projects that this uninsured but tax-credit-eligible population—which Nevada estimates will include approximately 82,000 people in 2026—could experience a 10 to 12 percent decline in its uninsured rate in the first five years of the waiver. Nevada’s actuaries also anticipate that more than 55,000 residents could enroll in public option plans in the first year and that this number could nearly double over the first five years.

Health Care Providers Not Likely to Be Affected

Nevada’s actuaries also analyzed how an individual market-only public option program will affect health care providers, concluding that they will face minimal impact. (To ensure adequate access to care, Nevada requires that any providers who participate in the state public employee benefits program, Medicaid program, or workers compensation program, must participate in at least one public option plan network.) The individual health insurance market accounts for approximately 3 to 4 percent of health care providers’ payor mix in Nevada, and public option plans will make up only a subset of that. Thus, any reductions to reimbursement by public option plans should have a limited impact on overall provider revenue. The study also predicts that any reimbursement reductions will be partially offset by increases in utilization of health care and reductions in uncompensated care as more people become insured and the affordability of coverage improves. State law also sets a minimum reimbursement floor so public option plans cannot, in the aggregate, pay providers below Medicare rates.

Nevada to Prepare Section 1332 Waiver and Begin Planning for Procurement

Looking ahead, Nevada will apply for a Section 1332 waiver to implement its public option law, as required by state law, and seek to capture the robust savings it anticipates generating. A draft waiver application is expected to be released in late November 2022 and submitted to federal officials in March 2023. State officials will also solicit stakeholder input in the spring of 2023 on the procurement process that is currently scheduled to begin near the end of 2024. Several key design decisions remain ahead and will determine whether the state is able to meet its projected savings and enrollment numbers and achieve its goals of improving access to affordable, high-quality coverage through the introduction of public option plans.