California Health Benefit Exchange in 2014
Health Care Reform, also known as PPACA, provides that most everyone must purchase health insurance, and insurance carriers must offer it to everyone by the year 2014. One way to facilitate this mandate is to create state “Exchanges” to allow individuals and small businesses to pool together and purchase health insurance more affordably.
On September 30, Governor Schwarzenegger signed two bills, AB 1602 (Perez) and SB900 (Alquist), that made California the first state to have passed legislation in accordance with the health care reform bill. It is know as the “California Health Benefits Exchange”.
This Exchange is a purchasing pool for individuals and small group plans, for employers with 1 to 100 employees, to use premium tax credits and cost-sharing subsidies. These credits and subsidies may be used by moderate income persons (defined as up to 400% of federal poverty level), and those whose employers either do not offer affordable health insurance coverage. Private insurers will compete to offer QHPs (Qualified Health Plans) inside the Exchange, which are five HMOs and five PPOs. They are referred to as Bronze, Silver, Gold, Platinum, and a lower cost “catastrophic plan that may be sold only to people under age 30 or who qualify for an affordability exemption from the individual mandate.
Certain employers with more than 50 full-time equivalent employees (“FTE”) will be required to pay a penalty if they do not offer “affordable” health insurance to employees, and at least one of their employees receives a premium credit in the Exchange. The penalties are weak, in comparison to cost of health insurance, so we’ll have to see how that works out. Small companies do not have to worry about offering coverage if they are not doing so currently, and larger companies who already provide good benefits to their employees have no worries about penalties, either.
There will still be insurance plans outside the Exchange for the majority of Americans, and the same plans offered inside the Exchange will be offered outside the Exchange, and at the same premium.
There are some aspects of these bills that create significant concerns with adverse selection and the viability of the Exchange relative to the outside market. The Exchange provides for no involvement of agents and brokers. The new law supports the use of “Navigators” to assist Californians in understanding and enrolling in Exchange Plans. Navigators need not be trained or licensed, and may end up being nothing more than a call center. My humble opinion, as an insurance broker, is that without agents and brokers to help with the educational outreach that must occur, the Exchange will not be as effective as it could be.
The operation of the Exchange will be supervised by a board of five appointees, with virtually no outside governance. This governing board will select participating insurance carriers, define the health plans, and set procedures for how the whole thing will work. As Bill Robinson, CAHU VP of Legislation points out,
“So neither the CA legislature, nor the elected state officials, nor state agencies nor the courts will have any jurisdiction over the actions of this new board. They are also exempt from the “open meeting laws”, and state pay review standards, and a lot more. This is how the State Compensation Fund operated for many years, until 3 or 4 years ago Steve Poisoner stepped in and somehow secured a court order to audit the State Fund. The result revealed a horrendous amount of corruption, fraud and excess pay levels within the State Fund. This could also happen to the new Exchange governing board.”
In the hopes of avoiding this nightmare, the governing board is required to file an annual report to the Legislature and Governor on expenses, performance, operations, and progress. This report is also posted on the Exchange website. The budget must also be posted on the website, including staff salaries.
From a cost standpoint, there is a great unknown with the Exchange, and could end up being much more costly than we expect. If the Exchange is required to be self-sustaining, and not supported by additional tax dollars, the outside market may end up being more cost competitive. There are already two states with Exchanges in place, passed prior to PPACA, known respectively as the Massachusetts Connector and the Utah Exchange. The original projections for the Massachusetts Connector program were to ultimately cover approximately 215,000 people at a cost of $725 million. By June 2011 enrollment is projected to grow to 342,000 people at an annual expense of $1.35 billion.[1]
That means that the Exchange could end up housing only the “bad risk” and cause the rates of those plans to rise disproportionately compared to the outside market. Those who qualify for the subsidies and tax credits may be the only ones who can afford to buy insurance through the Exchange. The California Health Benefits Exchange requires that the same plans must be offered inside and outside the plan, however, insurance carriers may offer whatever plans they want outside the Exchange.
[1] ^ Alice Dembner url=http://www.boston.com/news/health/articles/2008/02/03/subsidized_care_plans_cost_to_double+(February 3, 2008). “Subsidized care plan’s cost to double: Enrollment is outstripping state’s estimate”. The Boston Globe.
