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California Blazes a Trail for Exchange Implementation

By Jane Norman, CQ HealthBeat Associate Editor

October 1, 2010 -- A new chapter in the implementation of the health care law opened Thursday with California Gov. Arnold Schwarzenegger's signature on a bill creating the state's health insurance exchange, the first in the nation since the federal law was enacted.

The development threw a spotlight on the state exchanges, which don't launch until Jan. 1, 2014 but will require years of planning on the part of states—some of which are moving faster than others. The exchanges will serve as marketplaces offering health insurance to individuals and small businesses through comprehensive benefit packages offered at different cost levels.

Establishment of the exchanges is also a potentially hot-button issue that many state legislatures across the nation likely will be tackling as soon as their 2011 sessions begin, even if it's just to start assembling an exchange framework with details to be filled in after the Department of Health and Human Services issues regulations.

The California Health Benefit Exchange puts the nation's most populous state in the forefront of states moving ahead on setting up the marketplaces through which millions of Americans will get their health insurance. California may serve as a model for other states' policymakers as they decide on the structure for their exchanges, experts say.

"This is going to be a large exchange, probably on the order of two to four million people being able to get their coverage through that exchange," said Jon Kingsdale, the former executive director of the Massachusetts Connector, an exchange set up prior to the national overhaul to provide health insurance to Massachusetts residents.

"California is 10 percent of the population. I think they're going to be blazing the trail for other parts of the country," Kingsdale said in an interview following remarks at a Washington conference on state issues sponsored by America's Health Insurance Plans. Kingsdale worked with the California Health Care Foundation to provide advice through the process of development of the exchange.

The exchanges need to be doing test runs by October 2013, so time is of the essence, he said. Yet some states are just beginning to sort through the issues at hand. "I think they're very daunted, understandably," said Kingsdale. "This kind of combination of public and almost entrepreneurial function is different, for government."

AHIP, which represents the insurance industry, noted in a memo to members Friday that the National Association of Insurance Commissioners has released a draft model act for states to follow if they want. Key issues include how an exchange is governed, certification of qualified health plans, the process for justifying a premium increase and funding to support the operation, the memo said.

Joy Johnson Wilson, health policy director at the National Conference of State Legislatures (NCSL), predicted that more organizations in the next few weeks will be releasing exchange models as well. State lawmakers will start working on the structure of their exchanges next year but the process could last into 2012, she said. Exchanges must be certified by the federal government by January 2013.

"Certainly I think they'll start next year. Whether every state will finish, the answer is probably no," she said.

Wilson also said she believes states will have to have legislation approved to create the exchanges as new state entities, rather than governors establishing them under executive authority.

In California, the exchange will be an independent public entity that will be governed by a five-member board made up of the state's secretary of health and human services, two members appointed by the governor and two members appointed by state legislators—one by the speaker of the Assembly and the other by the Senate Rules Committee.

The Massachusetts HealthConnector is an independent state agency with a 10-member board that offers two programs, one a subsidized program for low to moderate-income people who don't otherwise have insurance and the second an unsubsidized offering of six private health plans. The board includes slots assigned for various interest groups, Kingsdale said.

According to a chart maintained by the NCSL, other states are in various stages when it comes to exchanges. Colorado, for example, has a Health Reform Implementation Board that is hosting meetings open to the public where options for setting up the exchange are being discussed.

Meanwhile, a Republican governor's signature on the bill authorizing the California exchange was welcomed with particular alacrity by Democratic lawmakers and President Obama, who have been defending the law against a Republican push for repeal in advance of the midterm elections. The Sacramento Bee reported that Obama called Schwarzenegger—who until the last minute appeared undecided—to urge him to sign the bill.

The president said in a statement that the California measure was an "important early step toward reforming our private insurance marketplace" so residents will have choices by the time the exchanges kick into high gear in 2014.

Three House members from California who helped write the law, Democrats Henry A. Waxman, Pete Stark and George Miller, also issued statements praising Schwarzenegger for signing the bill.

But it was opposed by business interests in the state including the California Chamber of Commerce, which called it a "job killer." That conclusion was based on a consultant's analysis that the legislation went "far beyond" what's required in federal law by allowing the exchange to establish benefits in excess of the federal required benefits package.

California media reported that Anthem Blue Cross, a major provider in the state, also opposed the legislation. But it was supported by Blue Shield of California. That company's CEO, Bruce Bodaken, appeared at the bill signing ceremony with Schwarzenegger.

"Given the strong opposition to this legislation by some, it may seem surprising that a health plan CEO would stand up to support it," Bodaken said. "But at Blue Shield, we have long believed that establishing a strong exchange is critical to fixing a broken insurance system."

It's getting there that's the hard part and one of the biggest challenges will be to help consumers understand what the exchanges are. Polls have found widespread confusion about the health care law and Kingsdale warned that a successful exchange will require a "tremendous public education and outreach function."

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