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Exchange Bids Suggest Overhaul on Track in Pivotal State of California

By John Reichard, CQ HealthBeat Editor

May 23, 2013 -- The Obama administration recently got a respite from the rising chorus of inside-the-Beltway doubts about the health care law with news from California that its insurance exchange will offer residents in the individual market 13 plans at what officials said are affordable rates.

The plans available for small businesses will be announced in June.

Successful implementation of the law in the state could go a long way toward fostering national efforts to accomplish the overhaul. Coverage of the state's large uninsured population would significantly dent the national total of people without health benefits. It would also show other states a path toward putting the provisions of the overhaul into effect.

On the other hand, had the exchange effort fizzled in California, it would have cast a pall over national implementation efforts given all the resources the state was bringing to bear on meeting the challenge.

Arguably, if the health care law can't make it in California, it's unclear whether it can anywhere. The state has mounted an aggressive effort to set up its own insurance marketplace, called Covered California. It has the resources for a big education and assistance campaign this summer to educate people about the law and help them enroll in plans.

And it has health plans regarded nationally as models for delivering cost-effective care, including Kaiser Permanente and Sharp Health Plan.

And, based on comments by insurance and other officials at a news briefing in Sacramento, it has cooperative doctors and hospitals willing to accept lower payment rates in order to help keep premiums affordable and to help make the coverage expansion work.

Early news about insurer participation focused on the fact that such big insurers as Aetna, Cigna, and United HealthGroup would not be offering plans in the exchange.

But other insurers and health plans have a major presence in the Golden State. And enough insurers are taking part to allow a choice of a half-dozen plans in such major markets as Los Angeles and San Diego and at least two or three plans in all regions of the state, officials said.

"This is about 5 million Californians that want and need health care that we're going to be able to provide through the Affordable Care Act," Peter V. Lee, director of the exchange, told reporters.

"Across the nation, we've heard the doom-and-gloom predictions that the Affordable Care Act would lead to staggering premium increases," he said. "The big news today is that because of the Affordable Care Act, we hit a home run for consumers. We have affordable rates. We have better coverage, and real choice for consumers across the state."

Officials Short on Specifics

Lee is a respected figure in health care purchasing circles who for years led the influential Pacific Business Group on Health. But the money question is, what does "affordable" mean? Here Lee had a more difficult case to make. He said it wasn't possible to cite a single figure to cement his argument because there is so much variability in how much any one person now pays in the individual market.

But Blue Shield of California CEO Paul Markovich suggested that enrollees with individual coverage from his company this year would pay 13 percent more next year.

"Rates are going to go up for some," Lee did say. He noted that increases forecast by the Milliman consulting company for California were considerably higher, 29 percent on average. "We're hitting best-case numbers," Lee said. He added that the state wanted "Goldilocks" pricing—not so high as to be affordable, but high enough to make sure patients can get the care they need.

While some consumers will have a choice of only two or three plans, Lee emphasized that rates will be affordable, suggesting in part that that is the case because California's exchange is one of the few in the nation that will be "active purchasers." In other words, the exchange has the power to exclude an insurer if it doesn't offer a good deal.

Thirty-three plans initially said they intended to bid, he said. "We didn't just say, 'Come one, come all.' Quite frankly, we've held insurers' feet to the fire," and some dropped out of consideration, he said.

Another unusual feature of the California exchange is that benefits offered by the plans are standardized. In other words, all plans offer the same benefits, which puts more pressure on them to compete on factors such as cost, quality, efficiency, and the strength of their provider networks.

Among the participants is a plan that straddles the Medicaid and exchange markets, which means that as income levels fluctuate—such as if a person loses income and has to go on Medicaid—he or she can stay in the same health plan with the same network of providers.

"The rates submitted to Covered California for the 2014 individual market ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California's most populous regions," the exchange said in a news release.

"This is impressive since the 2014 products include doctor visits, prescriptions, hospital stays and more essential benefits; protecting consumers from the 'gimmicks and gotchas' of many insurance policies."

Betsy Imholz, special projects director for Consumers Union, praised the exchange offerings. "The days of paying premiums and hoping your insurance will cover you if you get sick are coming to an end," she said in a new release. "These rates will cover you for pre-existing conditions, chronic conditions and acute care. Covered California is bringing health and financial security to our families."

Colorado, another state that has set up its own exchange, also announced this week that it would have an array of choices to offer consumers. But states are expected to widely vary in the number of plans offered by exchanges in line with levels of insurance participation in their current markets.

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