SACRAMENTO, Calif. – Now comes the hard part.
California, which has had a long, sometimes-tortured history of trying to overhaul its health care markets, beat every other state last year when it passed a law creating a health insurance exchange – an online marketplace where millions of uninsured residents will be able to get insurance.
Now the board overseeing the exchange must ensure that coverage on the exchange, which must be up and running in 2014, is affordable and easy to buy. It also must figure out how to administer federal subsidies to help lower-income people buy policies and make sure that the exchange attracts healthy as well as sick people. And the board must get its work done at a time when resources are extremely tight due to the state’s multi-billion-dollar budget deficit.
“The state has no money,” Kimberly Belshe, a member of the board and secretary of the California Health and Human Services Agency under former Republican Gov. Arnold Schwarzenegger, recently told reporters. The exchange board has hired an acting administrator and is applying for grants and working on reports with help from consultants hired by private foundations.
Board members are determined to press forward.
“If California succeeds, it will lead the nation on health care reform,” Susan Kennedy, who served both as chief of staff to Schwarzenegger and as a top aide to former Democratic Gov. Gray Davis, said at the panel’s first meeting in April. “If it fails, we’ll precipitate the failure of health care reform across the nation.”
The federal health care law calls for the formation of state-based exchanges, where individuals and small businesses – those with fewer than 100 workers -- can compare insurance policies on cost and quality and buy coverage. Under the law, the federal subsidies, in the form of tax credits, will be provided to lower-income individuals In California, officials have said, about 3 to 4 million people initially will be eligible for the exchange, with the number potentially doubling in coming years.
The law gives states considerable latitude in setting up the exchanges – in deciding, for example, whether the exchange is essentially a passive body that allows all insurers to participate or an active group that sets rules and enforces standards involving value and quality. Massachusetts set up an exchange, called the Connector, years before the federal health care law was enacted. Jon Kingsdale, who spearheaded the effort, is now advising the California exchange board. Utah, in 2009, created a different type of exchange – one that takes much more of a “hands’ off” policy in dealing with insurers.
In California’s case, the state law setting up the board called for an “active purchaser.” It empowered the exchange board to select insurance plan requirements and to decide which companies will be permitted to sell on the exchange and to negotiate prices with plans bidding for business.
“We have been very clear that it does not mean another regulator,” said Belshe, But she added that many questions remain unresolved – including how to decide which insurers should be allowed to participate in the exchange. “Is it the exchange’s place to really drive to the lowest rock-bottom price possible?” she asked. “Is it to reform the marketplace?”
In 2007, Schwarzenegger proposed a $14.7 billion overhaul to the state health care system, but the effort failed. Still, it brought together health policy experts from both parties to develop strategy to revamp the market, and many are involved in the current effort.
Several states besides California have taken steps to set up exchanges this year, according to the National Conference of State Legislatures, including Maryland, Virginia, West Virginia, Indiana, Washington, Hawaii, Colorado, North Dakota and Vermont. Indiana’s exchange was established in January by executive order. Meanwhile, Washington legislators are waiting for Democratic Gov. Christine Gregoire to sign their exchange bill. New Mexico’s legislature passed a bill that Republican Gov. Susana Martinez recently vetoed.
When California’s new exchange directors took their seats for their first meeting recently, there was one member of the five-member board missing – the yet unnamed appointee of the state Senate. Besides Kennedy and Belshe, the other members are Diana Dooley, interim chair and Democratic Gov. Jerry Brown’s Health and Human Services (HHS) Secretary, and Paul Fearer, senior executive vice president and director of human resources at Union Bank and board chairman of Pacific Business Group on Health.
The board members, who are unpaid and serving four-year terms, got good reviews from the health policy players who attended the meeting. But Ellen Wu, the executive director of the California Pan-Ethnic Health Network, which advocates for health equity, griped about the board’s lack of diversity.
“We were instrumental in advocating for language that calls for diverse representation on the exchange board,” she said. “This is critical, as studies show that 65 percent of Californians who will benefit from subsidies in the exchange will be people of color and 32 percent will speak English less than well.”
Although different interests want different things from the board, most agree on one concept — the board must take steps to ensure that the exchange has a balance of healthy and sick people. If sick people predominate and healthier people drop out, premiums will rise to reflect the higher average costs of the group and the coverage will become unaffordable.
The antidote is “to get millions of people enrolled and start drawing down federal dollars on Day One,” said Anthony Wright, executive director of Health Access, a statewide health care consumer advocacy coalition. “The game changer here is that the exchange gives consumers the bargaining power that they lack as individuals. Right now, they’re left all alone at the mercy of the big insurance companies. This provides them bargaining power to negotiate for the best price, value. But once they’re in, on whose behalf is the board negotiating? Will the exchange be the HR department for the rest of us? We have to be vigilant.”
Meanwhile, now that the exchange is a reality, previous foes, such as health insurance brokers and underwriters, say they’ll keep a close watch on its progress.
“Our trade association is committed to making this a success,” said Steven Lindsay, lobbyist for the California Association of Health Underwriters, which represents 2,500 insurance agents and brokers. “No matter what happens with national health reform, we will have this exchange in California. Change is here.”
But he is pessimistic. More exchanges have failed than succeeded, said Lindsay.
“We do not believe that the exchange website will get significant numbers of users,” he said. “The vast majority of people who will be in the exchange don’t have a college education. Health insurance is not in their cultures. They pay for care when needed. Now we go out and say to these folks, ‘You have to give us between 3 and 9 percent of your income for insurance.’ They might not even use computers.”
He also said that the board must figure out how to get as many people as possible enrolled in the exchange, and should provide financial incentives to agents and community groups to help with the enrollment. “If you don’t get enough people to sign up,” he said, “it will fail.”
Health exchanges “can work,” said former state Sen. Sheila Kuehl, whose single-payer proposals passed the legislature twice, but were vetoed by Schwarzenegger. But, she said, the problem is that “health exchanges still leave the insurance companies in charge.”