Moving forward on a pillar of President Obama's health care overhaul, California is expected to create one of the first health insurance exchanges in the United States, despite complaints from insurance companies about a "politicized" system for setting rates.
All states are expected to operate state-managed funds where mostly low-income individuals and employees of small companies can purchase health insurance coverage. California's exchange is conceived in companion bills, AB 900 and SB 1602, that have been moving through the Legislature this session.
The exchange would offer health insurance plans, theoretically, to anyone. Yet it holds the greatest allure for small-business employees and those who qualify for federally funded subsidies. (Families of four earning up to $88,000, or any individual earning up to $43,000, approximately.)
The central controversy around the exchange is whether it should have real power to bargain with health insurers for the best rates. As written in both pending bills, the exchange would indeed have the power to bargain with insurers. But some are suggesting the exchange should simply offer a menu from which to choose coverage from various plans.
Anthony Wright, director of the consumer advocacy group Health Access, is strongly in favor of an exchange with strong bargaining power, similar to how CalPERS negotiates for lower prices for state worker insurance.
“That’s a key piece,” Wright said.
Anthem Blue Cross, however, is suggesting that such a system could be disastrous for some plans. According to an analysis of SB 900, the company said:
Anthem asserts that setting rates in the exchange would likely politicize the rate-setting process, which has proven to lead to insurer insolvency and insurers withdrawing from the market, reducing choices for consumers.
California Association of Health Plans Vice President Charles Bacchi, who represents insurers that cover 21 million people, said the contracting powers of the exchange might leave out small plans, such as one that caters to the Chinese community in San Francisco. “Why not let customers choose what is best for them?” Bacchi said.
And the Association of California Life and Health Insurance Companies said the bills would force insurers to offer the plans available to exchange members to all other customers. They see that as putting them at a competitive disadvantage. “ACLHIC is concerned that these negotiated rates may not be actuarially sound and place participating carriers at a market disadvantage with nonparticipating carriers,” a bill analysis says.
For Wright’s part, he favors a bill that eliminates the "wild, wild West" of the individual insurance market, which was rocked earlier this year by Anthem's attempted 39 percent rate hike. As written, the pending bills would offer to everyone the savings that an exchange could broker.
Wright also wants to make sure the board of directors for the California exchange does not include any members who stand to benefit financially from the board’s choices - such as health insurance executives. He's also seeking revolving-door provisions to prevent officials from moving too quickly between jobs with the state and insurance companies.
Bacchi, who represents health insurance plans, disagrees, saying the industry has key expertise to lend to the exchange. “We believe if there are other stakeholders on board, we should be treated like any other stakeholder,” he said.
These disagreements may have a short shelf life, as the bill will live or die by August 31, the end of this legislative session. Observers predict, though, that it will pass.
One of Gov. Arnold Schwarzenegger's top health advisers, Jennifer Kent, told the Associated Press that the governor hopes to sign a bill setting up an exchange before he leaves office in January.
And the bills have powerful sponsors, including Assembly Speaker John Perez, D-Los Angeles, Senate Pro Tem Darrell Steinberg, D-Sacramento, and veteran lawmaker Sen. Elaine Alquist, D-San Jose.
The bills are headed next to Assembly and Senate appropriations committees, where they would need approval for the cost of staff to support the exchange website and day-to-day administration.
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