Is the California ACA exchange a model for the nation?

Obamacare works in California. Here's why.

By Peter V. Lee, James C. Robinson
Los Angeles Times, July 27, 2015

Early reports that 2016 health insurance premiums would increase in double digits brought out the usual cadre of critics to claim — once again — that Obamacare is not financially sustainable.

We now have the full picture in California, where we are proving that health insurance exchanges can keep prices in check. Residents who enroll through Covered California, our statewide exchange, will see only modest 4% increases in 2016. Those selecting the lowest-priced plans actually will save 4.5%.

These low premiums were made possible because California law gave Covered California the power to actively negotiate on behalf of its 1.3 million consumers. The board and staff of Covered California have used this authority. That's helping the Affordable Care Act work as intended — using market forces to hold down costs.

So how exactly is California getting such good results? First, Covered California selects which plans can be sold through the exchange. This gives it leverage with the insurers, which want to reach this source of new customers. Those insurers then are able to negotiate better deals from hospitals and doctors. In contrast, the federal health insurance marketplace and other state exchanges take all comers and do not force insurers to improve plans to get their products onto the exchanges.

In 2014 and 2015, Covered California turned away several plans because of serious concerns about high prices, inadequate physician networks or weak administrative capabilities.

Covered California also negotiates directly with health insurers on prices. We pressure carriers to keep premiums as low as possible and offer robust networks of doctors and hospitals. Passive insurance exchanges, including the 37 states that are part of the federal marketplace, allow insurers to charge whichever rates pass regulatory muster and cover however many doctors they want.

Equally important, Covered California standardizes the deductibles and other characteristics of plans offered. That empowers consumers, who can make apples-to-apples comparisons. Standardization also allays fears that low-premium plans might be complicated or rife with coverage exclusions. Californians can rest assured that their coverage means they can get the treatment they need without first paying a deductible that can be thousands of dollars.

Moreover, the benefit of standard plans and negotiated prices accrue to anyone who buys individual health insurance. Again, because of how California law implemented the ACA, the rates Covered California negotiates must also apply to policies those plans sell outside the exchange.

Covered California is using its heft to improve patient care and outcomes too. Contracts with insurers require that they participate in quality improvement programs, reduce ethnic and geographic disparities in access to care, and provide patients with access to doctors and hospitals that meet their needs.

Taken together, this process generates a better set of insurance options than do the federal and state insurance exchanges that adopt a passive market approach.

Free market forces can be a powerful tool to contain health costs. But for that tool to work, consumers need the support of an active purchaser that can go toe-to-toe with the insurers. Other states and the federal exchange would be wise to look at what's working in California.

Peter V. Lee is the executive director of Covered California. James C. Robinson is a professor of health economics at UC Berkeley.


Covered California's good news on premium hikes comes with trade-offs

By The Editorial Board
Los Angeles Times, July 28, 2015

The 2010 federal healthcare reform law made it easier for millions of Americans to obtain insurance coverage, but it didn't stop the cost of that coverage from rising considerably faster than inflation. So it was a welcome surprise Monday when officials at Covered California, the state's health insurance exchange, announced that the average premiums for individual policies in 2016 would be only about 4% higher than they are this year, and only about 2% higher in Los Angeles County. Mixed in with the good news for consumers, though, were some trade-offs that won't make everyone happy. The announcement offers lessons for consumers and policymakers, not all of which are easy to stomach.

Monday's announcement illustrates how competition among doctors and hospitals in Southern California is helping to hold down premiums. Consumers in remote or rural areas, and even in some parts of Northern California, who do not have such competitive marketplaces but are dominated by one or two hospital systems may face double-digit increases in their premiums in 2016. They can cut their costs significantly by switching insurers, but doing so may require them to find a new set of doctors — Covered California has encouraged insurers to compete by assembling different lineups of doctors and hospitals. That's a potentially huge barrier to people with chronic conditions and those who don't have the time or inclination to get into the details of their insurance plans.

Here's another trade-off. Close to 90% of those insured through Covered California receive subsidies for their premiums, which makes premiums less of a problem for many than their policy's out-of-pocket costs. To hold down those costs in 2016, the exchange is introducing a new standard "benefit design," or common set of policy features. This design eliminates deductibles for more basic services and caps the costs of expensive prescription drugs. At the same time, though, it makes emergency services and hospitalizations more expensive, especially for those choosing the tier of coverage with the least expensive premiums. That should help many consumers, but not those in cheaper plans who are hit with a major illness or injury.

Unlike the exchanges in most states, Covered California actively negotiates with insurers over rates and plan designs. There's a trade-off here too: Some insurers aren't offering plans through the exchange to consumers in all or part of the state because they didn't meet the exchange's demands.

That's not to give short shrift to what Covered California has been doing. It's simply to acknowledge that the changes wrought by the 2010 law have yielded a market for individual policies that demands not just an active exchange but attentive consumers aware of the trade-offs implicit in their choices.



By Don McCanne, MD

Peter Lee and James Robinson tell us that the Affordable Care Act (ACA) is working as intended - “using market forces to hold down costs,” and that California proves it by holding average premium increases down to 4% for the second consecutive year. But Covered California functions as an “active purchaser.” Does that mean it is functioning as an agent facilitating a free market between buyers and sellers of insurance, or is it functioning as a bureaucratic regulator dictating which insurers and which products are allowed in the exchange markets? 

The last half century has confirmed that free markets in health insurance are highly dysfunctional. The reason that Covered California is working is that it is very highly regulated, dictating which insurers can participate, what benefits their plans must offer beyond those mandated by ACA, while aggressively negotiating with insurers on prices, rejecting those that are too high.

By requiring more rigid standardization of negotiated prices, benefits, and lower deductibles, plan selection for buyers is less difficult. Although this standardization defeats the free market principles wherein choice would be between plans with much greater variability in these parameters, it reduces the risk for the individual that a given selected plan would be grossly inadequate in the face of significant medical need.

Thus given the limitations of ACA, the strong arm tactics of these bureaucrats benefit patients compared to simply turning them loose in a free market of unregulated health plans.

But there are important trade-offs. Because the exchange plans are supposed to compete, they are requiring plans to have different compositions of provider networks so that patients would have a choice of which restricted list of providers they could use. That could be difficult for patients with chronic problems whose professionals were scattered amongst different networks. Also yearly premium adjustments can leave patients with a choice of paying a higher, less affordable premium or changing to another plan with a different provider network, disrupting continuity of care.

The administrators of Covered California have recognized the financial barriers created by the very high deductibles that have become commonplace today. They rightfully established a new standard benefit design that eliminates the deductibles for basic services. But to avoid the necessity of premium increases they have had to allow greater cost sharing for emergencies and hospitalizations - creating financial hardships for those with the greatest needs for adequate coverage.

Trying to do the best with what ACA allows, they have crafted plans that limit choices of providers, expose the most vulnerable patients to high out-of-pocket costs, while keeping insurance premiums only modestly above the level they were before ACA was enacted.

What is missing here? They have failed to recover the profound administrative waste inherent in our dysfunctional financing system - waste that goes away simply by changing to single payer financing. Also they could be more effective negotiators if they were a single public monopsony - a single-payer purchaser - instead of trying to negotiate with only a portion of the multiple players in our fragmented financing system. The efficiencies would free up enough funds to provide all essential services for everyone in a system with free choice of health care professionals that is affordable for all through equitable public funding.

The honorable administrators of Covered California have shown us what can be done under ACA. Their efforts are admirable, but their results fall tragically short of what we need simply because they were limited by the fundamental defects in our financing infrastructure. Just think of what they could do for us if we gave them an improved Medicare for all with which to work.