California health exchange seeks to make buying insurance a breeze

Published Tuesday, Jul. 17, 2012 - The Sacramento Bee

Peter V. Lee wants to make buying health insurance "as easy as buying a book on Amazon."

He heads the nascent California Health Benefit Exchange, the cornerstone of the state's effort to put in place the federal health care overhaul. Lee envisions that 15 months from now, uninsured California residents will log onto any computer to shop for health care the same way they purchase novels.

The poorest residents will receive Medi-Cal. Those above the poverty line will find a menu of subsidized private options at different prices, from a "platinum" plan with higher premiums but lower deductibles down to a "bronze" selection that has lower premiums but requires the buyer to accept more risk.

All told, the exchange expects to connect about 2 million Californians with health insurers by 2019. Starting in 2014, it will be California's vehicle to deliver subsidized care to people who earn income up to four times the federal poverty level, currently $92,200 for a family of four.

The largest share will be people who lack insurance now, though hundreds of thousands who purchase health care on the open market or receive it through work will also use the exchange, according to a simulation conducted by the UC Berkeley Center for Labor Research and Education and the UCLA Center for Health Policy Research.

None of it existed two years ago.

"We've been moving ahead full-throttle even before the Supreme Court decision," Lee said, referring to the U.S. Supreme Court opinion last month that upheld most of President Barack Obama's health care law. "This doesn't really change things for us. It changes things in the eyes of others, who are now saying, 'Wow, this exchange thing is going to be real.' "

California was the first state to establish a health care exchange after Obama signed the Patient Protection and Affordable Care Act in March 2010. Then-Gov. Arnold Schwarzenegger, who signed the state legislation, supported universal health care and had tried to establish a California program along the same lines in 2007, but could not overcome political opposition.

A state board of five high-powered appointees oversees the exchange, including two former top Schwarzenegger aides, while Lee is responsible for day-to-day operations. The exchange must tackle three major areas in the coming months: attracting potential subscribers, building the enrollment system and selecting the health insurers and the plans they will provide.

The exchange will target working poor and middle-class Californians who earn too much to qualify for Medi-Cal but generally lack access to health coverage at work. In the past, they may have found costs prohibitive on the private market or been denied because they have high-risk medical problems.

The exchange is designed to help overcome those challenges. Under the new federal law, insurers are required to accept all patients regardless of pre-existing conditions. Federal subsidies are intended to reduce consumer costs below market prices.

The most significant challenge will be attracting enough healthy consumers to keep prices reasonable and provide enough income to health insurers. If the exchange draws only high-cost patients, insurers could walk away.

"How many healthy people can we get in the purchasing pool to make the economics work?" asked Susan Kennedy, an exchange board member who was Schwarzenegger's chief of staff. "That's the $64 million question no one can answer."

PR may include sitcoms

Also among the ideas: pitching popular television shows such as "Modern Family" and "The Biggest Loser" to incorporate health care changes into their story lines; recruiting Stevie Wonder as a pitchman; and hosting a "First Lady Summit" with first lady Michelle Obama to focus on health care for all.

Under the health care law, Americans must sign up for insurance or pay a penalty starting in 2014 – what the U.S. Supreme Court viewed as an allowable tax in its 5-4 decision. Health care advocates describe the federal subsidies as the carrot and the penalty as the stick in their effort to enroll consumers.

Diana S. Dooley, who serves on the exchange board as secretary of the California Health and Human Services Agency, said she believes the federal rebates will reduce cost concerns.

"We're doing a lot of work at the exchange to understand what motivates people and what they're worried about," Dooley said. "We're finding a lot of people want to have health insurance, but they simply can't afford it."

Under the federal law, all plans must provide 10 "essential benefits," which include hospitalization, lab services, maternity care and prescription drugs.

Health insurers have motivation to participate because they can increase their customer base. But without knowing exactly who will sign up, they also worry that only those who need expensive care will join the exchange.

"This is an important new channel to sell their product," said Marian Mulkey, director of the Health Reform and Public Programs Initiative at the California HealthCare Foundation. "But it doesn't mean they will all arrive with the same enthusiasm, wanting to participate."

Charles Bacchi, executive vice president at the California Association of Health Plans, said that in order to maintain reasonable risk pools, "it's important that the exchange and outside marketplace look alike."

The health exchange is also charged with creating a voluntary insurance program for small businesses, an attempt to give employers greater purchasing power by consolidating their workers in one pool. Owners of businesses with 25 employees or fewer are generally eligible for federal tax credits.

But John Kabateck, National Federation of Independent Business California executive director, remains skeptical about whether the exchange can reduce costs for small businesses. Kabateck's national organization was the lead plaintiff in the legal challenge decided by the Supreme Court.

"We have long advocated for increasing access options and healthy competition for more affordable health care, but in this case the devil is in the details," Kabateck said. "Small businesses feel both uncertain and frankly confused about the exchange."

Signups set in fall 2013

The exchange last month awarded Accenture LLC a multiyear contract worth $359 million, including $183 million to develop and install a statewide enrollment system over the next year.

The system has been the focus of health exchange discussions for the past year, drawing interest from a who's who list of government contractors. Accenture spent $226,000 between January 2011 and March 2012 on lobbying a variety of state offices, including the Health and Human Services Agency, state reports show.

Federal funds will mostly pay for the system, and the exchange asked the Obama administration for a $196 million grant in June to finance the Accenture deal and keep the exchange operational over the next year.

To pay for the health care changes, the federal act will generate money by penalizing those who do not obtain insurance, imposing higher Medicare taxes on upper-income earners, taxing high-priced employer-sponsored health care policies and taxing different industries, from pharmaceuticals to indoor tanning.

It also counts on saving money from Medicare by reducing growth in provider reimbursements and smaller payments to Medicare Advantage plans.

Health care advocates who celebrated the Supreme Court decision acknowledge the federal program is not in the clear yet. The November elections loom large, and Republicans have indicated they will seek to repeal health care changes if they win the White House and Congress.

"The real risk to the exchange is the loss of the subsidies, which would be a real attraction for millions of Californians," said Anthony Wright, executive director of Health Access California, which advocates for low-income, uninsured Californians. "The exchange could operate without those subsidies, but it wouldn't be as attractive to as many people."

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