qotd: Is the California ACA exchange a model for the nation?

Los Angeles Times
July 27, 2015
Op-Ed Obamacare works in California. Here's why.
By Peter V. Lee, James C. Robinson

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.)

http://www.latimes.com/opinion/op-ed/la-oe-0728-lee-aca-insurance-prices-20150727-story.html

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Los Angeles Times
July 28, 2015
Editorial
Covered California's good news on premium hikes comes with trade-offs
By The Times Editorial Board

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.

http://www.latimes.com/opinion/editorials/la-ed-health-insurance-premiums-20150727-story.html

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Comment by Don McCanne

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.