California’s Health Insurance Marketplace Looks for “Goldilocks Pricing”
As the deadline for the Affordable Care Act’s implementation draws nearer, the largest state in the union and often a bellwether, has revealed its plans and rates for a key element of health reform – the Health Insurance Marketplace. Still better known as the Exchange, each state will have an entity that enables residents to purchase individual insurance policies and determine their eligibility for a federal premium subsidy.
Covered California’s announcement of the 13 plans that will take part in the state’s individual policy marketplace comes on the heel’s of a Los Angeles Times story from Wednesday confirming that national insurers UnitedHealth, Aetna Inc. and Cigna Corp. are taking “a wait-and-see approach on these new government-run marketplaces,” so will not participate.
Even with these three big insurers sitting out for now, Peter V. Lee, Executive Director of Covered California, said, “We’re thrilled with the amount of competition that we have.”
Lee told reporters in a press conference that Covered California worked with insurance companies, doctors and consumer groups to achieve what he dubbed “Goldilocks pricing” that gives people affordability and choice. Lee explained the four-fold formula: 1) Finding a good risk mix of both sick and healthy predicated on high enrollment; 2) Getting providers to accept lower payments; 3) Engendering trust in the ACA’s risk mitigation programs that aim to protect insurers against financial loss; and 4) Keeping insurer profits at 2% to 3%.
“Consumers will have affordable, competitive rates with real choices,” asserted Lee.
Covered California is one of 18 marketplaces, or exchanges, run by the state. The rest are either federally managed or handled by a state-federal partnership (see this graphic and click on "Type of Exchanges in State"). All Exchanges are expected to start offering their plans by October 1, 2013. The state’s marketplace plans must cover 10 benefits deemed by the ACA as essential, which are:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder services, including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care
Speculation swirled that individual policy premiums might be prohibitively expensive, especially after a report by Milliman, a national actuarial firm, said bringing uninsured Californians into the fold could raise premiums by 26.5 percent.
“Some will have prices that will go up,” explained Lee. “But all consumers will have affordable, high quality options that will give them peace of mind.”
As the San Jose Mercury News reported:
Lee said his office could not estimate how much average premiums will change because of too many variables. Paul Markovich, president of Blue Shield of California, said Blue Shield members who purchase plans through Covered California could see an average increase of 8 to 13 percent next year.
California is one of the first in the country to issue its plans and rates, which now must be reviewed by the state’s regulators. More than 5 million Californians should be eligible to buy insurance through Covered California and an estimated 2.6 million should get some federal subsidy. In 2014, the ACA mandate kicks in, so the uninsured can either buy a policy or pay a penalty (some exemptions apply).
“The fact that the local plans -- the major players in the California market -- are all in is a big deal,” said Gary Claxton, Vice President and the Director of the Health Care Marketplace Project at the Kaiser Family Foundation. “For a first shot, [Covered California] should be pleased that there are a lot of heavy duty competitors in the market. If things go well some of these other players will want to enter the markets.”
Kaiser has some nifty tools on its website, including profiles of each state’s health insurance marketplace and a calculator to determine the projected amount of a person’s federal subsidy for insurance premiums.
Claxton wasn’t surprised that UnitedHealth, Cigna and Aetna are sitting it out in California. “Their business model, particularly Cigna and Aetna, is large self-insured plans or large multi-state plans. They don’t necessarily have best prices to participate in small group markets.”
Claxton noted that California’s tactic of getting providers to agree to lower reimbursement rates might be unique among the Exchanges. “Most of the other states have not negotiated with providers and the federally operated plans have not actively negotiated, either,” said Claxton.
For the marketplaces to be successful, Claxton says their ratio of sick to healthy people should mirror the general population. “If you are going to bring in the sick people you have to have enough healthy people to spread the risk. The idea is that the subsidies are going to bring in people who are normally priced out," he explained. "That’s what we are all hoping, anyway,”
The biggest challenge Claxton sees for all the Exchanges is going to be getting people to buy health insurance when they haven’t had it before. In addition to the carrot of better health, affordable policies and potential subsidies and there's also stick for wielding. “Certainly they will use the penalty information to get people to enroll,” said Claxton.