The Importance Of California’s New Health Exchanges

Jonathan Cohn lays out the benefits of California’s new exchange legislation — currently sitting on the Governor’s desk — and suggests that insurers’ opposition to the measure probably means that the state is doing something right:

Under two bills that the California legislature passed and Schwarzenegger is apparently expected to sign, the state’s exchange authority would have explicit permission to “contract with carriers so as to provide health care coverage choices that offer the optimal combination of choice, value, quality, and service.” That mandate, combined with the bills’ other provisions, means the exchange authority would be able to negotiate pretty aggressively over price and quality, excluding plans that don’t serve consumers well. That’s more or less what corporate benefit departments and the managers of public employee programs, like the Federal Employee Health Benefits Program, do for their members.

The California model would follow the Massachusetts example, where the exchanges have the authority to include only the most efficient and quality-centric issuers into their connectors. Massachusetts has controlled costs for the expanded population (although costs have gone up in the entire system) and increased consumer satisfaction. Jon Kingsdale, the former director of the Massachusetts Connector Authority told Cohn that allowing any plan that hits minimum standards to sell in the exchanges “would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. … The exchanges would be nothing more than an automated Yellow Pages.”

And Massachusetts residents agree. For instance, focus groups conducted by the Massachusetts Connector revealed that consumers felt that too much choice was “confusing” and “overwhelming.” “Participants expressed a desire for a manageable numbers of plans (e.g. three to four) offered by four to six carriers. In addition, consumers expressed difficulty making plan comparisons under the existing model.” “Instead, consumers preferred for information to be presented in a simple and standardized format that clearly distinguished between different benefit design options,” the Connector’s Fiscal Year 2009 report concluded.

The for-profit insurers are weary that they may be excluded from the market and are asking the Governor to veto the bills. But the exchanges are one of the only ways states can protect consumers from plans that do not offer good value and cost-effectiveness. As Kingsdale explained to me during our interview in October, “We estimate that we’ve done about 6 percent reduction in premiums and saved about $140 million a year on subsidized care for about 180,000 people. Because we’ve been able to a) be aggressive in selecting and setting rules for health plans and b) set up an Exchange that translates the various costliness of their networks into a price that the consumer understands,” Kingsdale said. “The consumer doesn’t understand the price of a visit or the price of a procedure, or the price of an x-ray and can’t shop on that basis, but can shop annually for a premium, or monthly. And the trick with the Exchange is to translate the generators of cost and value and quality into a package called a health plan from which consumers have a choice and they have both funding but they are the price differences. And so with that program, we’ve been able to do it and have substantial impact.”