Head to Head: How can state make its health exchange work?

11/15/2012 12:00 AM

02/26/2013 8:14 PM

THE ISSUE: President Barack Obama's re-election clears the way for California to implement health insurance exchanges under the Affordable Care Act. Although California was the first state to pass legislation implementing the regulated insurance markets, challenges remain. Gov. Jerry Brown this summer said he intends to call a special legislative session on health care reform in December.

How can state make its health exchange work?

BEN BOYCHUK: Slow down! Look out!

Uh, oh.

With the court challenge to Obamacare and the presidential election out of the way, the Voice of Orange County reports, "California lawmakers say the uncertainty is over and nothing can stop them from bringing health coverage to millions of uninsured Californians under President Obama's signature health care law."

Nothing, eh? That brings to mind the 1974 cult car-chase classic, "Dirty Mary, Crazy Larry." In the film's final moments, our titular anti-heroes have managed to outwit the hapless cops.

"Ain't nothin' gonna stop us!" Larry laughs – seconds before he plows their stolen '69 Dodge Charger into a speeding freight train.

If California is the Charger, the freight train is the cost of implementation and management – at least $327 million in startup costs so far. And that's not counting annual operating costs.

The exchanges are supposed to provide the "market" mechanism that introduces "competition," keeps costs in check and funnels nearly 3 million mostly low-income Californians into an insurance plan by 2019.

It's hard to discuss "competition" when the market in question relies on heavy federal subsidies, derived from $500 billion in new taxes. The only way the economics of the exchanges can work is if enough people participate.

Trouble is, even with the subsidies,the state Department of Insurance estimates that premiums for similar coverage could increase as much as 25 percent in West Los Angeles and 22 percent in Sacramento.

Fearful that price spikes will depress participation, the state insurance commissioner's office wants to cap premium increases at 8 percent. Price controls, more often than not, lead to rationing.

California hasn't yet developed the computer system – supposed to be online by next October – that is the exchange's linchpin. Have you ever heard of a state computer system delivered on time or at cost? Neither have I.

Given those challenges, California might have been better off ceding responsibility to the feds. More than 30 states have taken few or no steps toward establishing an exchange. Why not? "A state exchange," says Ben Domenech of the Heartland Institute, "is likely to be extremely costly" both fiscally and politically.

Gov. Jerry Brown and legislators seem intent on charging ahead. Maybe the best California can do at this point is take the hit, so that other states might avoid the flaming debris.

PIA LOPEZ: Improve on Massachusetts model

California is way ahead of most states in setting up a marketplace where people under 65 will be able to buy health insurance starting in January 2014, if their employer doesn't provide coverage.

Ben, California and other states don't have to start from scratch. They can learn from the highly successful Massachusetts experience. Then-Gov. Mitt Romney signed an individual mandate and health exchange into law in 2006 and today less than 2 percent of Massachusetts residents are uninsured – the lowest rate in the country.

Of course, California's exchange will be 10 times larger – aiming to enroll 1.4 million Californians by January 2015 and 2.3 million by January 2017. By comparison, Massachusetts has 227,400 people in its exchange.

The good news is insurance plans are clamoring to be part of the California exchange. More than 30 want to participate, giving Californians a lot of choices. As in Massachusetts, Californians will be able to choose from carefully vetted plans – putting consumers in control of insurance decisions.

Ben doesn't like subsidies, but he seems to have forgotten the costs we all pay when people are uninsured.

Ben also worries about premium rates. But what can be worse than increases of 153 percent since 2003? Since premium rates will be the same inside and outside the exchange, the key to success is getting a full range of people covered – to keep costs down for everybody.

Ben is right that a single national exchange has advantages, creating a larger pool to spread costs. Republicans in Congress rejected that in 2010. I find it incredible that Ben wants to go that route now. Better to see how state exchanges work first, to lay the groundwork for Ben's national exchange.

California is on the right track.

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