This article first appeared in the February/March 2011 issue of the newsletter "States in Action."
As the first state to enact legislation to create a health insurance exchange since the passage of the Affordable Care Act, California is an early example of how the law's vision of state-based exchanges can be implemented. The outgoing governor signed the exchange into law in September 2010 in two bills, S.B. 900 and A.B. 1602, which lay out its governance and regulatory roles, respectively.
"California-based health reform efforts have fostered broad understanding of health care policy and health insurance exchanges," said David Maxwell-Jolly, undersecretary of the California Health and Human Services Agency. "Even with this foundation, the complexity of the Affordable Care Act means many stakeholders are unfamiliar with the details of the exchange-related provisions. Therefore, the implementation and operation of the exchange must provide for consistent and open communication regarding the structure and responsibilities of the exchange."
California's exchange is an "independent public entity not affiliated with an agency or department," with a five-person board whose members "may not be affiliated with any carrier, agent, broker or health care provider, be affiliated with a trade association of one of these groups, or be a provider (unless they do not receive compensation) while serving on the Board or staff of the Exchange." Two of its members were appointed by the outgoing governor, the state secretary of Health and Human Services (appointed by the incoming governor) serves as a voting ex-officio member, and two members are chosen by the legislature, one by the State Senate and one (recently selected) by the State Assembly Speaker.
The legislature and state agencies are currently focused on the major state budget challenges facing California, including the possibility of substantial cuts to health and human services programs, and that priority is taking precedence over the exchange now that the establishing legislation is in place. However, the state recognizes that the timeline for setting up exchanges needs to be aggressive in order to meet the start-up deadlines in national reform.
The Exchange's Purchasing Role
California's exchange is designed to take an active purchasing role and will selectively contract with plans, favoring those that it determines offer choice, value, quality, and service. These criteria will be based both on forthcoming federal guidance, and most likely on further work to be conducted by the exchange board once it begins meeting. The exchange's primary role will be to certify health plans for participation, but it will also:
- require qualified health plans to justify premium increases before they are made, and publicly post the justification on their websites to allow the board to consider this information when determining whether to make the plan available through the exchange;
- require qualified health plans to make publicly available information in plain language on: claims payment policies and practices, financial disclosures, enrollment and disenrollment, rating practices, cost sharing and payments for out-of-network coverage, and enrollee and participant rights;
- inform individuals of and screen them for eligibility requirements for public health insurance programs and enroll eligible individuals;
- assign each plan a rating based on the criteria for providing value to consumers.
The exchange will coordinate with regulatory agencies such as the Departments of Insurance and Managed Health Care that carry out functions such as health insurance rate review and rating of plans.
Protecting Against Adverse Selection
The exchange legislation includes a number of requirements intended to reduce the risk of adverse selection. These include:
- plans that are in the non-exchange market must offer identical products inside and outside the exchange;
- plans must offer products at all four required actuarial levels, and only plans that participate in the exchange are allowed to sell catastrophic coverage (however, catastrophic coverage will be available outside the exchange to those not eligible to participate in it, such as undocumented immigrants);
- there must be a choice of products, and all required coverage levels, in each region of the state;
- the board may standardize products in the exchange and, if it does so, all carriers in all markets must offer the standardized plan design;
- the insurance commissioner and the head of the Department of Managed Health Care will evaluate whether the federal Web site designed to allow consumers to shop for insurance options provides adequate information and appropriate marketing, since marketing of products outside of the exchange could influence adverse selection.
Regarding risk adjustment among plans within the exchange and between the exchange and the outside market, the state will await forthcoming federal guidance and activity by the board to shape its approach.
Challenges and Issues for Other States to Consider
California's urgent focus on addressing its state budget shortfall has posed a challenge, since the state will need to make rapid progress on exchange implementation to meet its goals and the Affordable Care Act's requirements. "The two biggest challenges California faces in implementation are the aggressive timeline and the state's fiscal situation. We must ensure the exchange does not create a direct or indirect burden on the state treasury," said Maxwell-Jolly. The state emphasized that because the Affordable Care Act's requirements for exchanges are complex, it is critical to promote consistent and open communication among all stakeholders to ensure that everyone fully understands the exchange provisions, as a foundation for collaboration to develop the exchange.
For more information: Visit the California Health Benefit Exchange Web site at www.healthexchange.ca.gov.