Covered California, the new name for the California Health Benefit Exchange, has just released a report on its activities. Addressed to the Governor and Legislature, the report describes the reasons for creating the exchange and the progress in that effort.
The report states that the high cost of medical insurance is the most commonly reported reason for lack of coverage and this trend is continuing. “Between 1999 and 2011, average annual premiums for single and family coverage increased approximately 250 percent,” the report said (p.5).
Further, the high cost of coverage has led to reduced benefits. “From 2006 to 2011, there was more than a four-fold increase in the proportion of insured workers in small employer firms with deductibles of $2,000 or more, from six percent up to 28 percent,” according to the report (p.5).
Cost of Coverage: Covered California intends to address the problem of high-cost health insurance. “Lower income individuals and families will be able either to enroll in public programs like Medi‑Cal or access subsidies to offset the cost of premiums…Small business owners will find coverage options for employees that did not exist before, and in some cases, those businesses will qualify for tax credits that will help make it easier to provide insurance to their employees,” the report says (p.8).
Standardized Benefits: Covered California will also standardize the health plans available to include “essential benefits.” “California… designates the Kaiser Foundation Health Plan Small Group HMO 30 plan, as it was offered during the first quarter of 2012, as the state’s benchmark plan for essential health benefits,” according to the report (p.13.)
“Every insurance policy offered inside and outside the Covered California marketplace will be given a “metal rating” — platinum, gold, silver or bronze — based on “actuarial value” calculations. This rating indicates the share of costs paid by the plan for health benefits and the share paid by the consumer. For example, a consumer with a bronze-level plan would pay on average 40 percent of the cost of healthcare expenses through features like deductibles and coinsurance, while a consumer with a higher-premium platinum plan would pay only 10 percent,” (p.14).
Enrollment Targets: Covered California will create an online enrollment process which they hope will make selecting and enrolling in a health insurance plan as easy as purchasing a ticket on Expedia or buying a book on Amazon.
“The California Healthcare Eligibility, Enrollment and Retention System (CalHEERS) aims to make the process of finding what is affordable and shopping for insurance easy… Accenture was hired for the design, development and deployment of CalHEERS. The contract includes approximately $183 million for the initial development and implementation of the system… After the CalHEERS system becomes operational, the contract provides $176 million for continued development and operating costs over a period of approximately three and a half years,” the report says (p.23). Adding up the numbers, the Covered California web site will cost $359 million for 3 1/2 years.
According to the report, Covered California hopes to enroll a few million people through this effort. ““The specific enrollment targets for the marketing, outreach and education effort are as follows:
• By 2015, 1.4 million Californians enrolled in subsidized coverage in Covered California or eligible to purchase in the individual market without subsidies;
• By 2016, 1.9 million Californians enrolled in subsidized coverage in Covered California or eligible to purchase in the individual market without subsidies; and
• By 2017, 2. 3 million Californian’s enrolled in subsidized coverage in Covered California or eligible to purchase in the individual market without subsidies.” (p.33)
Funding: “Covered California has received $236.5 million in federal planning grants from the Department of Health and Human Services … In November 2012, Covered California submitted a … request to the federal government for $706 million to provide funding for 2013 and 2014,” (pps.41 & 42) Stated another way, Covered California will have spent $942.5 million to meet its target enrollment of 1.4 million people by January 1, 2015 at an average cost of $673/per enrollee. Keep in mind that this cost does not include the Federal Tax Subsidies that will reduce the actual cost of care. This only covers the administrative cost of the Exchange.
Self-Sufficent by 2015: According to the report “From 2015 Covered California must be wholly self-sufficient with funding derived from participation fees on health plans in the Covered California marketplace.” (p.41) Said another way, the health insurance companies must pay the cost of Covered California starting in 2015.
The only way the health companies can pay this extra cost is to increase their premiums – which will result in higher cost health insurance – the exact problem the exchange was intended to fix.