The New Health Dialogue

In the wake of California’s first-in-the-nation passage of legislation creating a health benefit exchange under the terms of the Affordable Care Act, our readers asked, in effect, “What’s the fuss”? After all, federal regulations on exchanges are still being written. And federal law provides for fallback authority to create state-based exchanges should states fail to act on their own by 2014, when the exchanges are required to be up and running.

Indeed, health expert Jacob Hacker, in an important piece, has argued that “reform’s strongest advocates at the state level should be willing to encourage state leaders not to set up their own exchanges, pressing instead for state officials to conserve resources and enlist the federal government to contract with and oversee private plans directly.” Hacker believes that direct federal action will make exchanges cheaper to establish, ensure that the exchanges offer a robust set of benefits, and prevent insurers from bending the rules in their favor.

Hacker makes a potent argument for some states. But there are strong reasons for a state with the will, the expertise, and the need -- such as California -- to move quickly. Simply the mechanics of getting an exchange up and running in a large state such as California in effectively just over two years are daunting. Millions of new entrants are expected to seek coverage, new routes to coverage must be established, and eligibility for the exchange must be coordinated with Medi-Cal and county public coverage programs.

Absent an orderly process, neither beneficiaries nor insurers will have a clear idea of what is coming online in 2014 and disruption or worse will ensue. California’s legislative decisions about how the exchanges will be governed pave the way for further critical decisions about the oversight and regulation of insurance plans, as well as how the insurance products are designed and marketed to diverse beneficiaries.

In addition, federal administrative capacities to implement the law, as in the states, are actually stretched quite thin. The fewer states that are sitting on the fence, the easier the task of federal administrators will be. With the history (though checkered) of a statewide exchange, PacAdvantage and a version of an exchange run by its state pension plan, CalPERS, California is an ideal candidate to move first. It is also precisely the example needed to combat the “Exchange-Lites” being contemplated in some other states.

To be sure, the reasons California moved early are in part peculiar to the state -- unusually high numbers of uninsured, expertise in place, a governor who wanted to cement a legacy in health care, the desire to draw down funds for exchange implementation. But the arguments for going ahead, as a panel of those who championed the legislation argued last week in Sacramento, also rest on a solid practical footing. In a state like California with multiple insurers and so many lives potentially covered on the exchanges waiting until the last minute simply isn’t a prudent option.