The New Health Dialogue

Joe Mathews of NBC’s PropZero (and a New America Foundation Senior Fellow) wrote that “The Meg Whitman housekeeper story is the most interesting political story in California this week. It isn’t the most important.”

Instead, Joe tips Governor Schwarzenegger’s recent signing of two important pieces of legislation creating a health benefit exchange in California -- the first established in the US since the passage of the Affordable Care Act this past spring.

We agree. These bills are both symbolically and substantively important. As Schwarzenegger stressed in a ceremonial signing at the California Endowment headquarters in Los Angeles on Friday, the backing of a moderate Republican governor for the exchanges gives a leg up to the wider goal of implementation. Moreover, Schwarzenegger signed the bills in the face of spirited business opposition led by Anthem Blue Cross and the California Chamber of Commerce, which contended (wrongly, in our view) that the new exchanges would create an unaccountable new branch of government and gain undue authority over insurers.

As the Governor put it, “There are still some states that are questioning if this was the right thing to do, if it is going to be effective or if it is even legal and all of those kinds of questions. We are moving ahead because we know it’s the right way to go...We can never let perfect become the enemy of possible. Never.” Schwarzenegger channeled this mantra from the 2007-2008 “year of health reform” in California, which served in many ways as a trial run for the passage of federal reform. His signing ceremony, fittingly, had all the feel of a valedictory address.   

The California health benefit exchanges, which must be fully up-and-running by January 2014, have a lot to recommend them on the merits. Estimates from UCLA’s Center for Health Policy Research calculate that the exchanges will cover 2.3 million of the state’s uninsured population and almost half of those purchasing private insurance. New America’s Micah Weinberg has summed up the potential pluses, which include the creation of scale among individuals and small businesses that should allow the exchange to negotiate lower premiums from insurers; the creation of “apples-to-apples” comparison of insurance products; and streamlined information about insurance products that should make it easier for individuals and small businesses to apply for and renew coverage.

Despite this step forward, many challenges remain. One key question: will the small group/employer exchange get up and running successfully and thrive? Unlike the individual exchanges, which will benefit directly from tax credits and subsidies, the small employer exchange will depend on a large take-up to lower premiums and realize the benefits of scale.

Potentially, the appeal is great. As John Arensmeyer of Small Business Majority argues, half of the four million workers who lack health insurance belong to small businesses with fewer than twenty employees. However, earlier California exchanges such as Pac Advantage were hampered by adverse selection driven in large part by insurance brokers selling less expensive plans outside the exchange and driving costs higher inside it. As a recent set of comments to Congress by a set of California small business groups, assisted in their deliberations by New America, argued that regulation needs to address small group markets inside and outside the exchange, use brokers to assist with enrollment and outreach but not be held captive by them, and ensure that the definition of a small group market does not lead unwittingly to risk selection.

Another key decision that California’s legislation leaves up to the nonprofit governing board of the exchange is how tightly or loosely to allow and to regulate insurers that participate on the exchange. As Tim Jost analyzes in a comprehensive report released last week by the Commonwealth Fund, greater selectivity and oversight of insurers could lead to lower costs but could potentially impede choice if it is insensitive to state and local markets.

In sum, total recall is off the table, but the remaining issues ensure that the exchange conversation in California will be back, and often.