Gov. Arnold Schwarzenegger is deciding whether to sign legislation that would create the "California Health Benefit Exchange," a key piece of federal health care reform. This is the perfect time, therefore, to clear the air about what the exchange will and won't do. A clear-eyed account of the facts about the exchange shows it to be the exact kind of moderate solution that the governor has pushed for throughout his tenure, one that combines a concern for the public good with the power of the private market.
The exchange will be a new state agency that will set up two health insurance purchasing pools, one for individuals and one for small businesses. Only people taking advantage of subsidies or tax credits will be required to purchase through these marketplaces. To be successful, though, the exchange will have to compete for and win a significant chunk of the business of people buying health insurance without financial assistance, particularly in the small-business market.
So it could make a real difference for Californians, but only if it offers high-quality, low-cost health insurance products that appeal to us. It will do this by negotiating with insurance companies for better rates and working with these insurers to promote more effective, less costly medical care. This is no different from what big corporations and public employee groups like CalPERS do. Many of these businesses and some insurers are excited to have a new partner in these efforts.
So that the exchange can be an effective ally for other powerful purchasers, the legislation gives it an independent, empowered board so that it can adapt and innovate. This doesn't go beyond federal reform. It is an option presented to us by the Affordable Care Act and, in this case, California is making the right choice.
The design of the exchange also unleashes consumer power by simplifying the health insurance market. This allows for "apples to apples" comparisons among insurance products. The health insurance market right now is so complicated that it is nearly impossible to make meaningful comparisons.
We sometimes hear that the best way to bring down health care costs using consumer power is to give people more control over the money they spend directly on medical care. This ignores the fact that the vast majority of medical spending occurs in emergency, end-of-life or chronic care situations where "shopping" for lower-priced care is either impossible or counterproductive. Consumers have real power when they band together in large groups to purchase high-value health care coverage before they get sick. The purchasing pools set up by the exchange will help individuals and small businesses do this effectively.
What won't the exchange do? The exchange will not, as some have said, run other public health care programs such as Medi-Cal, the state's multibillion-dollar program for lower-income people. It will be one place where Californians can learn about and become eligible for these programs. But saying this means the exchange will "assume management" for Medi-Cal is like saying that your local supermarket has assumed management of Pepsico because it sells Gatorade and Cheetos.
The exchange also cannot expand coverage beyond the federal government's minimum requirements, causing a drain on our state budget. If California chooses to have a higher standard for benefits, it will cost us money, but this decision will be made by the Legislature, not by the exchange.
These are the facts that should guide the governor's decision. Signing these bills would help cement his legacy as leader who has pushed for and succeeded in delivering meaningful health care reform.