How California made Obamacare work

AUSTIN, Texas—While several states are fretting over potential health insurer shortages and lofty rate hikes for 2018 individual coverage, California's exchange seems to be a shining example of an insurance exchange gone right.

Medicaid expansion, cost-sharing subsidies and a big marketing budget are keys to the state's success. Two of those ingredients are in jeopardy of being nixed or rolled back under the House Republicans' bill to repeal the Affordable Care Act now being revised in the Senate.

California's uninsured rate fell from 17% before the Affordable Care Act's implementation to about 7% today. Half of the uninsured are undocumented immigrants and not eligible for ACA coverage, meaning the uninsured rate is actually closer to 3.6%, one analysis shows.

"California has in essence reached virtually universal coverage," said Peter Lee, executive director of the state-operated insurance exchange, Covered California, during a session Friday at the 2017 AHIP Institute and Expo in Austin. "We've done that in an individual market that has actually kept premium increases at historically low levels. We've done that with a very competitive marketplace."

Eleven health plans competed for enrollment in the California's individual market in 2017. The average rate increase for 2017 was 13.2%. In 2016 and 2015, rates rose just 4% and 4.2%, respectively. Covered California has not yet published health insurers' rate requests for 2018.

Meanwhile, other states have had a tougher time keeping insurers in their markets to create competition and drive policy prices down. In 2017, an average of four insurers sold plans in each state's ACA marketplace, Kaiser Family Foundation data shows.

The CMS on Tuesday projected 47 counties across the U.S. will have no insurance options in 2018, though health insurers in many states still have weeks to decide if they will participate. The CMS also estimated that as many as 1,200 counties could have only one issuer in 2018.

But California's individual market, where 1.4 million people receive coverage, isn't facing insurer shortages. In fact, the state turns away insurers because of high prices and inadequate networks. The state enjoyed some built-in advantages compared to other states when it came to running an insurance exchange, said Larry Levitt, senior vice president at the Kaiser Family Foundation, who was not part of the AHIP session. He said state officials and large insurers, such as Kaiser Permanente, were supportive of reform. The state also received signficant federal grant dollars. But, Covered California also took steps to ensure succcess. "It's sort of a combination of nature and nurture," Levitt said.

Key to Covered California's success was the state's decision to expand Medicaid, Lee said. About 1 out of 3 Californians under the age of 65 are on Medicaid. The ACA allowed states to extend Medicaid to adults with incomes up to 138% of the federal poverty level. A few studies have shown that states that expanded Medicaid to low-income people had lower marketplace premiums. That's because lower-income individuals with higher rates of illness and thus, higher medical spending, were taken out of the exchange risk pool and shifted to Medicaid.

Covered California spends more than $100 million annually on marketing the exchange to consumers. The marketing budget comes from a premium tax the exchange levies on health insurers. The average consumer in the state is exposed to a Covered California ad in print, radio or television about 49 times a year, Lee said. "If you don't market and sell, you don't get a good risk mix," he explained. During the last few weeks of the 2017 open enrollment, the Trump administration pulled back on enrollment outreach. Experts say the move likely dented ACA exchange enrollment, which fell to 12.2 million in 2017 from 12.7 million the year before.

The exchange also standardized the benefit designs of plans offered on the individual market. For all people enrolled in silver plans or above, outpatient care isn't subject to a deductible. Consumers can make apples-to-apples comparisons and shop based on premiums, out-of-pocket expenses and whether their doctor is in the plan's network, Lee said.

But the cost-sharing reduction subsidies are "the secret sauce" to why there are very few unsinsured in California, Lee said. "The reason people buy coverage that they didn't before is because they get financial help to do it."

Funding for those federal subsidies, which help low-income Americans afford coverage on the exchanges, hasn't been guaranteed by the Trump administration for 2018 or even the rest of the 2017, creating uncertainty in the market that has led some insurers to hike 2018 rate requests or pull out of certain markets.

It's "crazy" that funding for the subsidies is in question, Lee said. Covered California's low rates will jump if the Trump administration doesn't agree to fund the subsidies by mid-March. At that point the state's exchange, which required insurers to submit two sets of rates—one that assumes funding for the subsidies and one that does not—will go with the worse-case-scenario rates, Lee said.