ACA Exchange Competitiveness In California

• DOI: http://doi.org/10.1111/rmir.12078
• Date: 01 September 2017
• Author: Patrick Kallerman,Micah Weinberg
• Published date: 01 September 2017

Risk Management and Insurance Review

C

2017 The Brookings Institution. Risk Management and Insurance Review C

2017 The American Risk

and Insurance Association, 2017, Vol. 20, No. 2, 173-188

DOI: 10.1111/rmir.12078

PERSPECTIVE

ACA EXCHANGE COMPETITIVENESS INCALIFORNIA

Micah Weinberg

Patrick Kallerman

ABSTRACT

California’s implementation of the Affordable Care Act (ACA) has been the

most successful in the nation and is, in many ways, a model of how a man-

aged competition marketplace is expected to work. In particular, the state’s

decision to structure its marketplace as an active purchaser has contributed to

premium increases that are lower than in almost all other states. This report

on the performance of the ACA marketplace in California examines the effects

of concentration and consolidation factors, the breadth of enrollment, and the

impact of competition on the cost of health insurance and the options available

to consumers across the many diverse regions of the state, in the context of an

active purchaser exchange structure interacting with the regulations of federal

law and with local market dynamics. It concludes that the relative concentra-

tions of insurers and particularly of providers in the different rating regions of

the state are the fundamentals that matter most in the effort to bend the health

insurance cost curve.

INTRODUCTION:AMODEL ACA IMPLEMENTATION

California was the first state to pass enabling legislation and create its own insurance

marketplace, Covered California, following the passage of the Affordable Care Act

(ACA). By the fall of 2016, the marketplace had been operating for 3 years, and the state

had become a leader in the implementation of the ACA and had reduced its uninsured

rate from 17.2 percent in 2012 to 8.1 percent in 2015, while seeing some of the lowest

premium rate increases in the country (Centers for Disease Control, 2016). Though there

have been various technical challenges in implementation—and the law itself is complex

Micah Weinberg, PhD, is President of the Bay Area Council Economic Institute, a leading think

tank focused on the economic and policy issues facing the San Francisco/Silicon ValleyBay Area;

e-mail: mweinberg@bayareacouncil.org. Patrick Kallerman is Research Directorat the Economic

Institute; e-mail: pkallerman@bayareacouncil.org. Support for the study of Affordable Care Act

(ACA) marketplace competitiveness was generously provided by the Brookings Institution’s

Center for Health Policy and the Rockefeller Institute of Government. The Irene Diamond Fund

supported the publication of this work by the Brookings Institution, which is committed to

quality,independence, and impact in all of its work. Activities supported by these donors reflect

this commitment, and the analysis and recommendations are solely determined by the authors.

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174 RISK MANAGEMENT AND INSURANCE REVIEW

in ways that reinforce these difficulties—in many ways, Covered California is achieving

exactly what was expected for exchange-type marketplaces as they were conceived

for 30 years previous to the passage of health-care reform. It is a model of “managed

competition” that should be a model for health reformers going forward.

The state made a decision early on to set up Covered California as an “active purchaser,”

allowing it to selectively contract with insurers, negotiate rates, standardize benefits,

and require programs that promote delivery system improvement. In addition to the

relatively large number of enrollees, which has hovered around 1.4 million, as well as

the competitive market for individual insurance in the state, this decision to be more

than a listing of services for health insurance company products and their prices has

contributed to premium increases that are lower than in almost all other states. The

weighted average rate for marketplace plans is set to increase 13.2 percent for the 2017

plan year, which is well above the averages for the first several years (California Health

Benefit Exchange, 2017). This one-time bump was expected given the expiration of

some of the risk mitigation elements of the ACA, and even this comparatively higher

rate increase is substantially below the average rate increases in most other states. The

expectation was that California would return to modest rate increases in coming plan

years as well as aggressively pursue active purchasing policies designed to bring down

health-care costs and improve the quality of care. But with the move to “repeal and

replace” the ACA, the future is now filled with uncertainty.

With nearly 40 million residents, California is the largest state in the nation. It is a very

diverse state geographically, economically, and demographically. It is also ethnically

diverse, with large numbers of African Americans and Asian Americans and a Latino

population nearing 40 percent of the state’s total residents. California’s 19 rating regions

reflect the diversity of the state as well. The Northern Counties region covers a vast

geography of 22 rural counties that have significantly more Caucasian residents,whereas

the populous and ethnically diverse Los Angeles County is split into two regions.

For the 2017 plan year, 11 insurers are participating in the state’s marketplace. This

stands in stark contrast to the limited competition in other states. In both cases, this

is a reflection, in part, of the competition in these markets before the passage of the

ACA. However, California took some affirmative and successful steps to bring into the

exchange insurers that had traditionally participated only in the Medicaid managed care

market. Due to this history and these implementation choices, the majority of consumers

in California have access to at least three insurers and those in some regions have access

to as many as seven choices.

Because of the state’s robust implementation efforts, enrollment in Covered California

has been strong. During the first open enrollment period (OEP), the state had

1.395 million individuals choose a plan on the marketplace, and subsequent enrollment

periods have held steady. Enrollment in Medi-Cal—California’s Medicaid program—

also surged, due to robustimplementation and outreach efforts. The program now covers

over 13.5 million individuals with more than 4 million people having been added to the

rolls since 2009 (California Department of Health Care Services, 2016).

The dominance of a few health-care systems in Northern California is a perennial con-

cern and a significant driver of rate differences between regions. Insurers have less

leverage for negotiating in regions with fewer hospitals and/or places dominated by