Exchange ‘Could Look Like a Large Business’

The two bills that would establish the statewide Health Insurance Benefits Exchange have not been without controversy.

In an Assembly floor vote Friday, several Republican members rose in opposition to the bill — which, in these last hurried days of bill-passing before the Aug. 31 recess, is an extremely rare event.

“I don’t believe we need the state government running a benefits exchange,” Jim Silva (R-Huntington Beach) said. “Besides, this is something we don’t need to take action on till 2014 … and I think there are much better ways than a new exchange.”

The bill, SB 900 by Sen. Elaine Alquist (D-Santa Clara), passed anyway, and now only has to pass a concurrence vote in the Senate this week to head to the governor’s desk. Its companion bill, AB 1602, by Assembly member John Perez (D-Los Angeles) is expected to get a Senate vote today and then go to the Assembly mid-week for concurrence.

But will the state’s vision of a health insurance exchange work? A similar type of insurance-pooling group, the Health Insurance Plan of California, later called PacAdvantage, went under in 2006.

John Grgurina was president of PacAdvantage, so he knows a lot about what made it fail, and what might make the state version succeed.

“Some of the key lessons have been protected in the [proposed state] law,” Grgurina said. “The added incentive of a captive audience — that is, the only way to get a subsidy is to be in the exchange — that is absolutely huge.”

In brief, he said, the pool is going to be a big one, because the cap is 400% over the poverty line, which translates to a family of four with an annual income of $85,000. “If all of those people with subsidies are in the Exchange, only,” he said, “that’s a big driver and motivator [for health insurers] to be in the Exchange.”

Also, he said, the current proposals are different in that it is designed to follow the marketplace. That gives less wiggle room for insurance companies to cherry-pick healthy patients by offering lower rates.

“Look. Large employers can get decent rates if they have something like  40,000 employees. How would it be different if the state does it? That’s what CalPERS does,” Grgurina said.

“The Exchange is going to look more like a large business,” he said.

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