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Covered California’s Future In Peril If Federal Subsidies Dry Up

About 1.2 million Californians could lose subsidies if they are abolished and not replaced. (Photo by Irfan Khan/Los Angeles Times via Getty Images)

Before Election Day, California’s insurance exchange was slated to meet soon to map out its “long-term vision” for health reform.

That conversation has suddenly shifted to whether the largest state-run marketplace has much of a long-term future itself.

President-elect Donald Trump and Republican Congressional leaders have vowed to quickly repeal the health law that keeps federal premium subsidies flowing to California. And those subsidies will largely determine whether the Covered California exchange continues to exist or whether its mission is significantly scaled back.

The dramatic turn of events prompted Covered California’s executive director Peter Lee to switch his focus to the near-term. On Wednesday, he called an emergency meeting with his employees to remind them that the Affordable Care Act remains in place, and that their top priority is to help consumers sign up during the ongoing open enrollment period.

“We are very mindful this is a new reality, but the key message is we are open for business,” Lee said in an interview Thursday with California Healthline. “The subsidies are in place. The penalty is in place. The reasons why health insurance is a good thing haven’t changed.”

Lee said he doesn’t expect post-election uncertainty to hamper open enrollment, which ends Jan. 31. But Lee said the California exchange may adjust its advertising in January if there’s evidence of widespread confusion or sign-ups start to slip.

Some consumer groups and Democrats are gearing up to fight the repeal of President Barack Obama’s signature law, saying it would be irresponsible to take coverage away from more than 20 million Americans and gut important consumer protections like the prohibition on denying coverage for preexisting conditions.

Lee struck a more collaborative tone, saying he hoped to work with the Trump Administration and Republican leaders in Congress to craft a sensible replacement for Obamacare. He said Covered California, as the nation’s largest and most successful state-run exchange, offers ample evidence of how to build a competitive insurance market that puts consumers first.

“We hope to be an important part of the national dialogue for changing and building on what has worked. The premium subsidies are a critically important component of making health care more accessible,” Lee said. “It is going to be incumbent on policymakers to get beyond the Obamacare labels and look at the underlying policies that make sense for consumers.”

Health-policy experts expect Congress to allow for a lengthy transition period that keeps the current framework and policies in place while a replacement plan is worked on.

Katherine Hempstead, who directs the Robert Wood Johnson Foundation’s work on health insurance, said Republican leaders appear committed to ensuring access to coverage in some form but she’s not sure it will rely on government-run exchanges like Covered California.

“You could have a well-regulated individual market and not necessarily have an exchange,” Hempstead said. After repeal, “how comprehensive will the coverage be? Are some plans subsidized? There are a ton of complicated questions.”

The incoming Trump administration on Thursday issued a brief statement on health reform that was short on details. It made no mention of exchanges and focused instead on traditional Republican ideas of enabling people to purchase insurance across state lines and establishing high-risk pools for sicker consumers who are expensive to insure.

“The Administration’s goal will be to create a patient-centered healthcare system that promotes choice, quality and affordability,” the statement said.

Consumer advocates said Trump’s approach would mark a major setback for millions of Californians.

The Trump plan “is explicit in both repealing federal patient protections against health plan abuses, but also pre-empting state consumer protections,” said Anthony Wright, executive director of Health Access California, a consumer advocacy group.

Under the Affordable Care Act, California went beyond what other exchanges did and chose to actively negotiate with insurers over rates and didn’t allow every company to sell in its marketplace. It also simplified the shopping process for consumers by requiring insurers to have standard copays, deductibles and other benefits for each level of coverage.

Those moves pushed health insurers to compete more directly on price. Covered California’s rates are going up 13.2 percent, on average, next year. Still, that’s better than the 22 percent average rate hike in exchanges nationwide.

Covered California is an independent agency created under state law, but its core function is running a federally subsidized insurance market.

About 90 percent of Covered California’s 1.4 million enrollees receive federal premium subsidies based on their income. The worst-case scenario for consumers and the exchange is a full-scale elimination of that funding, with no replacement.

Without subsidies, health insurers would have little reason to participate in Covered California and abide by its rules because they could sell directly to consumers outside the exchange.

But Republicans in Congress have talked about offering similar tax credits to individuals based on their age, not their income. Consumers could use those tax credits to buy coverage, but the program may not be as generous as Obamacare.

In May, Covered California examined what reduced subsidies may mean for enrollment. As part of a broader review of future enrollment trends, an outside consulting firm analyzed the impact of capping premium subsidies at 250 percent of the federal poverty level. That would be about $60,000 for a family of four. Subsidies end now at 400 percent of poverty, or $97,200 for a family of four.

About 300,000 people, or 20 percent of enrollment, would lose subsidies at that lower level of financial assistance, according to consultants PwC. Some of those people would re-enroll in the private insurance market on their own, but overall enrollment in Covered California could drop by up to 260,000 people.

About 1.2 million Californians would lose subsidies if they are abolished and not replaced, according to the report.

Elimination of the individual mandate to purchase health insurance long unpopular among many Republicans — would also diminish enrollment. The consultants said that dropping the mandate would reduce the incentive to get coverage and lead to a “steep fall in enrollment of about 400,000” in Covered California.

Despite all this upheaval, Lee said Covered California’s board will proceed with its scheduled discussion next week with national experts and state leaders on a long-term vision for reforming the health system and improving patient care.

“The question today is how we adapt to a new administration,” he said. “We are planning for the future.”

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