On the Health Reform Trail: The Good, the Bad and the Ugly

The passage of the federal health reform law in March 2010 marked the impetus of a great undertaking by U.S. states. Although many of the provisions in the law are governed by federal officials, much of the work must be done on the state level to prepare for the law’s full implementation in the coming years.

Health reform is a bit like the Wild West — a staggered movement across many different paths with little tested experience to guide the way. Some states have rebuffed the mission, some have taken tentative steps and some have become trailblazers.

Compared with other states, California is ahead of the pack in many respects. But it still has much to do.

Two years after President Obama signed the reform law, let’s take stock of California’s progress in implementing health reform and survey the road ahead. With such an undertaking, there’s a lot to discuss — good, bad and, in some cases, ugly.

Health Insurance Exchanges

Under the reform law, by 2014 states must launch an exchange to offer individuals and small businesses a choice of health plans. States can administer their own exchanges — for which they must have some infrastructure in place by January 2013 — or have the federal government run one on their behalf.

The Good

California is one of only 14 states to have created an exchange. It also has appointed a planning board to consider cost containment, cost-sharing, how many insurers can participate in the exchange and what kind of benefits they should offer. State officials are figuring out the details of a second exchange for small employers called the Small Business Health Options Program, or SHOP. The state has secured $40,421,383 in federal dollars to plan and implement the exchanges and aims to qualify for a Level II implementation grant in June.

The Bad

Despite its commendable progress, particularly in comparison with other states, California still faces some challenges. First, it must find a vendor to handle the IT system that will facilitate its exchanges. Then, state officials must work to transform the concepts of the exchanges into a fully functioning mechanism that residents and insurers can easily use. Of course, once the exchanges are operational, they have to succeed in lowering insurance costs. California will have to prove that its actions can meet its aspirations.

Essential Benefits

The reform law lists 10 categories of benefits — such as maternity care, prescription drugs and preventive care — that must be provided by the plans offered in state exchanges.

HHS late last year announced that it would give states flexibility to designate their own essential benefits. State can choose among four options for benchmark health plans on which to model their benefits.

The Good

Even before the reform law, California hasn’t been shy about determining which benefits insurance plans in the state should cover. In 2011, the Legislature approved separate measures requiring health plans to cover maternity care and behavioral therapy for children with autism or other developmental disabilities. Earlier this year, the Assembly approved a bill that would require insurers to cover addiction treatment and mental health services.

The Bad

The proposals for required benefits are expected to multiply this year as advocates push for various coverage requirements. California officials will have to work through the proposals, as well as HHS’ guidance for creating essential benefits, to determine the state’s new insurance requirements.

The Ugly

Beginning in 2016, states must cover the cost of benefits that fall outside of the 10 coverage categories for any individual enrolled in a health plan offered through the exchanges. Those benefits could include existing state-mandated health care services, meaning that the state’s work so far to guarantee coverage for certain services might end up costing more money in the long run.

High-Risk Pool

California’s federally supported Pre-Existing Condition Insurance Plan provides coverage to individuals with pre-existing conditions until 2014, when the reform law mandates that private insurers accept all applicants. The federal government has allotted California $761 million to operate the program.

The Good

The high-risk pool provides a stop-gap option for Californians who have struggled to acquire health coverage because of pre-existing conditions, guaranteeing that they don’t have to wait until 2014 for the reform law to mandate that insurers accept them. There is more good news: Last year, California officials announced an average of 18% in premium reductions for the program.

The Bad

Although federal data show that enrollment in California’s PCIP is the highest nationwide, the program’s growth is still lower than expected. At the end of 2011, there were 6,672 California residents in the program. However, the Managed Risk Medical Insurance Board — which operates the program in California — has estimated that it has the capacity to enroll about 24,000 individuals. Furthermore, health care costs for the program have reached more than $37,000 per enrollee annually, according to program administrators, compared with anticipated costs of $12,000 per patient annually. The higher-than-expected costs could be driven by demand for various tests and treatments that patients with pre-existing conditions have been waiting to obtain.

Medi-Cal Expansion

In 2014, Medicaid will expand under the reform law to cover individuals who earn up to 133% of the federal poverty level. The federal government will match state spending at 100% for the first three years of the expansion and at 90% in subsequent years.

The Good

California already has begun offering coverage to low-income individuals ahead of the scheduled Medi-Cal expansion. Medi-Cal is California’s Medicaid program. More than 40 counties participate in the Low-Income Health Program, which offers health coverage to uninsured adults without children until Medi-Cal accepts them in 2014. Recently, Gerald Kominski — director of UCLA’s Center for Health Policy Research — said he expects about 500,000 Californians to enroll in LIHP by 2014. In addition, individual counties are launching their own programs to expand coverage to low-income residents, such as Riverside County HealthCare and San Bernardino County’s Arrowhead.

The Bad

The state faces the challenge of coordinating and moving low-income residents from the various low-income health programs to Medi-Cal in two years.

The Ugly

California must plan the future of its Medi-Cal program amid uncertainty brought by lawsuits against the state for proposed reimbursement cuts. Last month, the U.S. Supreme Court declined to rule on a lawsuit opposing reimbursement cuts approved by the state in 2008 and 2009. The justices sent the case back to a lower appellate court, noting the complexity of the case and the fact that some circumstances had changed since it originally was filed. Meanwhile, a federal judge in a separate case recently granted a preliminary injunction to block a 10% cut to Medi-Cal reimbursement rates proposed by the state and approved by CMS last year. The ruling prevents the state from cutting Medi-Cal reimbursements to dentists, pharmacists, physicians and other Medi-Cal providers. State officials intend to appeal the ruling. California faces a difficult task in preparing its Medi-Cal program to take on millions of new beneficiaries — a recent UCLA study pegs that number at 2.65 million nonelderly adults this is the figure David gave me and he did not answer me about a link — without knowing how the lawsuits will shape fiscal projections for years down the road when federal payments decrease.

Insurance Rate Regulation

A reform law mandate that kicked in last year requires public disclosure and review of proposed health insurance rate increases of 10% or higher. However, the law does not grant powers to the state or federal government to stop rate increases that they deem too high. Concordantly, California last year passed a law (SB 1163) that expanded state officials’ ability to review health plan rates. Under the law, agencies can review insurers’ plans for rate hikes and either request that the insurer abandon the hikes or publicly say that the hike would be unreasonable. Like the federal law, the state measure stops short of giving agencies the authority to block the proposed increases.

The Good

At the behest of lawmakers and consumer advocates, California is considering insurance rate regulation proposals that would allow it to stop price hikes that it considers egregious. Proponents are pushing to have California join 36 others states that allow some type of health insurance rate control. State Insurance Commissioner Dave Jones (D) and some consumer advocates support legislation — AB 52, by Assembly member Mike Feuer (D-Los Angeles) — that would let state regulators reject proposed health insurance rate increases that are deemed excessive. Meanwhile, Consumer Watchdog is aiming to place a measure on the November ballot that would give the state authority to reject health insurance rate increases. Sen. Dianne Feinstein (D-Calif.) recently endorsed the proposed measure and urged residents to sign petitions to put it on the ballot.

The Bad

Although lawmakers and consumer advocates seem determined to grant state regulators the power to stop high insurance rate hikes, passage of either AB 25 or the proposed ballot measure  is not guaranteed. The legislature must wrangle support for each measure against what likely will be heavy lobbying efforts from insurers. If California succeeds in gaining control of insurance increases, the only bad news will be for insurers operating in California, who typically argue that the increases are justified because they are based on escalating medical costs.

We’ll continue to keep an eye on California’s progress on the road to reform. In the meantime, here’s a look at what else is happening around the nation.

Administration Actions

  • In testimony during a House Appropriations subcommittee hearing last week, HHS Secretary Kathleen Sebelius used the federal health reform law to defend the Obama administration’s fiscal year 2013 budget proposal. Rep. Hal Rogers (R-Ky.) criticized the administration’s budget proposal for failing to address Medicare spending and the federal deficit (McCarthy, National Journal, 3/6). However, Sebelius noted that Medicare spending — which was growing by 8% annually before the health reform law was passed — has slowed to a 6% annual growth rate since the overhaul was signed into law (Zigmond, Modern Healthcare, 3/6).

Challenges to Reform

  • The Associated Press recently profiled Paul Clement, who will represent the plaintiffs in the multistate lawsuit against the federal health reform law at this month’s U.S. Supreme Court hearings. Clement — who worked with President Obama while they both served on the Harvard Law Review — previously served as solicitor general in the George W. Bush administration and as a clerk to Justice Antonin Scalia. During the court’s current term, Clement is scheduled to argue seven cases, including the challenge to the overhaul (Sherman, AP/Miami Herald, 3/12).
  • The Associated Press also recently profiled Donald Verrilli, who was confirmed last June as U.S. solicitor general and will defend the federal health reform law for the Obama administration. Verrilli — who has a reputation of being a “straight shooter” and a perfectionist, according to longtime friends and associates — is a former U.S. Supreme Court clerk who has argued cases before the court at least 16 times (Yost, AP/San Francisco Chronicle, 3/12).

Studying Its Effects

  • Funding cuts to Medicare Advantage plans under the federal health reform law will have a varying effect on beneficiaries, with some receiving additional benefits and others receiving no extra coverage, according to a report by Avalere Health. The overhaul includes about $200 billion in direct and indirect cuts to MA plans through 2017 (Pecquet, “Healthwatch,” The Hill, 3/12). The report found that the average MA beneficiary in 2010 received $73 in additional benefits and reduced cost-sharing each month, compared with beneficiaries in traditional plan (Werber Serafini, “Capsules,” Kaiser Health News, 3/12).

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