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Why Basic Health Plan Failed and Why COOPs May Succeed

No one knows exactly what the Basic Health Program would have looked like in California — and now we’ll likely never know.

The state Legislature recently shelved the idea by relegating SB 703, by Senate Health Committee Chair Ed Hernandez (D-West Covina), to the “holding committee” in the Assembly Committee on Appropriations. That effectively killed the bill.

Meanwhile, another Assembly measure (AB 1846), by Assembly Member Richard Gordon (D-Menlo Park), would establish a legal framework to set up Consumer Operated and Oriented Plans (COOPs). That proposal, like BHP, is an option under the federal health reform law with a lot of questions surrounding it. Unlike BHP, the COOPs bill is a floor vote away from the governor’s desk and appears to have widespread support.

The fate of those two measures offers a telling interpretation of the landscape of health care reform in California. The terrain is still being mapped out, but one thing has clearly emerged: The success of the state’s Health Benefit Exchange is the landmark that stands out most sharply.

Ultimately, health care experts and legislators have said the rejection of the Basic Health Program and the likely acceptance of the COOP plan have had everything to do with making sure the exchange is a success and eliminating anything that could interfere with that.

‘Like Healthy Families for Adults’

The Basic Health Program is a plan to offer low-cost health care insurance for as many as one million low-income Californians, who would go through public hospitals and public health plans to get their care.

It is one of the options in the Affordable Care Act and is similar in some ways to the insurance exchange, though the cost of insurance and the provider reimbursement rate were both expected to be lower under BHP.

An estimated 800,000 of those one million new enrollees would come off the exchange’s rolls. With BHP in existence, the exchange would have a significantly smaller pool of enrollees. That drawback would have been offset by the fact that many more low-income Californians would have had coverage and that coverage would have cost less than it would have through the exchange.

“If we were to make this happen, it would be a better product at a lower price,” Hernandez said. “It’s for the working poor. This is good public policy. It’s like Healthy Families for adults.”

Hernandez said the highest priority for California health care reform is to insure as many people as possible — both for humanitarian reasons and to save money, since the uninsured generally wait until their conditions become acute and then end up using more expensive emergency department and hospital services. He said exchange board members saw both sides of the issues surrounding the BHP plan because their overall goal is to insure more people. Much of the opposition came from provider groups and insurers, Hernandez said.

“I’m disappointed that the entities against this went for more profits at the expense of poor people by denying health coverage for them,” Hernandez said.

Micah Weinberg — senior policy adviser to the Bay Area Council, which bills itself as “The Voice of Business” — takes exception to that characterization. He said the rejection of BHP has more to do with the possible confusion BHP could cause in the already-complex health care reform world.

“There still have not been federal guidelines issued on this,” Weinberg said. “We just don’t know about it. I guess, for me, I think it is interesting that [CMS officials] still have not issued regulations. What does that say about it?”

Weinberg said the amount of risk states would take on in a BHP system is an important consideration.

“I think the feds will need to make the massive fiscal liabilities even more clear,” Weinberg said. “After the settling-up at the end of the [first] year, the state could have been on the hook for $100 million.”

Hernandez said the state general fund would never be touched by BHP, by statute. It was the lower provider rate reimbursement that was a tough sell, said Hernandez, an optometrist.

“If I were to take BHP patients, I would make less money than in the exchange,” Hernandez said. “But for me, I feel it’s my obligation to see all patients. I’m willing to take less money to have those people in there.”

The other big issue is how BHP would affect the exchange. According to an independent analysis commissioned by the exchange board, BHP would cut down on the exchange’s buying power — basically, fewer enrollees means less leverage to get better insurance rates.

“A Basic Health Program would reduce the size of the exchange between 720,000 and 950,000 individuals,” the report said. “This could limit the exchange’s bargaining power in the individual market, and may affect its ability to generate reforms that would lower the rate of premium cost growth over time.”

That was the stake in the heart for the Basic Health Program, at least legislatively, Weinberg said.

“No one wants the exchange’s buying power compromised,” he said. “What we recommended is the exchange be the market for insurance. I think that would be a preferable solution.”

COOPs ‘a Different Vehicle’

That’s where the COOP program is different, bill author Gordon said.

“BHP would have taken people out of the exchange,” Gordon said. “That’s not the case with COOP. It is part of the exchange, it’s just a different vehicle through the exchange.”

The Consumer Operated and Oriented Plan is a not-for-profit, member-governed plan, similar to agricultural co-ops. The federal government is making $3.8 billion in loans available to states. So far, 12 states have started co-ops. Gordon’s bill doesn’t start COOPs, but establishes the legislative framework to create them. 

“Really what we’re doing,” Gordon said, “is to provide a mechanism for the Department of Insurance to be able to make sure a COOP is on a level playing field” in the state’s insurance market.

Gordon was unclear on how a COOP is both an independent entity and resides within the exchange, and said that clarity may come when the federal government issues more definitive guidelines.

“The theory is pretty new, but it’s a low-cost insurance option, people collectively pooling their resources will lower costs,” Gordon said. “It’s their call — they can be part of the exchange, or they can be separate. We will see what happens, it’s hard to predict exactly what it will look like.”

California has a long, rich history of collective, cooperative groupings in the agriculture industry — in both production and services. Agriculture — or “ag” – co-ops, which can be traced back before statehood, tended to be small and local.

One of the theories behind the health care COOP program is that some groups of people who may qualify for the exchange could have an aversion to joining a large statewide health insurance collective like the exchange, but might join a local collective — like an agriculture collective — to increase health insurance bargaining power. In that way, a COOP would target a niche of enrollees who might not otherwise join the exchange, so the effect on the exchange would be minimal.

Gordon said more federal guidance on COOPs is expected this fall.

As for any future for the Basic Health Program, there is still a slim hope that the bill could be revived next year, according to Hernandez.

“We’re going to regroup,” he said, “and work out a strategy for next year, how we’re going to approach it.”

Reviving BHP would be tricky because federal health reform officially kicks off on Jan. 1, 2014 — the same date that state legislation passed in 2013 goes into effect. So if Hernandez wants to revive BHP, it likely would have to go into effect before that date — and that would mean adopting urgency status, which requires a two-thirds vote. 

“That’s my concern and my frustration,” Hernandez said, “because an urgency means two-thirds, and that would need Republican support.”

Republicans have voted against most health care reform bills in the Legislature over the past two years, and that’s unlikely to change, he said.

“But we’ll see what happens,” Hernandez said. “We’re not going to give up.”

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