CoveredCa a model — and a warning

November 25, 2013

By Daniel Weintraub

California’s new online insurance marketplace has been getting ink lately as a potential model for the nation. But behind the positive press lurks a lesson for those awaiting the federal government’s fix to its own troubled Obamacare portal, healthcare.gov: it’s not all about the web site.

Despite good early numbers for CoveredCa.com, California’s experience so far suggests that the months and years ahead are going to be a tough, hard slog for the Affordable Care Act, here and elsewhere. Even if the law survives in its current form, it is probably going to take several years before it accomplishes its goal of insuring nearly every American.

In its first month in business, CoveredCa.com enrolled about 31,000 people. By enrolled, officials mean the people who reached the end of their online application and chose a health plan. Very few of those people have actually paid their first bill and received insurance, which wouldn’t take effect anyway until Jan. 1.

But assuming that the number is solid, those 31,000 Californians represented about a third of the entire enrollment in the nation, and more than the combined enrollment in the 36 states using the exchange run by the federal government.

Clearly, California is doing something right.

“This is a very proud day for Covered California,” the agency’s director, Peter Lee, said when he announced the numbers. “We are extremely pleased.”

But those 31,000 people represent less than 1 percent of California’s uninsured population. And many of them might have already had insurance, going to CoveredCa.com to replace coverage that was about to be cancelled or simply to get a better deal. An estimated 1 million Californians have been told that policies they had would be cancelled by Dec. 31 because of the new law and rules adopted by Covered California designed to weed out policies that offered inferior benefits.

Another key number: 75 percent of the first month’s enrollees did not qualify for the federal tax credits that are available to subsidize low-income and middle-income consumers and make their coverage more affordable.

That might sound like good news: a lot of people who have to pay full freight found the exchange’s offerings good enough to persuade them to buy a policy.

But it also suggests that the people who jumped in early were the ones who had a very good reason to seek coverage. They were probably sick or feared that they might be, soon.

“Those are individuals who have been waiting a lifetime to get coverage,” lee said. “They weren’t waiting to get a subsidy. They were waiting for the insurance rules to change so they would not be turned away from the door by insurance companies who wanted to basically exclude anyone who had any health history.”

Indeed, Lee also confirmed that the early enrollees were, on average, older than California’s population as a whole.

This shouldn’t be a surprise. The ACA is generally a very good deal for older people who are not yet 65, the age at which Americans qualify for Medicare.

But in order to work as designed, the insurance exchange needs a mix of consumers. Young, healthy people also need to sign up. Some of them will benefit by having that coverage when, against the odds, they get sick or injured. But many others will pay into the system while using it rarely. And their premiums will help pay the bills of all those older, sicker people who jumped at a chance for coverage as soon as it was available.

That’s probably why Lee invited a young man from Sacramento to speak at the press conference at which Covered California unveiled its early enrollment numbers

Clifford James, a 27 year-old who lives not far from the state Capitol, said he signed up for a policy in October. He said he had been on his parents’ plan (thanks to Obamacare) but lost that coverage when he turned 26. He qualified for only a minimal subsidy — $8 a month — but was happy to have coverage with a premium of about $200 per month.

“I’m doing it to cover my butt,” he said.

California is going to need a lot more Clifford James if its insurance pool is to survive and flourish. Lee said the agency’s goal is to sign up 500,000 to 700,000 subsidized customers by March of 2014, when the first open enrollment period ends.

Nobody expects the pace to be as slow as it was in October, but at that month’s rate, Covered California would have fewer than 50,000 of those customers. Even at the higher rate seen in early November, the state would still have fewer than 100,000 subsidized enrollees in the pool in the first year.

That’s one big reason why the insurance companies who are participating in the exchange are wary of the movement to allow people to keep the plans they have now, as Obama promised that they could when he was campaigning for the law.

If that were to happen here, most of those who would stay in their current plans would be the same young and healthy people that the insurance exchange desperately needs to make its numbers pencil out.

The insurers who agreed to offer policies through the exchange calculated their premiums on a projected mix of customers, healthy and sick. If they get only the sick, they will likely lose money on the deal and either drop out in the second year or raise their prices. Neither outcome would be good for the future of the program.

Other issues now playing out in California might also be early warning signs for the rest of the nation.

One big one is the narrow networks of doctors and hospitals offered by the plans that are being sold through the exchange. Insurance companies shrunk their networks to save money so they could offer premiums within the range Covered California was hoping for. But many people will find that their doctors are not part of any of the plans offered in the exchange. This could lead to more unrest.
Given the complexity of the law and the breadth of its ambition, the Affordable Care Act is going to need time, and tweaks, if it is going to have any chance of working as it was intended.

The question is whether the public will give it that time, and whether people will seek a bigger role for government to fix what’s gone wrong or demand that the government step back and allow the private system to work on its own.

Daniel Weintraub has covered public policy in California for 25 years. He is editor of the California Health Report at www.healthycal.org. Reach him at daniel.weintraub@gmail.com

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