Now that the curtain has lifted on Covered California, potential customers of the insurance marketplace can breathe a bit easier. The premiums proposed by 13 carriers approved for the individual exchange came in lower than many expected.
But there is a tradeoff. Consumers choice among providers will be limited in many regions. Continuing a trend that has characterized California's response to rising healthcare costs in the private market, insurers are relying on narrow provider networks to make the financials work in a heavily regulated insurance environment.
For instance, Health Net has announced it will offer a tailored-network exchange product, called CommunityCare, in Southern California's most populous counties. Blue Shield's exchange plans will be limited to 36 percent of its regular statewide network, according to the Los Angeles Times.
Establishing provider networks that deliver discounts in exchange for a volume of customers is one of the few levers the insurers have to control premiums, as individuals as of 2014 will be guaranteed coverage, regardless of health status, and entitled to rich benefits that are strictly scripted in and outside the exchange.
With little wiggle room, insurers and providers are working to contain costs through not only narrow networks, but also integrated care delivery systems that reduce waste through better care coordination. Fortunately, California is well ahead of most states in care management, owing to the strong backbone of physician groups that are used to taking on financial risk for medical care and working with insurers on accountable care models.
Despite their experience, California insurers and providers will be challenged in predicting and absorbing the financial risks associated with a flood of up to 5.3 million Californians into the marketplace, about 2.6 million of whom are eligible for subsidized coverage, according to Covered California.
The exchange leaders said the health plans reduced profit margins to 2 percent and 3 percent in order to participate. Not all insurers want to take on this untested population.
UnitedHealthcare, Aetna and Cigna will not offer plans on the individual exchange starting in 2014, though it's not that surprising, since they aren't very active in the individual market.
Aside from the usual suspects. Anthem Blue Cross, Blue Shield of California, Kaiser Foundation Health Plan and Health Net the lineup includes several Medi-Cal plans, such as L.A. Care and Molina Healthcare. It also includes regional players, like Sharp HealthCare, an integrated delivery network in San Diego, and Western Health Advantage in Sacramento. All the carriers bid separately in 19 rating regions, most of which will have at least two to three plans to choose from. Residents will have access to on average 80 percent of the provider networks in their area.
Carriers have proposed rates now under review that range from 2 percent above to 29 percent below the average premium for small-group plans in the most populous region, according to Covered California. (Premiums are not compared with current individual policies because the market is not subject to the rating restrictions that will be in place in 2014). A consultant report from Milliman projected an average 14 percent increase in premiums in California due to the ACA.
The average premium for a Silver plan (the one people on subsidies will use) is $321. On the face of it, it doesn't appear any one carrier is undercutting the market, as rates appear to be relatively close by region and type of policy. Plans, success in attracting customers will depend on their marketing message, customer service and the quality of their provider networks.
Rates reflect regional cost disparities. They tend to be higher in Northern California than Southern California, where healthcare costs are generally lower, in large part because of more competition among health systems. For instance, a 40-year-old purchasing the least-costly bronze policy in North Los Angeles would pay under $250 a month, while the same policy in Sacramento would be more than $250, considering all carriers. Northern California communities are less consolidated, giving more bargaining power to dominant hospital systems, such as Sutter Health.
Because of the existence of more health systems, Southern California has been more conducive to narrow network plans, which already have been the underpinning of more affordable plan designs. The exchange will perpetuate these plans, and in most cases, members won't have access to marquee systems such as UCLA Health System or Cedars-Sinai Medical Center.
In this new reform era, narrow networks are a fact of life that ironically harkens to the HMO foundation of the state. The restriction of choice could be considered a small price to pay for those who are now priced out or otherwise excluded from coverage.
Follow Chris Lewis on Twitter @ChrisLewisHLI