Jan Greene
% in the individual market:
% uninsured:
Per capita health expenditures (rank):
$6,238 (43)
Rankings include the District of Columbia
Source for all data: Kaiser Family Foundation

While federal health policy roils in chaos, and the individual nongroup markets in many states have been destabilized by bailing insurers, California basks in a never-ending sunny day of coverage. Since expanding Medicaid and launching its own ACA exchange in 2014, California has slashed its uninsured rate from 17% to 7.1% (7.1 million to 2.9 million uninsured). There is no mass exodus of insurers from the Golden State’s exchange, no sudden loss of counties that offer subsidy-eligible health plans. Buying individual insurance is no bargain without a tax credit, but by comparison, California’s individual insurance market is thriving.

The first year or two of the exchange involved some growing pains and the usual technical difficulties with the exchange website and accessing an accurate list of in-network doctors. But now many consumers use the Covered California website to do their research even if they end up purchasing directly from an insurer, as about half of individually insured Californians do. Most of those buying from the exchange (90%) get a subsidy. There’s not much difference in plan design or premium on-exchange or off, since California put all its individual market in the same big risk pool as part of a strategy to spread risk among as large a group of people as possible.

That choice—to maximize the risk pool—is one reason for the relatively calm state of the individual insurance market in California. Simple demographics help—the population is big enough to spread the risk widely, which allows insurers to relax.

Smart moves

But the people who developed Covered California are also getting kudos for making some key policy choices:

  • When given the choice by federal authorities, not allowing “grandmothered” plans (those purchased in the period after the ACA’s passage and before the exchange went live) to continue when the exchange went online in 2014. It was a controversial move at the time but one that helped to stabilize the risk pool, because those plans tended to cover healthier people.
  • Investing heavily in marketing—a storied average of $100 million or more per year, for billboards, television ads, and legions of helpers hired to find and assist buyers.
  • Having Covered California be an “active purchaser” so that it can choose which insurers can participate on the exchange and negotiate with insurers over plan design and rates.
  • Choosing “patient-centered” plan designs by limiting copays and deductibles and negotiating each year to reduce them further.

“California has a lot of built-in advantages, but Covered California made a number of policy choices that improved the market,” says Larry Levitt, senior vice president for special initiatives for the Kaiser Family Foundation. California also started out with a number of large, brand-name insurers that were generally enthusiastic about participating under the ACA, such as Kaiser Permanente and Blue Shield of California, which has been active in state-level health policy efforts to expanding coverage. California may have also benefited from not having an ACA co-op, which might have drained away healthy enrollees with its artificially low initial premiums.

Risk mix is right

Three years in, Levitt notes, market share on the individual market is well distributed among insurers, and a few smaller regional insurers—such as Chinese Community Health Plan in San Francisco, which caters to the local Asian community—have been able to get a toehold in the market. “That’s definitely a sign of a healthy market,” Levitt says. Eleven plans participated in 2017, and there were indications as we went to press that same number would participate next year.

Health insurance coverage, by source

California, 2015

Source: Kaiser Family Foundation, “Health Insurance Coverage of the Total Population,” 2015

At the same time, Levitt notes, it’s a tight market for any new big players to join, as Oscar has found to its consternation, signing up just a handful of people in southern California in its 2015 entry to that market; Oscar is still hanging in there with first quarter 2017 losses of $25 million, which is less than the previous year’s first-quarter loss of $48 million. UnitedHealthcare stepped into the exchange market for just one year in 2016 and pulled out again after signing up a tiny number of enrollees.

The risk mix among enrollees has stayed in the healthy range, according to a Covered California analysis published on the Health Affairs blog in mid-May. The analysis looked at data on exchange members’ health status, along with emergency department inpatient visits to come up with health risk factors for exchange enrollees; this is information Covered California shares with its insurers. They found that between 2016 and 2017, health risk scores adjusted slightly up and down for various insurers, but all remained reasonably stable, suggesting that all the sicker people remained distributed among health plans, a sign of the market’s health.

Premiums have gone up in the past few years (4.2% in 2015, 4% in 2016, 13.2% in 2017), but not enough to stop the continued growth of the individual market. Covered California officials chose to take advantage of a provision in the ACA allowing them to negotiate rates with participating insurers, giving the exchange more influence on prices than state insurance regulators, who have no authority to approve rates but only to review them and shame health plans if they propose increases that aren’t supported by data.

Peter Lee

It makes sense for California’s exchange to incorporate market reforms and delivery system improvements, says Peter Lee of Covered California. It shouldn’t just be a clearinghouse for health plans.

California’s health care community, including some of its major insurers and employers, have long worked together to improve the market, which culminated in a 2005 effort at health reform that came very close to creating a mini-ACA in the state. It fell short of the votes it needed in the state Senate, despite endorsements from an unusually wide array of players. “There is a high degree of knowledge and sophistication among all the players involved” in the California marketplace, Levitt says, and that has helped to create “an atmosphere of cooperation.”

Covered California’s leader, Peter Lee, is a veteran of California health reform efforts from his years leading a sophisticated employer group, the Pacific Business Group on Health, and several years at CMS working on delivery-system innovation. So it made sense that California’s exchange would be more than just a clearinghouse for selling health plans and would incorporate market reforms and delivery system improvements as well. For instance, its latest contracts with insurers require them to adopt payment strategies based on quality performance, support integrated delivery models, and encourage the use of patient-centered medical homes.

Enrollment plateaus

Enrollment in the individual market took off between 2013 and 2015—growing from 1.5 million to 2.3 million—but plateaued in 2016. Levitt notes that more progress could have been made to bring down the uninsured rate if Covered California, along with others carrying out the ACA, had emphasized the requirement to buy insurance. But the individual mandate was politically unpopular, leaving advocates reluctant to press consumers to comply.

Much of California’s ability to reduce its un­insured rate came from expanding Medicaid—known as Medi-Cal in California—which signed up 3.8 million people through the exchange website, their county Medi-Cal office, or an agent. Many states got extra money from CMS to build exchange websites that could accommodate Medicaid enrollment along with private insurance enrollment. It wasn’t always technologically successful, but eventually Covered California made it work for Californians.

The enrollment plateau during the 2017 signup season is being seen across the country and won’t likely be re-accelerated without a bigger marketing effort, an increase in subsidies, or higher penalties for those who don’t buy insurance, Levitt says.

Brokers happy

Health insurance brokers have embraced the exchange and the private market for individual insurance, says Stephanie Berger, president-elect of the California Association of Health Underwriters and a broker in Ventura County. “We’ve helped a lot with Medi-Cal enrollments and we don’t get compensated for that, so that’s been really positive,” says Berger.

Stephanie Berger

Health insurance brokers have embraced the exchange, says Stephanie Berger of the California Association of Health Underwriters.

Brokers and agents are working much harder than they used to pre-exchange, she says, because they are functioning as navigators for many people who are new to insurance and need to understand their options and how insurance works. “The amount of work it takes to help people get enrolled and provide them with service is tenfold what it was, and the compensation continues to shrink,” she said. “That is an issue and we’re getting less than half of what we got pre-ACA on these policies.”

Still, agents remain in the mix with the enrollers who were hired as part of the big marketing push, despite worries that the agents would lose their place in the market. Consumers need plenty of help with signups, and brokers still get commissions on both exchange and non-exchange policies; brokers get paid the same commission for plans with the same design on- and off-exchange, but insurers can pay different fees for off-exchange plans with different designs. Because the plans within each of the four levels are quite similar, agents help enrollees understand the differences in provider networks and formularies.

In Ventura County, Berger’s brokerage serves an unending stream of people new to insurance, many of them Spanish speaking and in need of some help to get up to speed on the complexities of copays and deductibles. Her bilingual agents are happy to help, Berger says. “The role of everyone in this project is to lower the uninsured rate,” she says.

While nobody knows what might happen in Washington, the working assumption is that the 2018 plan year will go as planned, and all of California’s insurers are on board with selling on the exchange.

The other wrinkle in California is an effort to pass a single-payer plan that would blow up private insurance in the state. It’s been approved by the state Senate, but it is opposed by insurers and business. It carries a $400 billion yearly price tag, making it a tough sell.Insurance brokers, not surprisingly, oppose a single-payer system. “That’s our biggest challenge right now. It would wipe out the entire system,” says Berger.

Instead, they’d like to see continued work to make the insurance market viable for insurers and get more Californians covered. “The uninsured rate in California is at an all-time low,” she said. “That means this program has been a success.”

Jan Greene is a veteran health care journalist based in Northern California. Her work has appeared in the Los Angeles Times, Health magazine, Hospitals & Health Networks, and many other publications.