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California leads in lowering health insurance premiums

Dan Gorenstein Jul 28, 2015

California leads in lowering health insurance premiums

Dan Gorenstein Jul 28, 2015

Covered California Executive Director Peter Lee is wearing a big smile these days.

“We’ve turned expectations on their head and delivered affordable rates for all Californians,” he says. “That’s a big deal.”

Lee is excited because for two years in a row, premium increases on California’s healthcare exchange are about 4 percent – well below the 10 percent increases California consumers paid in the years running up to the Affordable Care Act.  That ranks among the top performances compared to other states that have released rates, according to industry group Avalere.

California does have an edge.

Insurers want to play in this lucrative pool, with two new companies signing up earlier this month. The state embraced Obamacare, giving Covered California a lot of authority most states declined to give their exchanges. That includes negotiating directly with the insurers.

Lee chalks up a chunk of their success to this power. But this is negotiating with a twist.

“Health plans in California win by enrollment, and what we want to do is help them win, get people enrolled in the plans that get them the care they need,” he says.

The secret sauce, says Lee, is rather than pound premium prices down like hamburger patties, the exchange shares data with companies.

The goal is not to find the lowest price, but the right price. That means urging companies to come in around the same premium, so nobody gets rich, but nobody loses their shirt either.

Kaiser Permanente’s Bill Wehrle says when he’s come in too high, he’s been told to “sharpen his pencils” or risk losing business.

“It’s never something you want to hear,” Wehrle says. “But it’s certainly important to know, because it does force us to go back and figure out whether there’s anything more we can squeeze. And I don’t want to get into details, but that’s happened.”

Covered California says this kind of back and forth has shaved $200 million off of insurance premiums this year.

While rates will go up for many, 20 percent of consumers will pay less, most between 1 and 4% less.

Covered California looks at these results and thinks the federal exchange, healthcare.gov, should follow suit.

“I don’t see the federal government being in a position to actively negotiate with insurers,” says Larry Levitt of the Kaiser Family Foundation.

Levitt says it’s hard to imagine the federal government getting approval to negotiate on behalf of 30-some states.

But he does think healthcare.gov could standardize plans, another essential ingredient that’s helped keep rates down in California. While the ACA requires basic benefits for all plans, Covered California goes a step further and standardizes things like deductibles and co-pays, what Levitt calls bells and whistles.

“It’s a classic strategy for companies to add bells or whistles to their products and get consumers to pay more,” he says.

So in California, here’s the trade-off: Consumers have fewer options, but it’s easier to shop, because they are comparing based on price and networks of doctors and hospitals.

But if the goal of Obamacare is to get lots of people to sign up, Avik Roy, with the Manhattan Institute, questions the approach.

“Some consumers might want a different range of copays and deductibles,” he says. “These things can’t be done if the government is preemptively limiting the range of products they can choose from.”

It’s a classic free-market versus regulated market argument. The question for the Obama administration is: Does it want to enter a fight over limiting consumer choice in the name of lower healthcare costs?


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