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Covered California Q&A

Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.

May 2011 Archives

Question: In my conversation with my carrier rep, I was told that they anticipate the exchange individual plans to be more expensive than their plans outside of the exchange. Why?

Answer: That is incorrect. The Exchange is very aware that adverse selection is one of the greatest threat its success. To the extent that rules (including premiums) are different outside the Exchange versus inside, there is room for market manipulation. In fact, the ACA addresses this issue definitely. “A qualified health plan means, among other things, a plan offered by a health insurance issuer that agrees to charge the same premium rate for each qualified health plan it offers without regard to whether the plan is offered through an Exchange or whether the plan is offered directly from the issuer or through an agent. (See ACA § 1301(a)(1)(C)(iii), 42 USC §18021(a)(1)(C)(iii))

Question: I do have a question upon which you may be able to shed some light. It seems to me that (in 2014 and beyond) many small business owners will forego purchasing group health insurance (either in the Shop Exchange or directly from carriers) and send their employees to the individual exchange where some of them will qualify for subsidies. Does the ACA create any obstacles to impede employers from doing so?

Answer provided by David Fear Sr. of Shepler Fear Insurance Agency, Sacramento,. CA. Mr. Fear is a former President of the National Association of Health Underwriters and a recognized expert on the ACA.

Answer: [David Fear Sr.] I cannot see any obstacles from ACA to prevent that from happening. In fact, I do think that ACA encourages this for two reasons: The fact that the law specifically authorizes Exchanges the exclusive ability to administer the Individual Premium Subsidy and that there will be a Risk-Adjustment mechanism between exchanges and carriers outside of the exchange. The former is a HUGE promotion for participation in an exchange and the latter is way to keep the carriers honest so that their product pricing ends up being on par with the exchange. That being said, if I’m a small business employer and employ a number of people who are going to qualify for the premium subsidy, then why wouldn’t I encourage my people to enroll in the exchange since there is “free government money” there for them to pay for their coverage. So, yes, I think that ACA really does buy off the small employers by making the exchange the exclusive place to get the premium subsidy for employees who qualify. Just the opposite for large employers who are penalized for not providing coverage…

Follow-up Question: What are the incentives for purchasing group coverage in the Shop Exchange rather than turning employees loose on the individual exchange?

*Answer: *[David Fear Sr.] Well we know there are disincentives for large employers to not provide group coverage, but not so for the small employers. In fact, I think the small employer premium tax credit that went into effect last year will actually go away in 2014 because that is when the individual premium subsidy kicks in - so that kind of leads me to believe that this deal was set up as a transition into that. On the larger front it seems that if Congress can modify parts of PPACA before 2014 so as to allow for small employers to get the same subsidy outside of the exchange as will be provided within the exchange that many of these issues might be fixable. But if you read what the responsibilities of an exchange are, in a very broad sense they are now going to be the “local agency” that makes determination of eligibility for Medi-Cal, Healthy Families and Exchange Subsidy, not to mention whether or not a person is exempted from the individual and/or the employer mandate. They are going to have HUGE responsibilities and frankly that is why I’m against a Federal-Fallback exchange because I don’t trust the Feds to do this right at all.

[David Fear Sr.] I hope this answers your question. It’s just my opinion based on how I read the law as it now stands…


Nadereh Pourat, Director of Center for Research (UCLA), is the author of two recent policy briefs examining the likely beneficiaries of health care reform in California. Dr. Pourat looked at those likely to be eligible for both the new California Health Benefit Exchange program and the expansion of Medi-Cal. Up to 4.6 million residents may gain coverage, with many of them being working-age, single men. Here Pourat talks about how those numbers might change, how both programs can be improved, and how we should all start preparing now for implementation in 2014.

Q: The Center studies estimate up to 4.6 million Californians may be eligible for coverage under health care reform. However, this may change. Can you explain the processes in motion that may affect the final tally?

Dr Pourat - The final number of eligible and participating individuals will depend on the actions of health insurance plans, employers, state governments and individuals. Health insurers may raise premiums prior to, or even after, the passage of the law. Employers, particularly smaller ones, may opt to pay the penalties rather than pay for health insurance for their employees. State governments have to decide on whether and how to implement the Health Benefit Exchange or Basic Option and how to coordinate enrollment with the Medicaid programs. And ultimately, individuals may not choose to participate in the Exchange or enroll in Medicaid despite the individual mandate.

Q: Medi-Cal and the California Health Benefit Exchange program estimate income and eligibility differently. What effect does this have and how might it be streamlined?

Dr Pourat - Currently, Medi-Cal determines eligibility based on monthly income. The Exchange determines eligibility based on annual income. This is a problem because many individuals' income changes throughout the year dramatically, including seasonal workers and the self-employed. As a result, they could lose Medi-Cal eligibility for some months in a given year. The eligibility and enrollment process has to be coordinated so that no one is left uninsured for part of the year because of different enrollment and eligibility determination processes.

Q: What steps can California take now to prepare for 2014?

Dr Pourat - California has already passed legislation and begun the implementation process in preparation for 2014. The California Health Benefit Exchange program has been created and the Exchange board has begun meeting. California has also used the recent 1115 Medicaid Waiver to create the Low Income Health Program (LIHP) to provide coverage for low-income individuals, many of whom will be Medi-Cal eligible by 2014. The program is implemented at the county level and allows counties to use federal funds to supplement county funds for providing health care. This program paves the way for reform by determining programmatic and health care delivery approaches that are likely to have the biggest impact on individuals' health for the lowest expenditures. It is hoped that this program may reduce the initial pent-up demand on the system after ACA implementation.

In the long term, we should also be thinking about system-wide key challenges of implementation including shortage of primary care physicians, who are the cornerstone to the delivery of low-cost but effective primary care; reducing waste and duplication of services; and ways of engaging patients in better self-care.

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