It's a plunge into the unknown.
The California Health Benefit Exchange is envisioned as a sort of online market place for coverage, handling billions of dollars worth of health care as part of the federal reform law. There, millions of Californians - 1.25 million to 8 million, depending on who's crunching the numbers -- can get reasonably priced coverage.
It is the single most important piece of the health-care reform effort in California, observers say. If it works, reform succeeds; if it fails, reform may fail, too. The exchange is the result of hard-fought legislation involving doctors, health care plans, patient advocates, insurers and others.
What they reached, in the end, is a fragile, complex compromise.
"Our main concern is that if you want it to work for health care, you need to make sure people can see a doctor when they need to get access to care and that the health plans have adequate networks of providers," said California Medical Association spokesman Andy LeMar.
"We've been loud and long supporters of universal health care, and the health insurance exchange will help do that."
For low-income people, federal money will be available to help cover expenses. For the exchange-approved insurers that provide them with coverage, there are fiscal benefits in the form of direct payments covering the costs of the low-income customers. The target startup date is 2014, although beta testing and tweaking is expected to begin the year before.
Since the incentives in the exchange are fueled initially by federal money, the system may be imperiled if those funds dry up in tight economic times.
"Primarily, it is designed to draw down federal dollars, either as subsidies or as tax breaks," said Charles Bacchi of the California Association of Health Plans, which represents 39 health care organizations, including such giants as Kaiser Permanente, Anthem Blue Cross and Blue Shield of California.
"At its core, its function is to match up consumers with federal subsidy dollars," he added.
To participate in the exchange, all health insurers will have to provide an essential coverage package, required by federal law. And that uniformity represents a new world for the plans.
"California, for the first time in the market place, is going to organize the products and the plans are going to have to play by the new rules," said Jennifer Kent of the state's Health and Human Services Agency.
"The exchange will determine if it's in their (the companies') best interest or in the consumers' best interest, organizing them in a way that we've never organized them before."
But the creation of such a powerful state agency is fraught with uncertainty, experts agree. There is more mystery than clarity - particularly how it will affect the private market place.
"How do you manage the exchange? How powerful is it, and how does it compete with the outside market?" Bacchi said, noting that the exchange should offer a wide range of health plans ensures that consumers have plenty of choice when choosing coverage.
Another concern to the health plans is the power of the exchange to choose who participates - "selective contracting" they term it.
"It is really unclear in the bills what they are going to require as a condition of contract," he said.
In part, that's because the exchange's yet-to-be-created governing board will have wide discretion over policy, and in part it's because political changes are roiling Washington that could have a critical impact on California's access to federal money.
The contracting issue raises a pivotal, pocketbook question because the exchange will have broad authority to negotiate agreements. The legislation allows those in "good standing" to participate, but what is good standing? And some health care insurers fear the board may engage in selective contracting and exert unfair marketplace pressure.
And with the GOP retaking the House - and apparently seeking to scale back or eliminate health care reform - will the exchange really get up and running in California?
"Nobody knows what Congress is going to do next year. Will it try and dismantle health care reform? Will it try and pull the rug out from under the funding? There is a big question about what is going to happen next in Washington," LaMar said. The CMA supported the legislation that created the board. Pre-reform exchanges were set up in two other states, Utah and Massachusetts.
"Aside from setting up some infrastructure, there is nothing that can be done. The federal regulations haven't been issued yet, and they won't be issued until April."
First, the five-member governing board of the exchange has to be picked after Jan. 1 - two appointees of the governor, each with four-year terms; one each from the Senate Rules Committee and the Assembly Speaker, for a five-year term and two-year term, respectively; and the secretary of the state Health and Human Services Agency.
The board, in turn, will then hire an executive director who will put together a staff and find a location to house the new agency.
Two bills set up the exchange, SB 900 by Sen. Elaine Alquist, D-San Jose, and AB 1602 by Assembly Speaker John Perez, D-Los Angeles.
Language in the law gives the governor the ability to appoint two members of the exchange board without having them going through confirmation by the Democrat-controlled Senate - a significant negotiating victory for the governor, because it gives him two members on the board who will be there for the duration of Jerry Brown's governorship.
The legislation says any appointments that Schwarzenegger makes after Jan. 2 will not be subject to the confirmation. Brown is expected to take office on Jan. 4 - giving Schwarzenegger a 48-hour window to appoint the two members.
Estimates of the level of participation in the exchange and the dollar amounts involved vary wildly.
Some 1.2 million people who currently receive benefits in the state's Medi-Cal system are likely to be shifted to the exchange, at least temporarily, as are several hundred thousand in other programs. That number, however, could rise dramatically if an increasing number of people see the exchange as a place to get reasonably priced coverage.
When the exchange goes on line, what is known colloquially as the "precious metals" packages will be offered - the so-called "Platinum," "Gold," "Silver" and "Bronze" coverage plans, with "Platinum" the highest priced. Catastrophic coverage also will be offered. Everyone is eligible to purchase whatever coverage they want, because the question here is cost, not eligibility.
Each level of coverage offers the essential benefits package. But they differ in expense levels and out-of-pocket costs, such as co-payments, special nursing costs, long-term nursing, in-patient services and the like.
In the exchange, there are limits on out-of-pocket costs that an insured consumer can be required to pay - perhaps $5,000 per person and $11,000 for a family, for example - and the idea is that market competition will help drive down the costs.
There also are limits on insurers, noted Sen. Mark Leno, D-San Francisco, a member of the Senate Health Committee. The double lure of tax breaks and subsidies is the key, because it drives both customers and companies to the exchange. In effect, the exchange is an interface between public and private entities - reflecting the compromise that finally was hammered out.
"The carrot is that insurers who chose to participate in the exchange get the federal subsidy. The goal here is to expand coverage and standardize coverage," he said. "The delicate balance that was crafted in the federal reform was to expand the market exponentially for the for-profit insurers and limit their ability to deny coverage," he said.
"But whether all this contains costs is yet to be determined," Leno added.
Most people get their health insurance through their employers. For those who don't, the exchange is envisioned as a cost-effective alternative for perhaps 24 million to 30 million people across the country.
In California, the law creating the state exchange is the nation's first under the federal health care reform law.
The exchange sounds a bit like a brokerage, but it's actually quite different: Like a brokerage, the exchange will seek out the products that match a customer's needs, then allow the customer to pick and choose from the five plans. The online selection, by law, is required to be easily understood in plain language with an apples-to-apples comparison.
But the exchange also will provide information to other agencies, including the Internal Revenue Service and numerous state agencies to track consumers' eligibility to take advantage of subsidies and incentives and to track the federal money flow.
In the end, the exchange is envisioned as the best way to protect consumers and encourage a competitive market place.
"For anyone who wants to buy coverage, you should buy it in the exchange, if we do the job the way we need to," Kent said.
By John Howard