While other states have been passing meaningless bills to nullify the federal healthcare reform law, California lawmakers have moved swiftly to implement one of its key features: a new marketplace for individuals and small groups to buy health coverage. Last week, the Legislature gave final approval to two bills that would establish this market, dubbed the California Health Benefits Exchange, no later than Jan. 1, 2014. The measures — AB 1602 and SB 900 — are good for consumers and competition, although not necessarily for every competitor in the market today. Gov. Arnold Schwarzenegger, who was an early backer of insurance exchanges, should cement his support by signing these bills.
Consumers buying individual policies and small companies buying coverage for their employees pay significantly higher rates in part because the risks covered aren't spread across a large pool of customers. Another factor, though, is that they don't have the bargaining power with insurers that big groups do. The federal healthcare law authorized states to create exchanges to help close that gap, as well as to make it easier for people to evaluate the policies being offered.
The two bills, which the Schwarzenegger administration helped develop with top Democrats in the Legislature, shouldn't be controversial — they don't require anyone to buy insurance or any insurers to participate in the exchange. Nor would the exchange be the only source of individual or small-group policies in California, although it would be the only place where working-class Californians could buy insurance subsidized by federal taxpayers.
Nevertheless, Anthem Blue Cross and the California Chamber of Commerce have led the fight to stop the measures. Their main complaint is that the bills would empower the exchange to pick which insurance plans to make available, rather than requiring it to offer every plan that met the minimum standards set by the federal government. Under the latter approach, market forces would eventually drive low-quality and excessively costly plans out of the exchange. But giving the exchange the power to negotiate for better terms should move that process along faster. That's one of the main reasons to have an exchange.
Other welcome provisions would deter insurers from trying either to push the riskiest customers into the exchange or to skim the cream of the customers there. It's also worth noting that the costs of the exchange would be covered by federal grants and fees on participating insurance plans, not the state's overburdened general fund. Many details would remain to be worked out by the exchange's governing board, but that's all the more reason to get started now. Schwarzenegger has called on California to be in the forefront of healthcare reform; signing these bills will put it there.