California didn’t have ‘rate shock.’ But California isn’t like most other states.

May 28, 2013

Premiums on California's health exchange will, in 2014, be significantly lower than actuaries and federal budget forecasters had expected. That news has gotten lots of positive attention from health law supporters, who have lauded the lower rates as a sign that forecasts of huge premium spikes will never materialize.


While Mickey and Minnie at Disneyland may experience lower-than-expected premiums, that says little about what his Disney World-based counterparts may pay. (Paul Hiffmeyer/Disneyland)

We know that that lower-than-expected premiums in California will matter to Californians. As to what the numbers mean for residents of other states, it's worth striking a note of caution in generalizing. California's health-care marketplace isn't like those being set up elsewhere in the country.

When California created the country's first-ever health insurance exchange, way back in November 2010, it made a very significant policy decision. The state decided that it would act as an "active purchaser" that would select a small number of health plans allowed to sell on the California exchange. Health plans would have to do more than meet a set of requirements in the Affordable Care Act. They would need to be selected by the California exchange's board to compete in the marketplace.

This is different from the vast majority of states, which operate under a "clearinghouse model." In that scenario, any health plan that meets a set of criteria gets approval to sell on the health insurance exchange. All 33 state exchanges that the federal government will run operate under this  clearinghouse model. So do 10 of the 18 state-run health exchanges (this includes the District of Columbia). Two states, Kentucky and New Mexico have not, according to Kaiser Family Foundation, addressed the issue yet.

That leaves six states with active purchaser policies: California, Massachusetts, New York, Oregon, Rhode Island and Vermont. These are the only six states in the nation that have the power to turn away a health insurer that doesn't, for example, offer competitive rates–or maybe doesn't provide a wide enough network.

Officials at the California exchange, Covered California, said they had 33 health insurance plans apply to sell on the exchange. Only 13 ultimately made the cut. These are, in other words, the cream of the crop: The health insurance plans that California found to offer the top value.

In an active purchaser exchange, health plans know that they're competing against others for the chance to access millions of customers with tax subsidies. That could easily effect the bids that they submit, the ones they hope will get them into the new marketplace.

That's the dynamic in California, but not in most other states. That makes it a bit difficult to generalize what the state's insurance rates say about what will happen elsewhere, where this downward pressure doesn't exist.

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Evan Soltas · May 28, 2013