The Covered California Crystal Ball
Enrollment in Covered California began in October 2013 and already clear trends hint at the future of the program.
Healthcare providers are eagerly anticipating first year results to determine strategies for year two. As the most high-risk patients and the uninsured explore their options on the exchange, the affordability of Covered California for patients, healthcare providers, and health plans will continue to be a major issue.
Despite leading the country in enrollment through an exchange with approximately 107,000 enrollees through its first two months of operation, enrollment in Covered California has been lower than anticipated.
Outreach and education efforts have not yielded significant interest or the anticipated rapid sign-ups. This delay could be attributed to language barriers and poor outreach, limited Internet access for potential enrollees, lack of enrollment workers, fear and uncertainty, or a penalty that is not high enough to warrant purchasing expensive insurance.
Covered California enrollments primarily occur in geographic areas with high Medi-Cal populations. The expansion of Medi-Cal in California combined with the rollout of the Exchange will likely result in a significant growth in the Medi-Cal population.
The exchange has simplified how Medi-Cal beneficiaries can enroll in the program. However, the Medi-Cal population is generally high-cost (i.e., Emergency Department users, increasingly older patients with chronic diseases, and high obstetric users).
Despite Covered California’s rejection oo President Obama’s proposed one-year extension of insurance plans that had to be phased out under the Affordable Care Act, we expect fewer Californians than projected will purchase insurance through the exchange.
As consumers retain their private plans offered outside the exchange, and the young, healthy population abstains from purchasing insurance, it is likely Covered California health plans will experience adverse selection and enrolled patients with pent-up demand for healthcare services. Individuals ineligible for a subsidy have little incentive to explore their options through Covered California. Without a large enrolled population and a broad mix of acuity level, Covered California health plans will be left to care for the most expensive population with significantly reduced rates.
The substantial financial risk generated by Covered California has caused an uneven mix between HMO and PPO products. While Covered California had hoped to offer a more equitable mix of products, providers prefer the PPO products since the risk is retained by the health plan. Medical groups identified the significant resources needed to manage this population effectively and were generally unwilling to accept the risk (HMO product).
As enrollment for year two in the exchange begins, we expect to see an increase in both the Covered California rates and rates for plans outside of the Exchange. Enrollment in Covered California in year one by a relatively homogenous population (i.e., poor health and/or subsidy-eligible) will make financial solvency for participating health plans nearly impossible. Due to the adverse selection and pent-up demand described above, expect participating health plans to experience a significantly reduced margin as they continue to care for the chronically ill patients and negotiate for higher rates in year two.
Covered California has been touted as the most successful health insurance exchange in the country, to date, which remains to be seen. The results from Covered California will continue to educate the rest of the country on what to expect in the coming months and years. Healthcare providers across California are bracing for the financial hit caused by reduced rates and disproportionate care for a sicker, insured population. Many providers will opt to sit out on year one and evaluate participation in year two.
