The mechanics of the generic but very large "health reform" bill is starting to come to light. The first big implementation of the bill is the California health insurance Exchange (called Covered California) which will offer various plans to individuals, families, and small business. A large number of people will sign up for Exchange plans through sites like calhealth.net but that's not the end of the story and the real benefit to calhealth.net is our ability to quote both plans in and outside of the Exchange. We're still early in the game but the major carriers will most likely offer plans outside the Exchange as well. What's the difference between in and out of Exchange plans?
From our vantage point and experience, we can see only one reason people will purchase health plans from the Exchange. Again, this is all conjecture since the plans are still yet to be offered but we'll walk through how we see this decision playing out. The first critical piece to this puzzle is the Subsidy. Health Reform provided for a subsidy towards health insurance purchases for people earning between 133% and 400% of the Federal poverty level. The subsidy for a person at the lower end of the scale can be very large ($1000+ monthly) resulting in very low out of pocket. Here's the critical piece. The subsidy is only available inside the Exchange and it will be based on the Silver plan (out of four metallic health plan options...Platinum, Gold, Silver, and Bronze). We expect that due to market forces and adverse selection, the Bronze and Silver plans will make the vast majority of health plan sales inside the Exchange for this reason. Why would this be the case and more importantly, why would anyone buy a plan outside the Exchange?
If you pay under 400% of the Federal poverty level, you'll most likely buy the Bronze or Silver in the Exchange. The law states that the benefits offered outside of the Exchange must also be offered inside so what gives? Doctor networks for one. Most likely, the plans outside the Exchange will offer a different network of providers (Doctors and more importantly hospitals). There are two ways this could go. Either the out of Exchange California health plans will have more narrow networks (and cheaper pricing) or more expansive networks and offer better doctors/hospitals. Our bet is on the latter and these non-Exchange plans will constitute the new "private" market where doctor choice is the driver (since benefits will be largely the same). They may also have some extra benefits than the Exchange plans but this is as of yet, undetermined. In the end, we think the networks in the Exchange will narrow signficantly. Why are the networks in the Exchange going to narrow?
We have an entire article diving into this expected result of Health Reform but the synopsis is this. The California health insurance carriers are mandated by laws to offer a certain level of benefits so there's no give there. They will also get pressure to reduce the resulting rate increases. They already have margins of a few percent so what gives? The provider re-imbursement will go down significantly which results in fewer doctors participating. Again, we'll look at this process further as it will likely be one of the biggest issues to confront with health reform in the California health insurance market.
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