California Advances Bill Setting Up Insurance Exchange

California may become the first state to set up one of the major components of the health overhaul passed last March: insurance exchanges. The state Legislature has sent Governor Arnold Schwarzenegger bills that establish an Internet-based exchange where consumers and small businesses can compare plans. The exchange is seen as a key element in increasing competition and keeping costs down. Republicans opposed the bills, saying that the federal government, not the state, should pay the costs of setting up the exchanges.

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California is the first state to pass legislation setting up a key component of the new federal health law. It's unclear if Governor Schwarzenegger will sign it. But if he does, he would establish a new state agency that would bargain with health insurers on behalf of consumers. The bill would also set up a website where people could compare and purchase coverage.

That kind of negotiating power would dramatically change the way individuals and small businesses buy coverage now.

From member station KQED, Sarah Varney has this report.

SARAH VARNEY: The modern American cereal aisle is a testament to the free market - an unbridled consumer choice. All these towering boxes of smiling leprechauns, amped up bunnies and glistening raisins, it seems like these cereal aisles grow taller and longer each week.

Mr. RICK CURTIS (President, Institute for Health Policy Solutions): When there are too many choices that are too hard to compare, generally, consumers sort of give up on trying to be real thoughtful about it.

VARNEY: If you're overwhelmed with cereal, try comparing health insurance plans, says Rick Curtis. He's president of the Institute for Health Policy Solutions, a nonpartisan research group.

The new federal health law gives stateswide latitude in setting up what amount to online health insurance superstores. And the question is how much help should states offer shoppers?

California lawmakers have chosen to make it as easy as possible for consumers. They want to set up a government agency with considerable powers to shape the marketplace.

Curtis says although the federal health law sets minimum benefits and caps out-of-pocket costs, the California insurance exchange would standardize the products for consumers even more.

Mr. CURTIS: It will make it easier for them to compare if it's an apples-to-apples comparison. That they don't have to figure out if the plans from Anthem have a $50 higher deductible and a five percent lower cost-sharing requirement for ambulatory services. And so how do I compare these things?

VARNEY: Instead, says Curtis and other policy health policy experts, Californians could compare plans that are essentially identical and shop based on price, service and quality. The bills passed this week would also give the independent board running the exchange broad authority to negotiate the price of plans sold in this new health insurance superstore.

It's similar to the negotiating clout large employers have now when insurance carriers want to earn their business, says Anthony Wright, head of the Sacramento-based consumer advocacy group Health Access.

Mr. ANTHONY WRIGHT (Executive Director, Health Access): That is not a power that individual consumers have. You know, right now, individuals are left all alone at the mercy of the insurers. But if the exchange can represent the several million Californians who will be getting coverage through the exchange, they will be able to negotiate a much better deal.

VARNEY: Some four million people, including individuals and small businesses, could get coverage through the exchange when it opens in 2014.

Not everyone is happy, though. Anthem Blue Cross, the largest provider of individual health insurance in California, strongly opposes the power given to the exchange's governing board. The company would not comment, but in a letter to state senators, warned consumers could end up with fewer choices.

Still, many insurers see a chance to confront rising health care costs, which they say threaten their long-term viability.

Mark Weideman is with the nonprofit carrier Blue Shield of California. He says insurers will have to disclose, somewhat, how much they're paying for medical care.

Mr. MARK WEIDEMAN (Vice President, Government Affairs, Blue Shield of California): That information is going to be very helpful to consumers, because I think people would be extremely surprised if they realized how much we're paying hospitals, how much we're paying physicians, how much we're paying drug companies.

VARNEY: Weideman and some health economists suspect or perhaps just hope that consumers might choose a lower cost hospital or physician if they're of equally good quality. That's still a long way off, though. The bills determining the future of California's insurance superstore are awaiting action on the Governor's desk.

For NPR News, I'm Sarah Varney.

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