Can California really compete with health insurance companies?
With the release of the Covered California Standard Benefit Plans and the Cost Estimator on the website, health insurance plans through California’s health insurance exchange may prove to be unaffordable for what consumers expect. Additionally, insurance companies that are supplying the health insurance plans to the state exchange have insider knowledge that will help them potentially undercut Covered California for all but the subsidized Silver Plans. Download comparison-> [download id=”47″]
Sticker Shock
When I first looked at the monthly premiums on the Covered California website I was a little surprised at how high they were. So I decided to put together a little comparison between the Silver plan that is eligible for the federal subsidy and similar plans being offered today.
Average 30 year old Californian
My hypothetical uninsured person looking for health insurance is 30 years old and lives in Sacramento County. I focused on the elements most people are concerned with: Office visit copayment, deductible, maximum out-of-pocket amount and the monthly premium.
| Plan | Office | Deductible | Maximum | Monthly |
| Copay | Out-of-Pockt | Premium | ||
| Covered California | ||||
| Silver | $45 | $2,000 | $6,400 | $318 |
| Kaiser | ||||
| DED 30/1500 | $30 | $1,500 | $3,500 | $306 |
| DED 40/2000 | $40 | $2,000 | $4,000 | $266 |
| Blue Shield of CA | ||||
| Shield Secure 2000 | $30 | $2,000 | $6,000 | $234 |
| Health Net | ||||
| Advantage 3500 | $40* | $3,500 | $10,000 | $82 |
*Only offers 2 office visits at the set copayment
Not Apples and Apples
To be fair, the Covered California Silver Plan may have a few more covered and richer benefits than these other plans. I am not saying this is a perfect across the board comparison. But if the health exchange were open today, these are some of the comparisons people would be making. These numbers were pulled from the latest benefit summaries based on a March 15th, 2013 effective date.
Subsidies turn Silver into Gold
The Silver plan is also eligible for the tax credit subsidy based on income. So if our average 30 year old California made the following, the cost estimator spits out the subsidy and the monthly premium.
| Yearly Income | Subsidy | Silver Plan |
| $20,000 | $233 | $85 |
| $25,000 | $174 | $144 |
| $30,000 | $108 | $210 |
| $35,000 | $41 | $277 |
| $40,000 | $1 | $317 |
The $318 monthly premium for the Silver plan will be the bench mark that the insurance carriers will have to offer for a similar plan outside of the exchange. But with the subsidy being offered only through Covered California, they will most likely cede this part of the market to the health insurance exchange.
Will California get gamed?
However, the health insurers could offer Covered California a high priced Silver plan knowing that it will be most likely be subsidized to the purchasers. They can then offer a similar plan for less outside of the exchange. The insurers would make a healthy margin on the Silver plans sold through Covered California and market rate return on plans sold outside the exchange to folks that don’t qualify for a subsidy. Once the individual or family is out of the income range that triggers a subsidy, why would they bother looking at Covered California plans. There is a good bet that they will be offered a better plan at a lower rate directly through a health insurance company.
The Silver Plan offered through Covered California has a $2000 deductible. Most folks lean toward $3,000 to $5000 deductibles. Higher the deductible the lower the premium. We could see a plan offered outside of the exchange, that meets the minimum health coverage benefits, with a $5000 deductible, that will have a lower premium than the Silver Plan WITH the tax credit! If marketed heavily, that will steal people away from the exchange because we know folks will focus on the monthly premium, not necessarily the benefits.
Silver Chevy Geo or Gold Cadillac
Covered California will be offering two more generous plans, Gold and Platinum, for which no pricing has been estimated and no subsidies are offered. Similar plans from other insurance have monthly premiums that range lower than the current Silver Plan to over $1,000 per month.
| Plan | Office | Deductible | Maximum | Monthly |
| Copay | Out-of-Pockt | Premium | ||
| Covered California | ||||
| Platinum | $25 | $0 | $4,000 | ? |
| Gold | $45 | $0 | $6,400 | ? |
| Kaiser | ||||
| Copay 25 | $25 | $0 | $2,500 | $432 |
| Copay 40 | $40 | $0 | $3,000 | $399 |
| Copay 50 | $50 | $0 | $3,500 | $337 |
| Blue Shield of CA | ||||
| Access+ HMO | $20 | $2,000 | $3,000 | $1,220 |
| Health Net | ||||
| HMO 50 | $50 | $0 | $5,500 | $212 |
Because the insurance companies will be offering the Bronze, Silver, Gold and Platinum plans to Covered California they have all the insider knowledge to fiercely compete with plans outside of the exchange. While the insurance companies can’t exclude benefits from the Gold or Platinum plans, they can offer other incentives built-in to the plan design.
Luxury edition health insurance?
It is very possible that we will see private insurance plans in the Gold and Platinum levels bundle dental and vision benefits for the same price or slightly higher than what Covered California will offer. Insurance companies are not going to voluntarily let Covered California eat their lunch. With their insider knowledge of the plans and prices offered through Covered California, along with demographic data relating to uninsured and current insured people looking for coverage, I suspect they will be very aggressive in designing plans to compete with Covered California.
Win -Win-Win for health insurance companies
If the insurance companies are successful, Covered California will only be selling plans to folks who are eligible for the subsidy. Insurance companies would just as soon see Covered California disappear and let them handle any federal subsidies applied to reducing the monthly premium. Either way, the health insurance companies, who have fought against health care reform, will be the beneficiaries of government money.
Strange bed fellows indeed
In the press release touting the new standard benefit plans, Covered California quoted Pam Kehaly, Anthem Blue Cross, President,
“Anthem Blue Cross applauds Covered California for their continued partnership with all stakeholders and their consumer-focused approach in developing benefit plans that will make comparing and choosing plans easier than ever before.”
Wellpoint, Inc., parent company of Anthem Blue Cross, is promoting a website that calls for the repeal of the Affordable Care Act that created Covered California.
Win at all costs
As a big proponent of health care reform and the state health insurance exchange, I remain optimistic that Covered California will provide health insurance plans that are of real value to everyone. It is my hope that the folks at Covered California understand who they are dealing with when they are working with the insurance companies. The insurance companies will exploit every weakness possible in the state exchange to make sales. These companies are out to win and not necessarily be a partner with government that costs them money.