Unlike other government agencies that review health insurance rates, Covered California is protected from public comment about the rates they negotiate with the different health plans. Consumers have no input into the health insurance rates Covered California approves, the negotiation of those rates with the health plans, or justification of those rates from the health plans. Just like the cost of a health care procedure is a mystery to health plan members, how the Covered California rates are determined are also shrouded in secrecy.
Covered California Sets The Rates For Most Individual And Family Plans
Because of the nature of Covered California being the Marketplace Exchange in the state for Qualified Health Plans that are eligible for the ACA Premium Tax Credit monthly subsidy, they effectively set the rates for virtually all of the individual and family health plans sold in California. This occurs because any health plan or health insurance company that wants to offer health insurance through Covered California must offer the exact same plans off-exchange at the exact same rates. In other words, a Silver 70 health plan offered by XYZ company in Los Angeles through Covered California must also be made available by XYZ company for purchase directly from the insurance company at the same rate for the same age in the Los Angeles region.
DMHC And CDI Regulators
Before Covered California came into existence, individual and family plan rates were reviewed by either the Department of Managed Health Care (DMHC) or the California Department of Insurance (CDI) depending on which agency had regulatory authority over the health plan. Once the rates were submitted to either DMHC or CDI and posted to their respective websites, consumers could review the complete rate filing application and leave a comment about the proposed rates. This is still the case for health plans that Covered California is not involved with like off-exchange small group rates.
For DMHC, the agency will flag rates that it found to be unreasonable or unjustified by supporting documents supplied with the rate filing. The health insurance company could then respond with modified rates. After a review of the modified rates, DMHC might issue a statement declaring the rates were no longer unreasonable with caveats.
For rates that the CDI finds unreasonable or lack justification, they will sometimes post their questions to the health insurance company asking for more details on their website. The response of the health insurance company is then posted to the CDI rate filing website. Neither DMHC nor CDI have the power to deny rates. All they can do is push the health plan or insurance company to lower the rates to make them more reasonable in their estimation. But in both cases, the public can see the rates before they are given token approval and leave comments.
Covered California Negotiations Not Subject To Public Records Act Requests
Both DMHC and CDI make their rate review process as transparent as possible to the public. This is not the case for Covered California. The reason Covered California gets to negotiate rates in secret is because the health plans are considered contractors and the rates are considered bids. I learned this after I filed a Public Records Act request asking for the rates submitted to Covered California. (California Health Benefit Exchange is the formal title of Covered California.)
Title 22. California Health Benefit Exchange (Refs & Annos)
West’s Ann.Cal.Gov.Code § 100508
- 100508. Exemption for certain documents from public disclosure; time when contract provisions become open to inspection; inspection of contracts by Joint Legislative Audit Committee
Effective: October 1, 2013
(a) Records of the Exchange that reveal any of the following shall be exempt from disclosure under the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1):
The deliberative processes, discussions, communications, or any other portion of the negotiations with entities contracting or seeking to contract with the Exchange, entities with which the Exchange is considering a contract, or entities with which the Exchange is considering or enters into any other arrangement under which the Exchange provides, receives, or arranges services or reimbursement.
In June I began looking for the rate filings to be posted for 2018 on both the DMHC and CDI websites. In July, Covered California was supposed to release the rates for their exchange plans. The rate announcement was postponed until August because Covered California wanted to see if congress would approved any changes to Affordable Care Act that President Trump might sign into law. But Covered California had already decided that they wanted the health plans to submit a second set of Silver plan rates at a higher level. The increased Silver plan rates would fund the enhanced reduced cost-sharing Silver plans 73, 87, and 94. There is speculation that either congress or the president might cut this funding, but Covered California has interpreted the ACA law as mandating them to offer these plans.
As of July 28, 2017, no rates for individual and family plans for 2018 have been posted to the DMHC or CDI rate filing pages. Covered California has not released their negotiated rates with the carriers.
Eventually the rates approved by Covered California will be posted to both the DMHC and CDI websites. But it appears this only happens AFTER Covered California has approved them. For example, Blue Shield’s rates for 2017 were posted to the DMHC website on July 15, 2016. Covered California released their rate booklet on July 19, 2016. It appears as if DMHC and CDI are differing to the supremacy of Covered California in their rate negotiations and secrecy surrounding them.
Covered California Is Not Buying Health Insurance
From my perspective, it is odd that Covered California can assume to be a consumer and the health plans are contractors quoting rates to be purchased by Covered California. All Covered California is doing as an exchange is to match consumers with health plans. Covered California is not actually purchasing enrollment into any health plan. That happens between the consumer and the health plan or health insurance company. Medicare has a similar situation with Medicare Advantage plans. The contractors (health plans) file bids for plans and prices to Medicare to be offered to Medicare beneficiaries. However, Medicare is actually paying the contractor several hundred dollars per month for each enrolled member. Covered California is not paying the health plans that are offering plans through their exchange.
Covered California is no different than an insurance agent who helps a consumer enroll in a health plan. Covered California is paid a 4% commission- they call it a fee- for every individual enrolled into a health plan through the Covered California system. Covered California doesn’t bill the consumer for the health insurance. Covered California doesn’t administer the benefits of the health plan for the consumer. Covered California won’t call the health plan if the plan member has a question or problem with benefits or billing.
One of the main goals of Covered California is to enroll as many individuals in their health plans as possible because that is how they make their money. Consequently, they want the lowest rates possible to entice consumers to buy health insurance. This is good for consumers.
Lack Of Transparency
But what else is discussed in those rate negotiations? What concessions are the health plans and insurance companies able to wrangle out of Covered California that we don’t know about? Conversely, what are the health plans agreeing to in order to potentially offer higher rates to consumers? Do the health plans get to see each other’s rates and make adjustments? Are health plans cutting deals between themselves for different regions of California? How much collusion is going on?
The public doesn’t know the secret deals or negotiations because this is considered a bidding process. Most state agencies are not allowed to negotiate a final bid price for services or products they purchase. The request for bids is released, interested companies submit their bid proposals, and then all the bids are opened at once and usually one of the lower bids wins the contract. The final bids of the companies are usually offered to the public for review. I would often review the bid of my competitors to see how they structured the bid and the final prices when I was bidding on local or state contracts.
When the rates are finally posted to the DMHC or CDI websites, any rate review by either agency would seem to be perfunctory and meaningless. DMHC isn’t going to determine a rate is unreasonable if Covered California has already approved it. So what is the point of the regulatory review when the rates are a fait accompli?
However, there are rates for off-exchange plans that are not mirrored Covered California plans that the insurance companies can offer. Why aren’t these rates posted to the DMHC or CDI website for review. Technically, Covered California doesn’t have any input into the non-standard benefit design plans offered off-exchange. Or do they? Even though the off-exchange non-standard benefit design plans are usually less expensive than the Qualified Health Plans (QHP) offered through Covered California, have the insurance companies been asked to raise those rates so the QHPs look more competitive?
If a consumer is only eligible for a small tax credit subsidy, or possibly no subsidy at all based on their estimated income, why purchase a Covered California plan if they can get an off-exchange plan for less money even after a small subsidy is applied? How can we be sure there is no collusion going on between Covered California and the health plans to keep the off-exchange rates artificially high?
I’m not a conspiracy kook, but whenever you have a lack of transparency for rate setting in a billion dollar industry, one can’t help but pose cynical questions about the process and potential collusion. Officers of large corporations have had to pay hefty fines and even gone to jail for the violation of restraint of trade laws and colluding to keep market prices artificially high.
It is the lack of transparency surrounding the cost of health care services that keeps those prices high. Health plans are under no obligation to disclose the negotiated rates for health care services before the procedure is performed. There are actually confidentiality agreements between health plans and providers that maintain the secrecy of the rates until they are billed for after the procedure. Consequently, most health plan members are denied the opportunity to have any real price information and search out the lowest cost provider. Patients often times don’t know what they have to pay until AFTER the health care procedure is performed and they get the bills. This is also the same situation for the price of brand name drugs before a health plan member has met any pharmacy deductible and they go into the drug copay benefit of their plan.
Covered California has touted itself as the agency that is making it easier for consumers to compare health plans and bringing transparency to the market place. On some levels they have met the transparency goal they set. But when it comes to the rate setting process, they have taken a page out the health insurance industry handbook on how to keep consumers in the dark. As long as they keep their negotiations secret with the health plans and insurance companies, questions concerning the process and collusion will continue to fester.