Insurers Limit Doctors, Hospitals In State-Run Exchange Plans

California's health insurance rates for a new state-run marketplace came in lower than expected this week, but one downside for many consumers will be far fewer doctors and hospitals to choose from.

People who want UCLA Medical Center and its doctors in their health plan network next year, for instance, may have only one choice in California's exchange: Anthem Blue Cross. Another major insurer in the state-run market, Blue Shield of California, said its exchange customers will be restricted to 36% of its regular physician network statewide.

And Cedars-Sinai Medical Center, one of Southern California's most prestigious and expensive hospitals, said it's not included in any exchange plans at the moment.

Those types of exclusive arrangements, increasingly tight networks and outright exclusions are becoming more common as insurers and government officials search for ways to hold down rising medical costs.

The vast majority of Californians get their health coverage through their employers and won't be immediately affected by these limitations in the state-run market. But private companies are pursuing similar changes to shave costs. More employers have been adopting these narrower networks and the government's overhaul of the individual insurance market is accelerating the trend.

Some consumer advocates express concern that insurers will go too far and deprive patients of meaningful choices. State officials sought to blunt that criticism this week, pointing out that the 13 health insurers selected will offer access to about 80% of California's practicing physicians and hospitals.

"If we want to keep costs down, something has to give," said Betsy Imholz, special projects director for Consumers Union. "At first blush, it seems like Covered California has negotiated some good deals, but in any given community we will see how this network issue plays out."

Covered California, the state agency implementing the federal healthcare law, said these trade-offs are necessary in many cases to keep premiums reasonable for California's families. Officials said they took steps to ensure that health plans offer an adequate number of quality medical providers and have measures in place for expanding their networks in the event that more people than expected sign up.

More than 5 million Californians are expected to be eligible for coverage in the exchange, and about half of them could qualify for federal premium subsidies.

Details on these insurance networks aren't known yet as insurers and providers wrap up their contracts and await regulators' review in the coming weeks. It's possible some medical groups and hospitals could be added.

Health Net Inc., another exchange option in Southern California, said it expects to seek state approval to use its existing network, which includes both UCLA and Cedars-Sinai, for one of its exchange plans.

Once all those decisions are finalized by early July, Covered California said it will help consumers find out online whether particular doctors and hospitals are in a health plan's network. Enrollment in the exchange opens Oct. 1 for policies that take effect in January, when most Americans must have health insurance or pay a penalty.

"When people come to choose their plan, we will have a directory so they can make sure Dr. Ramirez is in these three plans, for instance," said Peter Lee, executive director of Covered California. "Consumers care about that information."

Meanwhile, some insurance agents said it's hard to judge these proposed prices in the state exchange without knowing what's on the menu in terms of available providers.

"Trying to determine whether these rates are low or high without knowing the provider networks is like trying to tell the value of a car when you can only see the tires — you don't know if you are looking at a Ferrari or a Yugo," said Bruce Jugan, an insurance agent in Montebello and president of Benefitscafe.com, which sells health insurance to individuals and businesses.

Paul Markovich, chief executive of Blue Shield, said renegotiating with hospitals and physician groups for lower reimbursements was a key factor for insurers in holding down rates. Medical providers are sometimes willing to accept lower payments in return for higher patient volume from these narrow networks.

Markovich said premiums for Blue Shield's existing individual policyholders will rise 13% next year on average for coverage under exchange plans.

That marked an improvement from earlier predictions of even bigger rate hikes. The state issued a report in March that estimated premiums for many consumers could go up 30%, on average.

Premiums are generally rising to reflect the federal law's requirements for richer benefits and guaranteed coverage regardless of people's medical history.

"The physicians and hospitals that signed up for our network have agreed to accept lower reimbursement specifically to make the exchange more affordable," Markovich said.

Blue Shield's exchange network in the Los Angeles area doesn't include UCLA or Cedars-Sinai. Instead, it features hospitals such as Keck Hospital of USC, Long Beach Memorial and St. John's Health Center. Blue Shield said its statewide network for exchange policies will include about 24,000 physicians, compared with 66,000 doctors in its full preferred provider organization roster.

In Los Angeles County, state officials expect 1.6 million people to be eligible for coverage in the exchange. Premiums will vary based on a person's age, location and level of coverage.

For instance, in the north Los Angeles County region, the rates for a 40-year-old purchasing a Silver plan range from $222 a month for Health Net to $294 a month for Kaiser Permanente. There will still be other individual policies for sale outside those offered through Covered California, but federal subsidies can be used only inside the exchange.

Health Net sees growing acceptance of these narrower networks. The Woodland Hills insurer said enrollment among employers in California, Arizona and Oregon in those smaller networks has grown 37% in the last year.

chad.terhune@latimes.com

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Rate Shock in California!––The New Health Insurance Exchange Plans––Comparing Apples to Oranges to Grapefruit

I have to say I was surprised with the press reports last week that there wasn't "rate shock" in California when the California exchange offered preliminary information about their new plans and rates.

At least one prominent health actuarial group had predicted a 30% baseline increase in costs for California's new health insurance exchange plans under the Affordable Care Act (ObamaCare").

As the director of the California exchange put it, "These rates are way below the worst-case gloom-and-doom scenarios we have heard."

But a few days later there is lots more information coming out and it would appear we have a case of apples to oranges to grapefruit. And, we have a pretty good case of rate shock.

First, the exchange officials pointed out that we have to be careful to compare apples to apples when looking at 2013 rates and comparing them to the 2014 exchange rates because the 2014 exchange plans have far more generous benefits.

Yes we do, particularly when the California exchange forces us to give up our apple and buy a more expensive orange.

One of the reasons health insurance in the exchange will cost a lot more in most states is because the new health law outlaws many of the existing plans now being offered and requires only those much richer plans to be sold.

Are people going to get more coverage for their money? Yes. Do they want more coverage if the premium costs for those plans is a lot higher? Likely yes if taxpayers are paying for most of it. If not, clearly they didn't want to pay for it before. Come January, lots of California consumers in the small group and individual market are going to get a letter from their existing insurer telling them their current plan is no longer available and the cost of the new required plans will be a lot more.

Simply, the new law is taking plan design choices away instead of letting the consumer decide what is good for them. Does that matter in California?

As the LA Times reported, "The average premium for individual plans sold through EHealthInsurance in California was $177 per month last year. Covered California said the average premium for the three lowest Silver plans statewide will be $321 a month [+81% over two years], albeit for more comprehensive benefits."

For those insured right now, and the estimated 40% that won't be eligible for a federal premium subsidy, that sure looks like rate shock to me. For the 60% who will get a subsidy, this means the taxpayers are going to have to fork out lots more money.

Then one of the largest insurers in California, Blue Shield, announced that their average rate increase would be 13% under the new law. That sure looks better than the predicted 30% increase for California exchange plans.

But wait, that Blue Shield exchange plan in LA, for example, does not include UCLA Medical Center or Cedars Sinai. In fact, Shield's exchange network includes a total of only 24,000 physicians compared to 66,000 doctors in their full PPO network––only 36% of their usual network docs will be available.

Last week a national player told me there is a nationwide trend growing where the insurer offers a very limited list of providers exclusivity in their exchange plans for deeper payment discounts in the 30% range––the narrow network plan would be the health plan's only offering in the exchange. The tactic was described to me as a "quasi Medicaid strategy for the exchanges."

Health insurers have long struggled to keep premiums low by offering their customers lower benefit options at renewal. Apparently, with that option limited under the new health law, insurers are now sometimes opting to keep premiums lower by limiting provider options.

Let's be clear, "narrow network" plans that contract with fewer lower cost providers are a legitimate cost containment strategy. But Shield is only offering the narrow network in the exchange. While some health plans will sell their regular broader network outside the exchange, consumers can only get the federal premium subsidy inside the exchange. Looks like oranges to grapefruit to me.

The California exchange touted its announcement saying, "This is a home run for consumers in every region of California."

Let's see what California's individual and small group market consumers have to say once they start getting those renewal letters and go to the provider directory to see which doctors and hospitals they can go to.

An aside: I have to give LA Times reporter Chad Terhune lots of credit for staying with this story. During the past few days, he has written three articles (see links above). The first generally summarized the California Exchange press conference, the second dug a little deeper, and the third really got to the heart of the matter. In the end, LA readers got the whole story.

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Calif. Exchange Granted Secrecy

By MICHAEL R. BLOOD, Associated Press 1:37 a.m.May 9, 2013LOS ANGELES — A California law that created an agency to oversee national health care reforms granted it broad authority to conceal spending on the contractors that will perform most of its functions, potentially shielding the public from seeing how hundreds of millions of dollars are spent.

The degree of secrecy afforded Covered California appears unique among states attempting to establish their own health insurance exchanges under President Barack Obama's signature health law.

An Associated Press review of the 16 other states that have opted for state-run marketplaces shows the California agency was given powers that are the most restrictive in what information is required to be made public.

In Massachusetts, the state that served as the model for Obama's health overhaul, the Health Connector program is specifically covered by open-records laws. The same is true in Idaho, where its exchange was established as a private, nonprofit corporation, and in New Mexico.

The Maryland Legislature subjected its exchange to the state's public information act, but protected some types of commercial and financial information.

In California, the explicit exclusions from open-records laws may run afoul of the state constitution, said Terry Francke, head of Californians Aware, a group that promotes government transparency.

If the Legislature wants to limit access, the state constitution requires it produce findings that demonstrate the need for shielding information from the public. In the bill that authorized the exchange, the Legislature devoted two sentences to address that issue. It argued the cloaked spending was "necessary" to protect "powers and obligations to negotiate on behalf of the public."

Those provisions are vulnerable to being declared unconstitutional, according to Francke.

He said, in essence, lawmakers are saying they need it because they need it, with no details or evidence to support it. The Legislature should have answered the questions, "Why couldn't the exchange do its job without this secrecy? What's the worst that could happen?" Francke said.

Exchange spokesman Dana Howard said the agency complies with state law but declined to discuss in detail how it determines what is public and what is not.

"I'm not going to go down item by item, about how it is and what kinds of meetings and what was talked about," he said.

It's routine in government to keep bids secret until contracts are awarded, so one vendor does not get an unfair advantage over others. After a bid is awarded, contracts generally become fully public.

In setting up the California exchange, lawmakers gave it the authority to keep all contracts private for a year and the amounts paid secret indefinitely. "Except for the portion of a contract that contains the rates of payment, contracts entered into pursuant to this title shall be open to inspection one year after their effective dates," reads the code specifying what exchange records are exempt from public disclosure.

According to agency documents, Covered California plans to spend nearly $458 million on outside vendors by the end of 2014, covering lawyers, consultants, public relations advisers and other functions.

Other exchange records that are allowed to be kept secret include those that reveal recommendations, research, strategy of the board or its staff, or those that provide instructions, advice or training to employees. Minutes of the board meetings also are exempt from disclosure.

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States Face Obamacare Health Exchange Deadline

States have another few hours to decide whether they want to create their own health care marketplace, or partner with the federal government, with CNBC's Bertha Coombs.

But the woman who is helping to lead the build out of the federal exchange said most users won't notice much difference from the state-built exchanges except for the branding of the online marketplaces.

"Whether you go in through the federal experience, to your state exchange," said Melissa Boudreault, CGI vice president of state health solutions, "the experience will be very, very similar."

(Read More: Drop Coverage or Cut Hours? Big Companies Grapple With Obamacare.)

Boudrealt expects the outreach effort in states that are running their own exchanges or partnering with the Obama administration will likely be more extensive, and that could ultimately affect enrollment. It's a key issue when it comes to so-called "young invincibles" who may opt to pay the $95 penalty for not carrying insurance, rather than buy a plan they deem too expensive.

"It becomes a big question of you recruit the young," said Deloitte's Patrick Howard. "The individual mandate, in and of itself, is not sufficient."

—By Bertha Coombs; Follow her on Twitter: @coombscnbc

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Federal Health Exchange a 'Tremendous Resource'

 Highlight transcript below to create clipTranscript:  Print  |  Email Go  Click text to jump within videoFri 15 Feb 13 | 12:00 PM ET Melissa Boudreault, CGI vp of state health solutions, talks to CNBC's Bertha Coombs about the Federally-built health care exchange. She believes it will be a tremendous resource to consumers, because it must meet the needs of a number of different states.

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ObamaCare Exchange Subsidy Cost Hiked By $233 Billion

The Congressional Budget Office on Tuesday quietly raised the 10-year cost of ObamaCare's insurance subsidies offered via the health law's exchanges by $233 billion, according to a Congressional Budget Office review of its latest spending forecast.

The CBO's new baseline estimate shows that ObamaCare subsidies offered through the insurance exchanges — which are supposed to be up and running by next January — will total more than $1 trillion through 2022, up from $814 billion over those same years in its budget forecast made a year ago. That's an increase of nearly 29%.

The CBO upped the 10-year subsidy cost by $32 billion since just last August.

In part, this jump is because more people will get insurance via the exchanges than it had forecast. Where the CBO had seen 22 million enrolled in an exchange in 2022, it now figures 25 million will be.

That explains only part of the cost hike. The rest is largely the result of the CBO's sharp increase in what it expects the average subsidy will be.

Average Subsidy Rising

Last year, the CBO said the average exchange subsidy for those getting federal help when ObamaCare goes into effect next year would be $4,780. Its latest estimate raised that to $5,510 — a 15% increase. All these numbers are up even more from the CBO's original forecast made in 2010, which had the first-year subsidy average at $3,970.

The CBO also expects 7 million workers will lose their employer coverage due to ObamaCare, almost twice as many as it had previously said would be dumped. It expects tax penalties on individuals and companies who don't buy insurance to be $36 billion higher from 2014 to 2019 than it originally forecast.

On the other hand, the budget office has lowered the program's Medicaid costs, in part because of the Supreme Court's decision letting states opt out of that part of ObamaCare. As a result, the CBO didn't change its overall ObamaCare spending much.

Still, if those other savings fail to materialize, ObamaCare's overall cost could end up far higher than promised. That could prove another blow to the beleaguered health care law, which has seen most states reject setting up the insurance exchanges amid mounting worries that they won't be running in time, concerns about premium spikes, and fears that millions of families could be left without any affordable health care coverage.

So Much For 'Cheap' Plans

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Christie Rejects State-Based Health Exchange

New Jersey Gov. Chris Christie (R) declined to set up a state-based insurance exchange under the healthcare law Thursday — the same day he met with President Obama on Hurricane Sandy aid.

The move will be welcomed by conservatives who blamed Christie for praising Obama's response to the storm. Sandy hit just before the election and distracted national media coverage from Obama's campaign against Mitt Romney, who lost.

In a statement, Christie said New Jersey would default to a federally run exchange because the Obama administration did not provide enough information on alternatives. He also said an exchange would be "extraordinarily costly" for the state in spite of massive federal grants to build it.

"We will comply with the Affordable Care Act, but only in the most efficient and cost effective way for New Jersey taxpayers," Christie said in a statement.

"I will not ask New Jerseyans to commit today to a state-based exchange when the federal government cannot tell us what it will cost, how that cost compares to other options, and how much control they will give the states over this option that comes at the cost of our state’s taxpayers." 

In a technical sense, Christie vetoed a bill that would have begun to establish the exchange.

At least 17 states are declining to create their own marketplaces, and most are governed by Republicans who continue to oppose the healthcare law.

The decisions pose a huge challenge to the Department of Health and Human Services, which must step in and do the work itself. All exchanges must be up and running by Jan. 1, 2014.

Christie was in Washington Thursday to discuss recovery aid with Obama. He also met with White House chief of staff Jack Lew, budget director Jeffrey Zients and other senior officials, according to reports.

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Hope and Exchange

ObamaCare is due to land in a mere 10 months—about 300 days—and the Administration is not even close to ready, so naturally the political and media classes are attacking the Governors and state legislators who decline to help out. Mostly Republicans, they're facing a torrent of abuse in Washington and pressure from health lobbies at home.

But the real story is that Democrats are reaping the GOP buy-in they earned. Liberals wanted government to re-engineer the entire health-care system and rammed the Affordable Care Act through on a party-line vote, not stopping to wonder whether it would work. Now that implementation is proving to be harder than advertised, they're blaming the states for not making their jobs easier.

Editorial board member Joe Rago on HHS's extended deadline for states to implement health exchanges under ObamaCare and why many Republicans governors are refusing to.

The current rumpus is over ObamaCare's "exchanges," the bureaucracies that will regulate the design and sale of insurance and where 30 million people (and likely far more) will sign up for subsidized coverage. States were supposed to tell the Health and Human Services Department if they were going to set up and run an exchange by October, but HHS delayed the deadline to November, and then again at the 11th hour to December.

Sixteen states have already said they won't participate. Another 11 are undecided, while only 17 have committed to doing the work on their own. Six have opted for a "hybrid" federal-state model. That means HHS will probably be responsible for fallback federal exchanges in full or in part in as many as 25 or 30 states.

The opposition isn't so much political as practical. Or rather, the vast logistical and technical undertaking to build an exchange helps explain why so many Governors resisted ObamaCare in the first place.

States have regulated the small business and individual insurance markets for decades (some well, others less so). Now they're supposed to toss everything out for a complex Washington rewrite, which is still being rewritten. The exchanges will also help enforce the individual mandate and premium increases. They'll also have to spend a ton of money. Ohio estimates it will cost $63 million to set up an exchange and $43 million to run annually, based on a KPMG study.

Getty Images Health and Human Services Secretary Kathleen Sebelius

Most spending will go to information technology, in an era when many states still run Medicaid using paper forms and pneumatic tubes. These systems are supposed to allow consumers to review health plans online (or in person and by mail and fax), pick one and then ping HHS and the Internal Revenue Service to determine who is eligible for what subsidies. Private businesses spend years developing and refining such consumer software. States need to fund call centers to field queries and even hire "navigators" to actively encourage people to enroll.

The main problem is that states are being conscripted as federal contractors. HHS has declined to reveal basic operational details except to make clear that state-based exchanges won't really be run by the states. "No matter which option is chosen," as Scott Walker put it, "Wisconsin taxpayers will not have meaningful control over the health-care policies and services sold to Wisconsin residents."

So if things don't work voters will blame the Governors for decisions made in Washington. And when it turns out that ObamaCare's costs are underestimated and its benefits exaggerated, they'll have enabled an entitlement that many of their constituents oppose. The wonder is that any GOP leaders—ahem, Chris Christie and Rick Scott—are still playing Hamlet.

Partly that may be due to the insurance and provider lobbies, especially the hospitals. They're furious that states might spoil the deals they cut with the White House and frantic for new revenue, which will only flow with the subsidies. (Note that health industry stocks rallied on President Obama's re-election.) They're also generally more powerful at the local level and favor state-run exchanges as easier to manipulate. But Governors who give in are setting themselves up as political fall guys, just as the insurers will be when premiums inevitably spike.

We suggested at first that states could try to spin straw into gold, ignore HHS and try to adopt a marginally less destructive approach. One state that tried is Utah, which built an impartial insurance clearinghouse in 2009 based on "defined contribution, consumer choice, and free markets," as Governor Gary Herbert put it in a November letter to HHS.

Now he's asking Washington to accept "Utah's version of a health insurance exchange," even though it clearly does not comply with Affordable Care Act provisions. HHS claims it is trying to be flexible, so this will be a useful test.

But the main reason HHS and ObamaCare partisans are trashing the state hold-outs is that the federal government isn't any better equipped to make the plan a success. HHS's reputation as one of the most dysfunctional agencies is notorious. To take one example, an ObamaCare-mandated update to a major computer network called the System for Electronic Rate and Form Filing, which governs insurance approvals, has been delayed by months.

HHS's bandwidth is likely to be fried and its personnel overloaded by the workload of 25 exchanges or even 16. And the effort will be complicated by the serious legal questions and eventual lawsuits about the statutory authority of a federal exchange to dispense subsidies at all.

The Affordable Care Act barely passed and then barely survived Supreme Court review and the 2012 election. Now the entitlement is hurtling toward a truth-in-advertising moment and liberals are terrified that it won't produce the results they promised. That was always likely given the central planning architecture of ObamaCare, but now the likes of Mr. Walker are declining to do their work for them and depriving them of scapegoats.

The day after ObamaCare passed, we invoked the "Pottery Barn" rule that Colin Powell once applied to Iraq: You break it, you own it. Washington is about to break it, and the states are saying they won't be accomplices.

Printed in The Wall Street Journal, page 16 A version of this article appeared November 28, 2012, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: Hope and Exchange.

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