Covered California Helps Keep Premiums in Check, UC Berkeley Study Finds

Covered California enrollment fair in San Francisco's Richmond District, November 2015.  (Courtesy: Phil Ting)

Covered California's Obamacare exchange has helped consumers get a better deal on health insurance in part because of its negotiating power -- power that other Affordable Care Act marketplaces don't have -- according to a new analysis published Monday.

California is one of the few states that created an "active purchaser" exchange, where the marketplace negotiates premiums and benefits with insurers. Most other states, as well as the federal healthcare.gov, accept any plan that seeks to participate.

Researchers compared California and New York and looked at the growth in premiums in 2014 and 2015 in the face of hospital competition and health plan competition.

While less hospital competition was associated with higher premium increases in both states, the effect of reduced insurance plan competition played out differently.

In New York, less competition in insurance resulted in higher premium growth. But in California, similar "low competition" areas had a slower rise in premiums.

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Richard Scheffler, a health economist at UC Berkeley and lead author of the study, said one reason for the slower growth is California's negotiating power.

"What happens here is an exchange that's competitive, but is helped by regulation," Scheffler said, "that clears up the market in the sense that consumers can make apples-to-apples choices."

Scheffler called it "a problem" that in New York, there were so many plans available "that it became very difficult, if not impossible, for a lot of consumers to be able to make good choices."

The two states' experiences highlight a division in the two visions in running an exchange, says Anthony Wright, executive director of Health Access, an advocacy group.

"The approach of not negotiating, of just letting any insurer sell its wares, some would call it 'the free market,' " Wright said. "We call it the 'flea market' approach."

He likened Covered California to a human resources department for the "rest of us that don't work at Google."

Covered California plans all have identical benefits. The only difference between plans are price and the hospital and physician networks, making comparison straightforward.

"We create a marketplace where consumers are in the driving seat," said Covered California executive director Peter Lee. "[In] New York City, the consumers would be picking between 50 different products. What's the difference between them? Tweaks on co-insurance and insurance babble that most consumers don't understand."

"The folklore in economics is that more choice is better," economist Scheffler said. If offered too many choices in health insurance, "it becomes too much for consumers to look at and analyze and really absorb. So you're better off having a smaller number of choices to plan on and pick from."

Scheffler and his co-authors say that the Affordable Care Act marketplaces provide a "natural laboratory" to continue studying the effects of competition among hospitals and insurers.