Counties consider public option as part of healthcare reform

California continues the arduous work of building a healthcare exchange, but some counties have already made decisions that rule out the options provided by healthcare reform legislation.

The Orange County Board of Supervisors was quick to forbid the public option allowed by a California law passed late last year. Other counties, including Santa Barbara and San Francisco, are still weighing their choices and considering offering a public option to compete with private insurers on the exchange.

This article is one in an occasional series on healthcare reform in California. For a complete archive of the articles, click here.


California is one of 13 states to receive part of $138 million in grant funds given by the Department of Health and Human Services to establish state health benefits exchanges in advance of federal requirements. The state will also be the first to establish an exchange.

Health insurance exchanges are state-run marketplaces, where qualifying individuals can buy policies at prices within reach. The California Health Benefits Exchange law, AB 1602, allows public health care agencies to join the exchange.

Under the exchange, private insurers offer subsidized health policies for those who don’t have employee-sponsored insurance and can’t afford regular premiums.

AB 1602 would have left Orange County’s program that administers Medi-Cal, CalOptima, at liberty to sell insurance commercially on the open market in addition to administering Medi-Cal. CalOptima, in other words, would have been able to offer a public option for health insurance to people who are not eligible for Medi-Cal.

That option was closed when the all-Republican Board of Supervisors voted unanimously in May to preclude a public option in Orange County.

“I do not believe that allowing a government funded entity like CalOptima to compete openly with the commercial market is an appropriate use of taxpayer dollars and neither do my constituents,” said Supervisor Patricia Bates. “To compete with the private market for new clients outside of their traditional client base is contrary to their core mission.”

Between federal and state funds, CalOptima receives over $1 billion per year to fund its health plans, said Yunkyung Kim, CalOptima’s Director of Government Affairs.

Anthony Wright, Executive Director of health care consumer advocacy group Health Access, wonders why the Board made the decision against a public option so quickly.

“What doesn’t make policy sense is why the Board of Supervisors would take it upon themselves to take this away from people,” Wright said.

The Board of Supervisors contends that their unique situation made the public option a poor choice for the county. Unlike areas like neighboring Los Angeles, Orange County has no publicly funded hospitals.

Adding a public option could have driven reimbursement rates to new lows, said Bates.

The problem is compounded by a new influx of Medi-Cal participants expected as the Affordable Care Act goes into effect – 145,000 additional participants are expected in Orange County, said Julie Puentes, Regional Vice President of the Hospital Association of Southern California.

Area hospitals already provide Medi-Cal services at a considerable loss, she said.

Allowing CalOptima to compete with private insurance by offering low cost policies in addition to those they provide for the indigent population would dilute the reimbursement levels at Orange County hospitals, Puentes said. Reimbursements could get low enough to prevent hospitals from recouping costs.

The potential result is a loss of physicians who would go elsewhere, according to Bates, leading to a shutdown of area hospitals.

Bob Freeman, Chief Executive of CenCal Health, Santa Barbara County’s publicly funded health care plan, questions that logic. He is waiting on a cost-benefit analysis to see if joining the exchange as a public option would benefit CenCal’s target population.

The Affordable Care Act will bring an influx of additional Medi-Cal recipients, but those are people who currently are uninsured, and getting them insured will mean more, not less, money for hospitals and doctors, according to Wright.

“These are patients that will have dollars attached to them now that they didn’t have before,” Wright said.

The issue of lowering the reimbursement pool by allowing CenCal to be part of the exchange isn’t an issue, Freeman said.

“I think it’s a misconception,” he said. “If we go into the exchange, it would be negotiated.”

“Sometimes the only thing people can do when they don’t have the answers are fill in the blanks with the most negative scenario,” Freeman said, “but the truth is that we would have the ability to negotiate the rates.”

Hospitals, he added, can negotiate reimbursement rates.

The state health benefits exchange, which plans to take applications starting fall of 2013 for coverage beginning in January 2014, is currently under development. This includes negotiation of reimbursement rates with the approved providers, said California Health and Human Services spokeswoman Marta Bortner.

“The assumption that on the exchange CalOptima would be operating at the exact same rates is not reasonable,” Wright said. “It would be a negotiation. Presumably that negotiation would yield somewhere above managed care rates, but not as high as the other private insurers.”

It’s odd that Orange County took away a public option before any of the numbers had been crunched, Wright said, rather than waiting to see what kind of rates could be negotiated with the state health benefits exchange.

“There are business reasons why a county-run plan would want to join or not, but that should be up to clear-headed analysis of whether it works or not, not a political decision,” Wright said.

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