Editorial: Covered California’s good news on premium hikes comes with trade-offs

The 2010 federal healthcare reform law made it easier for millions of Americans to obtain insurance coverage, but it didn’t stop the cost of that coverage from rising considerably faster than inflation. So it was a welcome surprise Monday when officials at Covered California, the state’s health insurance exchange, announced that the average premiums for individual policies in 2016 would be only about 4% higher than they are this year, and only about 2% higher in Los Angeles County. Mixed in with the good news for consumers, though, were some trade-offs that won’t make everyone happy. The announcement offers lessons for consumers and policymakers, not all of which are easy to stomach.

Monday’s announcement illustrates how competition among doctors and hospitals in Southern California is helping to hold down premiums. Consumers in remote or rural areas, and even in some parts of Northern California, who do not have such competitive marketplaces but are dominated by one or two hospital systems may face double-digit increases in their premiums in 2016. They can cut their costs significantly by switching insurers, but doing so may require them to find a new set of doctors — Covered California has encouraged insurers to compete by assembling different lineups of doctors and hospitals. That’s a potentially huge barrier to people with chronic conditions and those who don’t have the time or inclination to get into the details of their insurance plans.

Here’s another trade-off. Close to 90% of those insured through Covered California receive subsidies for their premiums, which makes premiums less of a problem for many than their policy’s out-of-pocket costs. To hold down those costs in 2016, the exchange is introducing a new standard “benefit design,” or common set of policy features. This design eliminates deductibles for more basic services and caps the costs of expensive prescription drugs. At the same time, though, it makes emergency services and hospitalizations more expensive, especially for those choosing the tier of coverage with the least expensive premiums. That should help many consumers, but not those in cheaper plans who are hit with a major illness or injury.

In an Op-Ed in Tuesday’s Times, Covered California Executive Director Peter V. Lee and UC Berkeley professor James C. Robinson cited one other factor in the state’s relatively low premium increases: Unlike the exchanges in most states, Covered California actively negotiates with insurers over rates and plan designs. There’s a trade-off here too: Some insurers aren’t offering plans through the exchange to consumers in all or part of the state because they didn’t meet the exchange’s demands. A good example is United Healthcare, which Covered California allowed to sell policies in just 34 mostly rural counties because it didn’t participate in the exchange’s first two years.

That’s not to give short shrift to what Covered California has been doing. In fact, the public stands to benefit even more from the exchange’s negotiating efforts in coming years as it works with insurers to offer more ways for consumers to obtain care and manage their spending, and to change the incentives in the system to produce better, more efficient care. It’s simply to acknowledge that the changes wrought by the 2010 law have yielded a market for individual policies that demands not just an active exchange but attentive consumers aware of the trade-offs implicit in their choices.

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