California made history this week when it became the first state in the nation to pass legislation setting up a key component of the federal health reform law.
If signed by Governor Schwarzenegger, the bills would establish a new independent state agency that would bargain with health insurers on behalf of consumers and make it easy to compare coverage plans online.
"When there are too many choices that are too hard to compare, generally consumers give up on trying to be thoughtful about it," says Rick Curtis, president of the Institute for Health Policy Solutions, a non-partisan research group.
For comparison, think of the modern American cereal aisle, a testament to the free market and unbridled consumer choice. It seems like the cereal aisle grows taller and longer each week, and that the choices become more infinite, and more confusing.
If you're overwhelmed with cereal, try comparing health insurance plans, says Curtis.
The federal health insurance law gives states wide latitude in setting up what amounts to online health insurance stores. That latitude has created a debate about how much help states should offer to shoppers.
California lawmakers have chosen to set up a new state agency with considerable power to write the rules.
Curtis says that although the federal health reform law sets minimum benefits and caps out-of-pocket costs, the California exchange would standardize the products for consumers even more.
"It will make it easier for them to compare if it's an apples to apples comparison," said Curtis. "That they don't have to figure out if the plans from Anthem have a $50 higher deductible and a 5 percent lower cost-sharing requirement for ambulatory services, and so how do I compare these things?"
Instead, Californians could shop for plans on a website based on cost, service and quality -- knowing that the products they're comparing are essentially identical, according to Curtis and other health policy experts.
The bills passed this week would also give the independent board running the exchange broad authority to negotiate the price of the products sold in this new health insurance super-store. It's similar to the negotiating clout large employers have now, when insurance carriers want to earn their business, says Anthony Wright, head of the consumer advocacy group Health Access.
"That is not a power that individual consumers have," said Wright. "Right now, individuals are left all alone at the mercy of the insurers, but if the exchange can represent the several million Californians who will be getting covered through the exchange they will be able to negotiate a much better deal."
Wright and legislative analysts estimate some four million people, including individuals and small businesses, could get coverage through the exchange when it opens in 2014.
Not everyone is happy though.
Anthem Blue Cross, the largest provider of individual health insurance in California, strongly opposes the power given to the exchange's governing board. The company would not comment, but in a letter to state Senators, warned that consumers could end up with fewer choices.
Still, many insurers see a chance to confront rising health care costs, which they say threaten their long-term viability.
Mark Weideman is a Vice President with the non-profit carrier Blue Shield of California. He says insurers will have to disclose -- at least somewhat -- how much they're paying for medical care. That information "is going to be very helpful to consumers because I think people would be extremely surprised to realize how much we're paying hospitals, how much we're paying physicians and drug companies," says Weideman.
Weideman and some health economists suspect, or perhaps hope, that consumers might choose a lower cost hospital or physician, if they're of equally good quality. That's still a long way off though. The bills determining the future of California's insurance super-store are awaiting action on the Governor's desk.
