0. Covered California and the Individual Insurance Market: Lessons, Moving Forward and Implications for the Nation
Fifth Annual Health Insurance Exchange Conference
University of Pennsylvania
Peter V. Lee
September 15, 2017

1. Coverage Expansion Having Dramatic Effects in California
With California’s expansion of Medicaid and the creation of a state-based marketplace, the rate of the uninsured has dropped to historic lows. Almost four million new enrollees are in the Medi-Cal program and
1.3 million people are enrolled through
Covered California.
* Estimate of the first nine months of 2016 (all ages)
Source: U.S. Centers for Disease Control and Prevention’s National Health Institute Survey

2. California’s 2015 Health Care Market
Coverage Expansion Has Been Woven Into the
Fabric of Health Care in California
The Affordable Care Act has dramatically changed the health insurance landscape in California with the expansion of Medicaid, Covered California and new protections for all Californians.
California’s 2015 Health Care Market
(in millions — ages 0-64)
As of June 2016, Covered California had approximately
1.4 million members who have active health insurance. California has also enrolled nearly 4 million more into Medi-Cal.
Consumers in the individual market (off-exchange) can get identical price and benefits as Covered California enrollees.
From 2013 to 2016, the Centers for Disease Control and Prevention report cutting the rate of uninsured in half (1.5 million are ineligible for Covered California due
to immigration status). Not counting those ineligible puts California’s uninsured at
1.2 million.
Estimates based on survey data and adjusted for latest available administrative data, including:
American Communities Survey, year estimates (Table B27010)
CDC/National Health Interview Survey (2017) (
Covered California Active Member Profile (
DMHC and CDI data on enrollment in December 2015 ("AB 1083 reports") as compiled by California Health Care Foundation (
- Department of Health Care Services Medi-Cal Medi-Cal Monthly Enrollment Fast Facts (Sept 2016) (

3. California’s Take-Up Rate is Significantly Higher
California and Federal Marketplace Take-Up Rates ( )
Covered California has achieved a take-up rate among those who are subsidy-eligible that is nearly 25 percent higher than the average for Federally-facilitated Marketplace states.
As of 2016, Covered California enrolled about 79 percent of subsidy-eligible consumers compared to the average for Federally-facilitated Marketplace states (64 percent).
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

4. California Has a 20 percent Healthier Risk Mix Than Does the Federally-facilitated Marketplace
Average Risk Score Comparison Federally-facilitated Marketplace, State-Based Marketplaces (ex. CA) and California (2015 and 2016)
The Centers for Medicare and Medicaid Services (CMS) found that state-based marketplaces collectively had a healthier risk mix than the national average, which meant that health care costs in those states would be 10 percent lower than the national average.
California continued to have one of the lowest risk scores in the nation, which meant health costs would be nearly 20 percent lower based on health status than the national average.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

5. Covered California Health Plan Offerings for 2018: Broad Choice and Multiple Local Options
For full details on plans and rates, see Health Insurance Companies and Plan Rates for 2018:
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

6. Covered California Moderates Rate Changes
PLAN YEAR
4-Year Average
2015
2016
2017
2018
Weighted Average Increase
4.2%
4.0%
13.2%
12.5%
8.5%
Effective Rate Increase*
3.9%
3.6%
11.5% —
Lowest-Priced Bronze (unweighted)
4.4%
3.3%
11.8%
5.8%
Lowest-Priced Silver (unweighted)
4.8%
1.5%
8.1%
9.2%
5.9%
If a consumer switches to the lowest-priced plan in the same tier
– 4.5%
– 1.2%
+ 3.3%
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

7. Consumers Leave Covered California for Other Sources of Coverage
Covered California Health Coverage Transitions in 2016
Covered California’s experience is that 40 percent of its enrollees leave its marketplace each year, which is a natural part of the individual market. The “natural churn” means that continual outreach is needed to maintain enrollment and newly enroll people who lose job-based or parental coverage, or coverage from public programs.
Not only is churn natural, but Covered California’s survey data finds that in California the vast majority reflects consumers leaving for other coverage.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

8. Coverage Transitions in 2016: Comparing California to FFM Survey Data
While we do not have data on where consumers go when they leave other state-based marketplaces, it is very troubling that the latest data from the Centers for Medicare and Medicaid Services shows that consumers who leave the federal exchange are more than three times as likely to become uninsured as are those leaving Covered California.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

9. Comparing FFM and State-Based Marketplaces’ Retention and Special Enrollment Retention
The fact that SBMs retain 94 percent of total enrollment compared to the FFM 85 percent is a clear indication that SBMs are doing a more effective job at retaining those who get insurance and/or enrolling newly eligible individuals during the special enrollment period. 
Regardless of the reason, better retention and enrollment foster a better risk mix which translates into lower premiums.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

10. Key Ingredients To Covered California’s Success
Policy Decisions Benefited Consumers
Financial Help Makes Coverage Affordable
Competitive Markets Matter
Designed Benefits to Meet Consumer Expectations
Independence: Private-Sector Mentality and Public-Sector Accountability
Extensive Marketing and Outreach
Creating Value and Reducing Underlying Delivery System Costs

11. Covered California’s 2018 Marketing and Outreach Spend — $111 million
California’s circumstances are unique. As one of the most populous and diverse states in the country, California is truly a microcosm of our nation, with numerous large media markets surrounded by hundreds of miles of rural landscape. Nevertheless, California’s success through targeted investments in marketing and outreach provides a benchmark that may be helpful to inform strategic planning by the federal government and other states that are also working to foster stable and competitive individual markets.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

12. California Individual Market Marketing and Outreach Investments (millions), 2014-18

13. Covered California 2017 Patient-Centered Benefit Designs
In California, standard benefit designs allow apples-to-apples plan comparisons and seek to encourage utilization of the right care at the right time with many services that are not subject to a deductible. Benefits below shown in blue are not subject to a deductible.

14. Covered California is Promoting Improvements in the Delivery of Care
Covered California contract requirements to promote the triple aim of improving health, delivering better care and lowering costs for all Californians include:
Promoting innovative ways for patients to receive coordinated care, as well as
have immediate access to primary care clinicians
All Covered California enrollees (HMO and PPO) must have a primary care clinician.
Plans must promote enrollment in patient-centered medical homes and in integrated healthcare models/Accountable Care Organizations.
Reducing health disparities and promoting health equity
Plans must "track, trend and improve" care across racial/ethnic populations and gender with a specific focus on diabetes, asthma, hypertension and depression.
Changing payment to move from volume to value
Plans must adopt and expand payment strategies that make a business case for physicians and hospitals.
Assuring high-quality contracted networks
Covered California requires plans to select networks on cost and quality and in future years,
will require exclusion of "high cost" and "low quality" outliers — allowing health insurance companies to keep outlier providers, but detailing plans for improvement.
Note: for detailed information about improvements in the delivery of care, Covered California requires health insurance companies to abide by Attachment 7 of the model contract. To view Attachment 7, go to
Covered California Board presentation slides on Attachment 7:

15. Strategies to Strengthen and Stabilize the Individual Market
Covered California joined with the eleven other state-based marketplaces to offer several strategies to immediately help strengthen and stabilize the individual market. These include:
Guarantee consistent funding of cost- sharing reduction payments.
Establish a permanent, federal reinsurance program.
Maintain flexibility over the use of waivers.
Promote stability through a commitment to certainty and long-term solutions.
The letter to Honorable Lamar Alexander and Honorable Patty Murray is available at:
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

16. Covered California Is Taking Steps To Support California’s Individual Market
Steps include:
Loading the CSR-surcharge to Silver-tiered products. (See Covered California: Stability in the Face of Uncertainty starting on page 5, in Covered California’s Health Insurance Companies and Plan Rates for 2018 —
Adopted new contract language which states that if a health plan incurs unanticipated losses in 2018 due to changes in existing federal policies or other uncertainties the health plan will be able to request a recoupment of those losses over a three-year period (plan years 2019 to 2021). Also, if a health plan experiences unanticipated profits due to changes in existing federal policies, they will factor those profits into their rates over the next one to three plan years.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

17. Modeling Based on Best Evidence: If the Federal Government Spent at the Same Rate as Covered California
If the federal government were to spend the same percentage of premium on marketing as does Covered California, it would be spending more than $480 million per year. That amount is ten times the amount recently announced by CMS.
Covered California Marketing and Outreach as 1.4% of Premium
“What If” Scenario: FFM Spends 1.4% on Marketing and Outreach
Premium
$7.8 billion
$34.3 billion
Plan Assessments
$314.4 million
$1.2 billion
Marketing and Outreach Spend
$111.5 million
$480 million
Investing in marketing and outreach could result in:
Premium savings of $5.9 billion over 3 years.
2.1 million more Americans with insurance.
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

18. Modeling Based on Best Evidence: If Federal Government Decreased Spending to $47 Million
If CMS reduces marketing and outreach to $47 million, the potential impacts would likely be:
1 million fewer Americans enrolled in health insurance.
Premiums for the 2019 plan year would be on average 2.6 percent more.
Baseline (Projected with Marketing Spend)
Reduced (Projected Based on Announced Spending)
Difference (Impact)
Enrollment
On-Exchange Subsidized
6,622,133
5,959,920
– 662,213
On- and Off-Exchange Unsubsidized
3,773,076
3,395,768
– 377,308
Total
10,395,209
9,355,688
– 1,039,521
See “Marketing Matters: Lessons From California to Promote Stability and Lower Costs in National and State Individual Insurance Markets”:

19. Disruptive Innovation: Lessons From the Individual Market for Large Employers (Beware Your “Responsive” National Plan
As incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more suitable functionality – frequently at a lower prices. Incumbents, chasing higher profitability in more demanding segments, tend not to respond vigorously. Entrants then more up market, delivering the performance that incumbents’ mainstream customer require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.
What Is Disruptive Innovation, Clay Christensen, Harvard Business Review, Dec. 2015
Successful Plans in the Individual Marketplaces
Big Name Plans that Tried the Individual Market…Failed…and Retrenched
Blue Shield of California (and SOME other BC/BS Plans)
Centene/HealthNet
Kaiser
Molina
Regional Plans: Sharp, WHA, etc.
Aetna
Anthem (?) (and SOME others BC/BS plans)
Cigna
Humana
United

20. Annual Premium Savings
Covered California’s Strategies as Disruptive Innovation for Large Employers
Covered California’s Strategies with Potentially “Disruptive” Value Propositions
Annual Premium Savings
Compared to “Standard” Large Employer Carrier – United, Aetna, Cigna, TPAs
1. Narrower Networks/Better Rates
30% to 45%
2. Exclusion of “Pricing Bandits” (e.g., Stanford, Cedars, Sutter)
5% to 10%
3. Alternative Payment Methods (APMs) (e.g., ACOs, PCMH, aggressive moves to risk-based payment, episoides)
0 to 10%
4. Benefit Design (Covered California Actuarial Value of 77% -- WITH income-based designs providing 94% to lower income; compared to average PBGH 85% AV)
5 to 10%
Total Potential Savings
40% ++
Note – strategies are complementary and overlapping

21. Information for consumers CoveredCA.com
Information on exchange-related activities
hbex.CoveredCA.com