Ian Morrison

I love California because it has the wine of France, the food of Italy, the weather of Spain, the golf of Scotland and the diversity of Beirut.

We are different in California. We have the greatest self-perpetuating, diversified regional economy in the world, which will never be broken. You bet against Palo Alto real estate at your peril.

Our health care system is also the center of attention these days. Let’s take a look why.

Context: The California Economy

The California economy is brilliant, relentless, democratic and cruel. It creates three types of jobs: (1) gazillionaires, (2) the marginally employed without health insurance and (3) union workers in health care and the public sector. Sure, when construction peaks and times are good, there are well-compensated plumbers and carpenters and a lot of marginally educated folk making money in real estate. But like the global economy in general, the basic thrust is that some people make a lot of money and most people don’t.

It is an Apple economy. On the back of an Apple iPad it says all you need to know about the future of the global economy in incredibly small writing: “Designed by Apple in California. Assembled in China.”

A very small number of people with good taste (and engineering skills) in Cupertino add all the value to Apple. True: There are tens of thousands of people who make $12 an hour working in an Apple Store, but frankly, they would work for nothing. Have you been to an Apple store? The workers are like the Moonies.

I have lived in Menlo Park, Calif. (ground zero of venture capital), since 1985. Most of my friends and neighbors are in the business of the new economy. My friend Arthur is a socialist and a serial entrepreneur who has used his software genius to redefine industries. He is an unabashed liberal, but his starting point in entrepreneurship is “Get rid of the people.” Especially highly paid people with health insurance. Arthur is not mean. He is kind by nature. Unintentionally, he is simply targeting waste: marginally useful employees with very expensive health care benefits who cannot possibly deliver the productivity improvement that great software can. Arthur is hot in Silicon Valley.

Perhaps to stem the tide against this economic Darwinism, the public sector and health care unions try to protect their members against the massive forces of income polarization, even if it ends up being expensive and inefficient for everyone as taxpayers.

So, the rich liberal software executives suck it up and write checks to stay here and it all works out and we balance the budget (eventually).

That is the California economy. That’s how we roll.

 

The California Health Care System

If you want deep detail on California health care there are lots of great resources. In particular, I have served on the board of the California Healthcare Foundation (www.chcf.org) for nearly a decade. CHCF is an invaluable resource on all dimensions of the California health care system. In particular, CHCF’s California Health Care Almanac is an ongoing compendium of studies and issue briefs that describe and inform the California health care landscape.

In addition, over the last two years, I had the honor of moderating the Berkeley Forum on Improving California’s Healthcare Delivery System for Stephen Shortell, dean of the School of Public Health at Berkeley, who chaired the forum. Steve brought together a fantastic group of health care CEOs and public sector leaders to develop a vision for California, given the state’s special circumstances. You should read the report in full here.

The Berkeley forum documented what makes us different in California: demographics (more diverse than most); unique delivery system structures such as Kaiser and the capitated-delegated model; the scale of our uninsured (nearly 7 million); and the Medicaid coverage challenge (we call it MediCal), where we reimburse providers at a very low level compared with most states.

In a nutshell, the forum envisioned significant expansion of coordinated and integrated care models to an even wider group of patients. Specifically, the forum endorsed two major goals for California to achieve by 2022: (1) reducing the share of health care expenditures paid for via fee for service from the current 78 percent to 50 percent; and (2) doubling, from 29 percent to 60 percent, the share of the state’s population receiving care via fully or highly integrated care systems. The forum also called for widespread physical activity efforts at one end of the health continuum, and reformed end-of-life care on the other.

Similarly, Governor Jerry Brown’s Let’s Get Healthy California Task Force, co-chaired by Dr. Don Berwick and State Secretary Diana Dooley, has expanded the state’s focus on the health of California from birth to death. Many great initiatives will flow from this work.

But the big reason most people across the country look to California these days is curiosity about our health insurance exchange and our unique delivery system’s response to it.

Covered California

California’s health insurance exchange (or marketplace, as we are supposed to call it now) is Covered California. It was enabled by state legislation in the wake of the passage of the Affordable Care Act under Governor Arnold Schwarzenegger’s leadership, and it has been early and aggressive in implementing its mandate; it is one of only six states that is an active purchaser state (among an even smaller number that actually behaves as an active purchaser).

On May 23, Covered California unveiled the plan participants and insurance prices for participants in the exchange in each of the 19 regions of the state. Covered California Executive Director Peter Lee described it as a “home run for consumers.” He has much to be proud of, and here’s my take on where we are:

Affordability is better than expected for the average consumer. Many doomsayers and a lot of actuaries were predicting horrendously high rates. Yet, Covered California has delivered rates on average around $300 per month, which is very favorable compared with the $450-plus average anticipated premiums in many other states.

With subsidies, these rates are very attractive to lower income folk and young people. Many worry (including a lot of people at the White House) that young healthy people will not sign up for insurance in the exchange and, instead, the older, sicker, pre-existing condition crowd will be hitting the send button on the stroke of midnight Oct. 1 when enrollment opens. That remains a real concern in California and across the country. But the combination of low rates and generous federal subsidies for lower income people means the true cost of a silver plan (a 70 percent actuarial value) is extremely inexpensive for low-income folk.

For example, in region 16, south Los Angeles, a 40-year-old individual at 150 percent of the federal poverty level (or $17,000 per year in income) has a choice of seven plans he could purchase, including the most affordable Health Net HMO for $40 per month, Blue Shield PPO for $86, or the most expensive Kaiser HMO for $123 per month. (Each plan has a federal subsidy of $202 per month attached to it.) We will find out

if $40 a month is cheap enough. It might well be.

We must understand what’s under the hood of these plans. While Covered California avoided horrible sticker shock, we don’t know if it has avoided network shock. The precise details of the networks underneath these plans have not been made public. (Presumably consumers will know on open enrollment Oct. 1, if not earlier, which doctors and hospitals are in which networks.) But independent observers speculate that most of the plans are pretty narrow networks. For example, it has been reported in the press that Cedars-Sinai, a prominent west Los Angeles health care system, is not included in any network, and competing academic medical center UCLA Health System is in only one (Anthem).

Observers also believe that Federally Qualified Health Centers such as Alta-Med are prominent parts of these skinny networks, which sets up an interesting situation for the uninsured who visit these clinics today. Will they be better off with insurance? Or will they simply be paying premiums, co-pays and deductibles for the same providers they saw when they were uninsured for a more limited financial contribution? Much of the word-of-mouth success of Covered California will depend on this precise experience of care for the previously uninsured.

Latino experience. In California 46 percent of the exchange-eligible population are Latino; nationally about a third of the uninsured are Latino. How Covered California reaches out and engages Latino consumers will be critical to the success of Covered California and will have massive national halo and ripple effects through Spanish-speaking media. Bear in mind that half of the uninsured 18- to 34-year-olds in the country are in just three states: California, Texas and Florida, and they all have huge proportions of Latinos in the key younger cohorts.

Molina. On this point, watch Molina Healthcare. It is a Long Beach–based health plan that was created by an enterprising Latino physician who saw an opportunity to serve Latino and other lower-income consumers through Medicaid plans. Molina is participating in five of the Covered California regions and has applied to be an offering in the federal exchange in Florida (and presumably in other states where they have managed Medicaid operations). Molina and other plans that had their roots in Medicaid may be the winners in this expansion market, just as was the case in the Massachusetts Connector.

Smokers aren’t to be discriminated against … say it ain’t so. In a weird twist that sounds like a headline from The Onion (the satirical website), California legislators opted not to impose the ACA provisions that allow the exchange to charge smokers an additional 50 percent in premium. Who was behind it? Public health and mental health advocates argued that such provisions discriminated against low-income people and the mentally ill (who are disproportionately smokers) and it would discourage them from enrolling. Seriously?

 

A Big Test for California…What Will It Mean?

Look, our experience is not necessarily generalizable to other states, for all the reasons we have described: Our economy, demographics, politics, delivery system structure and exchange characteristics are all quite different. Nevertheless, California will be a very big, visible test of Obamacare, and much will be made of the experience in wonkworld, the press and the political debate no matter if it is a triumph or a train wreck (or, even as I suspect, a wee bit of both).

Critics worry that the exchange is exacting a penalty on providers, and that it will lead to a race to the bottom on prices because of the competitive dynamics that a large new purchaser with skinny networks can bring to the market. Others argue that this is just the opening bid in a series of negotiations between purchasers and providers in a dynamic new marketplace where many new options such as direct contracting between employers and accountable care organizations will emerge on the one hand, and where public and private exchange mediated marketplaces with a more retail focus will emerge on the other. I think we will see all of those happen and will explore these options more fully in future columns. But, no matter what … watch California: We are really doing this, and we will find out soon whether it works, at least for us.

Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily.