How California Is Moving the Needle on Coverage and Costs: An Interview with Covered California Leaders

California Gov. Gavin Newsom’s new budget has infused significant funds to make health care coverage sold through its health insurance marketplace (Covered California) more affordable and has made new subsidies available to middle-income individuals earning between 400 to 600 percent of the federal poverty level (FPL).

• California’s new subsidy program assists those earning up to 600% FPL (e.g., $72,840 per year for individuals or $150,600 for a family of four in 2019).

• California estimates 922,000 individuals would be eligible for new or enhanced subsidies in 2020, and 187,000 new individuals could enroll in its marketplace.

• California is also reinstating a penalty for those who do not have health insurance.

The budget allots $429 million in 2020 to provide new subsidies and builds on current federal premium subsidies that help fund individuals earning 100 to 400 percent of FPL.

To learn more about California’s new initiative, NASHP spoke with Covered California Executive Director Peter Lee and Director of Policy Katie Ravel. They also discussed their implementation plans for the 2020 coverage year.

What prompted development of this coverage initiative?

PL: Many people have been left out of accessing coverage — especially the middle class and those who are undocumented — and our governor and legislature wanted to take concrete steps to get the state toward universal coverage. On Governor Newsom’s first day in office, he laid out his agenda, calling for the federal government to reinstate the individual mandate and expand subsidies available through the marketplaces. Meanwhile, our legislature has also been committed to building on what the Affordable Care Act (ACA) did to expand coverage.

KR: Last year, the legislature required Covered California to develop options to improve coverage affordability for low- and middle-income consumers in the state.

What was California’s approach in developing this initiative?

PL: We had four goals driving our work; decrease the number of uninsured; address affordability concerns of those who are insured; make sure what we did would be affordable for the state; and deliver options that could be implemented in the short term.

KR: To start, we wanted to build on the main levers of the ACA and ultimately move the needle on coverage and cost. We formed a workgroup inclusive of consumer advocates, insurers, providers, and legislative staff members. We provided them with education about the basics of how our programs currently work and how Covered California is structured in addition to reviewing data about current affordability challenges. We worked with economists Wesley Yin from the University of California at Los Angeles and Nicholas Tilipman from the University of Illinois at Chicago to model the impacts on coverage and cost of various affordability policies including enhanced premium and cost-sharing subsidies, reinsurance, and reinstatement of a coverage mandate.

NASHP’s 32nd Annual Health Policy Conference, Aug. 21-23, 2019 in Chicago, features several sessions that highlight recent state innovations to increase health insurance access, lower costs, and stabilize markets. Learn more and register to attend these and other sessions.

PL: We were able to prepare a good product that laid out the options and informed legislators and advocates about the pros and cons of each. From this work, they could clearly understand what an investment of additional funds would get you in terms of increased coverage and affordability. The information we gathered helped steer us away from other options like reinsurance or reducing cost sharing for marketplace plans.

KR: When it was clear that the intention was to launch a program in 2020, the most turnkey option was to increase subsidies. Ultimately, the best way to drive enrollment is to make premiums more affordable.

Why is it important to include a coverage mandate?

PL: Policymakers almost universally recognize the sensibility of the individual mandate. There is empirical evidence that a mandate has an impact on driving people to get insured. Massachusetts is one example, they have a long-standing state mandate and was the only state to see an increase in new enrollment after the federal mandate went away.

Once legislators were able to come together and recognize that lack of a mandate [and associated drops in enrollment and increases in premiums] was most hurting the middle class who do not qualify for federal subsidies, it made sense to marry those policies together; reinstitution of a mandate, with penalty funds supporting those who were at the “subsidy cliff” [400 percent of FPL, the point at which individuals no longer qualify for federal subsidies]. Sixty percent of the new enrollment we project due to these policies in 2020 will actually be motivated by the penalty. Approximately 80 percent of overall funding allotted for subsidies will go to those [earning] between 400 to 600 percent of FPL.

What other work was required to bring policymakers on board with this subsidy plan?

KR: What was most important was that we were able to produce concrete estimates of how each policy choice would impact enrollment and affordability. Data made the choices real. Legislators understood the impact they could have if these initiatives were passed. We spent a lot of time diving into the data to better understand the health care costs for Californians whose incomes are over 400 percent of FPL. It was eye opening! Some, especially those nearing Medicare eligibility, would have to pay nearly 35 percent of their premium to purchase a benchmark health insurance plan.

PL: That people have to pay tens of thousands of dollars a year in health plan premiums is unfair. People are really hurt by the federal subsidy cliff.  However, for this to work, we were talking about a lot of money, and had lot of politics to get through. These policies are complicated, and it took years of Covered California becoming a trusted part of health policy discussions to get here. It was important for us to bring awareness about what was actually doable, especially in quick-turnaround. There is no way we would be implementing as soon as 2020 if it were not for the workgroup.

Through our reports and data, we told the story of the local impact of these policies. In our workgroup report, we provided examples of hypothetical families, but presented them in a way that most policymakers could relate to — policymakers had heard from “people like them” in their communities for whom our insurance system was not working. Having that data to make things local is an important role for the state-based exchanges.

Plan year 2020 is quickly approaching.  How will Covered California be able to implement this law so quickly?

PL: A critical part of our planning was early engagement with our carriers. We engaged them to work through importation questions like: Could our systems even work with theirs to add a state subsidy? What were their deadlines to price products anticipating changes might come as soon as plan year 2020? The plans have confidence we will aggressively market these changes, and anticipate this will lead to lower rates for plan year 2020.

Also helpful is that we modeled everything off what already existed under the ACA and leveraging as many existing processes as we can. We are using the same rules for the mandate as exist under federal law and subsidies will be distributed using the same mechanics in place for advanced premium tax credits.

KR: On the technical side, there are three main buckets we’re focused on for implementation: we’ll have to make changes to our eligibility rules engine, then figure out the money flow for the subsidies, then how to reconcile the subsidies at the end of the year based on income changes. We have been coordinating regularly with our design team and carriers to develop and test new systems and processes. We’re also working closely with our state tax agency on the subsidy reconciliation piece.

PL: The partnership with the tax agency is new for us. We recognize that it is part of our collective job as agencies of the state to make sure that people are insured, so we are working hard on how we inform consumers that they have better options than to pay the penalty. Our intent is not to penalize individuals, but rather to make sure that people are insured.

How will Covered California raise awareness about these changes?

PL: We are currently doing market research on what messages will resonate best with consumers. We recognize that passage of a mandate does not necessarily mean consumers will automatically be aware of and comply with the law, so we are planning a marketing strategy to increase awareness. Rather than focus on the penalty, our ads will focus on the fact that the mandate is now the law in California and that we are making coverage even more affordable. We want to drive people to come in and shop for coverage.

What else should we know about California’s new initiative?

PL: Importantly, these proposals are just stopgaps for what California believes should be federal responsibilities [e.g., to enforce a mandate and to provide subsidies that make coverage more affordable for all]. The penalty is written so that it is in effect until the federal one is reinstated. As for the subsidies, the program is only set to run for three years. We believe this will greatly benefit Californians in the short-term, but don’t want it to be the long-term solution. In the absence of leadership from the federal government, states can step up, but ultimately the federal government needs to step in.

More details about California’s new subsidy program are available at Covered California’s board meeting presentation available here.