Blow Up This Box Before It’s Built

Loren Kaye
President of the California Foundation for Commerce and Education

can tell when the substantive arguments run out of gas – the name-calling

happening now
in the debate over the California Health Benefit Exchange,
proposed by SB
and AB
, which would create a brand new bureaucracy with extraordinary powers
to implement a new entitlement program.

from spreading "fear-mongering falsehoods," the California Chamber of
Commerce and former state Director of Finance Michael Genest are flagging
legitimate concerns
about how this Exchange will function: its
accountability to the Legislature and the Governor, and its ability to obligate
new state spending without any recourse by elected officials.

revealing potentially new and unnecessary spending and unaccountable government
are "scare tactics," then the marketplace of ideas certainly has
been further cramped. But for you brave souls:


  • The
    legislation provides that the Exchange is "an independent entity not
    affiliated with any agency or department … governed by an executive board
    consisting of five members who are residents of California" (SB 900, Sec.
    2). It may adopt regulations without abiding by the usual rulemaking process (AB
    1602, Sec. 8(a)(6)). It may set all the salaries of its top management without
    the usual oversight from the state’s personnel agency (Sec. 7(m)). And
    its budget is exempt from the usual financial review required of all other
    state agencies (Sec. 13(a)). Together these privileges and exemptions amount to
    an agency with powers unto itself, answerable only to itself, with the
    exception that it must occasionally furnish a report to the Legislature (Sec.
    7(q)). California could create a Health Exchange – yet still make it
    accountable with the same rules required of other state agencies.
  • Federal
    law and this legislation require the Exchange to determine whether an
    individual is eligible for Medi-Cal, Healthy Families, or other state or local
    health programs and, if so, to "enroll that individual in the program"
    (AB 1602, Sec. 6(f)). But because the Exchange is "not affiliated with
    any agency or department," this means it does not share the resources
    – or mission – of the state’s aggressive anti-fraud
    activities. Indeed, all the incentives for the Exchange are to enroll new
    persons into these programs, and the incentives for persons who must now
    purchase health care are to lowball their income in order to gain subsidies.
    The separation of the Exchange from the state’s anti-fraud programs
    creates enormous potential for mushrooming public programs without normal
    accountability systems. It does not have to be this way.
  • The
    central finding by Mr. Genest is that the authority of the Exchange to
    determine "the extent and scope of coverage" (AB 1602, Sec. 7(g)) for
    enrollees could expose the state to massive new costs. Federal law requires
    states to pick up the premium costs of any benefits that the state requires in
    excess of the "essential health benefits" mandated by the feds. But
    in these measures, the Legislature chose to not prevent the Exchange from
    requiring extra benefits, thereby opening up the state Treasury to potential
    new costs to support the new health care entitlement.
  • Some argue
    that the Exchange would harness the "power of the private market." Well,
    not exactly. The measures give the Exchange complete authority over how many
    health plans may compete in this new marketplace (AB 1602, Sec. 8(c)). There is
    no requirement that the Exchange allow all or even most qualified plans to
    compete for this market.

state-run health Exchange may be in the best interests of California, but the
agency cobbled together by SB 900 and AB 1602 is certainly not the right
direction. It is bad governance larded with unintended consequences like potentially
wasteful of scarce taxpayer dollars. The Governor should blow up this box
before it’s built.


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