State-run health insurance exchanges are one of the most important developments from the federal Affordable Care Act (ACA). True to form, California was an early adopter of insurance exchanges, approving legislation in 2010. Called “Covered California,” the exchange is up-and-running with the help of federal grants and state administration support.

California has also opted in to the expansion of its Medicaid health care program for low income residents, here known as Medi-Cal. Governor Brown has proposed state participation in this effort, which will be financed mostly from federal funds, but which the Governor acknowledges could be risky to the state budget.

Cognizant of the costs and risks to ramping up a state entitlement program, the Governor admonished the Legislature about such an expansion: “Given the costs involved, great prudence should guide every step of the way.”

The Governor has also sounded a realistic note regarding the cost to consumers of implementing the Affordable Care Act. While calling for a special legislative session to ensure the Exchange is prepared to open for business, he also warned consumers of rate shock. From his budget message:

“While every effort will be made to promote affordability, large rate increases in the individual insurance market are likely at the outset (of ACA implementation), due to the requirement to offer coverage to all individuals, provide a higher level of benefits, and due to a significant increase in enrollment which will increase demand for services.”

California is one of only 14 states (plus DC) that have both set up a state exchange and opted into expansion of its Medicaid program. Another 13 states have said “no” to both a state exchange and Medicaid expansion, while the rest are either divided on the issue or have not yet made a decision.

Nonetheless, as the 2014 deadline for full implementation approaches for subsidized health care coverage, health care premiums are rising and uncertainty remains over insurance cost and availability.

One area where California is not a leader is in understanding the trajectory of insurance costs for individuals and small businesses.

Many states and state-based organizations have analyzed how the ACA will affect health insurance premiums for small groups and individuals. This is important because the Act made significant changes in rating and benefit rules, which will not only change underwriting criteria, but also market incentives for policyholders. The studies commissioned by the various states and others have predicted significant rate shock for 2014.

For the individual market, studies of nine states predicted rate increases averaging between 19% and 95%. For the small group market, studies of five states predicted much wider swings, with some groups potentially suffering increases of up to 150% and others seeing double-digit premium decreases, depending on their demographic composition.

Here is a summary of the studies to date, (average increases are shown prior to application of any premium subsidies):


Individual market

Small group market

Alaska 30% – 80% average increase 15% decrease to 25% increase
Colorado 19% average increase
Connecticut 43% average increase
Indiana 75% – 95% average increase
Maine 40% average increase 12% average increase for 89% of groups
Maryland 34% – 36% average increase
Minnesota 26% – 42% average increase
Nevada 11% – 30% average increase
Ohio 55% – 85% average increase 40% decrease to 150% increase
Oregon 27% – 55% average increase 5% decrease to 16% increase
Rhode Island 2% – 16% average increase
Wisconsin 30% average increase 15% average increase for 53% of groups


Most of these studies also concluded that premiums would rise from the richer benefits made available under the new regulations, and that hundreds of thousands of previously uninsured persons would obtain coverage.

The variability in the small group market comes from the uncertainty in predicting the number of healthy groups that would leave the market because of large rate increases – especially groups with young, healthy employees.

So far, California has not commissioned a similar study. But in light of the Governor’s caution as the health care reform rolls out in this state, as well as the cost implications to families, small businesses and the overall economy, a careful analysis of premium impacts should be prepared to inform the policy decisions of the Legislature and Covered California.

Follow Loren on Twitter: @KayeLoren