Everything you need to know about the Affordable Care Act in California

To Kim Belshé sometimes it seems as if she has been trying to overhaul California’s health-care system for most of her life. Next year, she might finally see those efforts succeed.

As a young Harvard University graduate, Belshé worked for former Gov. Pete Wilson in the 1990s, and the pair tried to instill an ethos of prevention into the state’s sprawling, taxpayer-supported health-care programs. Spend a little more up front to keep people healthy, they reasoned, and the state could save billions down the road. That tack was unusual for a Republican, and Wilson had some success with it. But it was never enough to fundamentally transform such a massive system.

Fifteen years later, Belshé helped lead an even more ambitious reform for another Republican governor, Arnold Schwarzenegger. Modeled after a Massachusetts plan signed into law by Gov. Mitt Romney, Schwarzenegger’s proposal would have required everyone to have insurance, required employers to provide it, and slapped strict new regulations on insurance companies. The bill passed the state Assembly but died in the Senate amid personal and partisan backbiting.

Now, Belshé is near the helm of another huge undertaking as a member of the California board that will implement much of the Affordable Care Act, President Barack Obama’s top-to-bottom transformation of the nation’s health-insurance system. In October, that agency, known as Covered California, will begin selling subsidized insurance policies to millions of Californians who don’t get affordable coverage through their employer.

And the success or the failure of the initiative might well rise or fall on a question that Belshé has been pursuing for a decade: Can the government, working with community groups and civic institutions, instill a “culture of coverage” in society so that everyone expects to have health insurance and buys it, even if they are young, healthy and figure that they probably won’t need the coverage?

“In my mind, the ’culture of coverage’ reflects this guiding principle of shared responsibility,” Belshé said, “this idea that in order to make meaningful progress, it requires something of all of us.”

That sums up the central idea at the heart of “Obamacare,” as the law is widely known. Everyone will be required to buy insurance, and if they can’t afford it, they will get tax credits to make it cheaper or will be eligible for free care from the state. Large employers will be required to offer affordable coverage to their full-time employees, or else pay a fine. Taxpayers will pay more to finance the subsidies for those who can’t afford coverage. And insurance companies will have to play by a new set of rules that will control almost everything they do.

“The Affordable Care Act is transformative,” said Anthony Wright, executive director of Health Access California, a statewide health-care consumer advocacy group. “It’s the biggest thing Congress has ever done in health care.”

It is also arguably the most controversial thing Congress has done in any area of public policy in at least a generation.

While the ACA is sprawling and, at times, maddeningly complex, it is easier to understand if you think of it as doing three basic things:

It will expand free public health insurance to more than a million low-income Californians, mostly childless adults, who until now have had little or no access to health care.

It will offer subsidized coverage to those who can’t get affordable policies elsewhere in a new, simplified online marketplace designed to allow consumers to compare coverage on an apples-to-apples basis with no hidden trap doors.

It will completely change the way insurance companies operate. Instead of spending their time and resources weeding out risky customers, insurers will now be forced to compete on price and customer service. And while their rates won’t be regulated—yet—almost everything else they do will be, turning the industry into something almost resembling a public utility.

There is much, much more, but almost everything the law does is built around one of those three goals.

The Supreme Court, in its controversial decision upholding Obama’s health-care law, also ruled that states could opt out of expanding their public-health programs for the poor, which was a key part. Many states with Republican governors have since decided not to expand those programs, even though the federal government is promising to pay most of the cost.

But California’s Legislature and two governors—first Schwarzenegger and now Jerry Brown—have embraced the law with enthusiasm and implemented it aggressively. That’s given California a head start that many other states have lacked.

A big example was the early creation of a new public program run by the counties for low-income people who did not qualify for Medi-Cal. This change provided coverage to more than 700,000 people, and now, most of them—and many more—will be rolled into the Medi-Cal program beginning on January 1, 2014. By the time the change is fully implemented, California could have 9 million people in Medi-Cal, or nearly one in every four residents of the state.

The federal government paid for the early expansion, and it will pay for 100 percent of the cost of the newly expanded Medi-Cal program for the first three years. By 2020, the state expects Californians to be receiving about $6 billion worth of additional care a year, at a cost to state taxpayers of $600 million.

The expansion will open Medi-Cal’s rolls to anyone with an income below 138 percent of the federal poverty level, or about $16,000 for an individual and $32,500 for a family of four. Low-income people with no children will be eligible for free care for the first time.

Thanks to the Bridge to Reform, the early adopter program run by the counties, the Medi-Cal expansion figures to be the simplest of the various parts of the Affordable Care Act to implement here. In most counties, the infrastructure is already in place and for many patients, it will just be a matter of transferring their enrollment from one public program to another.

But there will be challenges. The biggest might be finding enough doctors to care for all the new patients, since many physicians refuse to take Medi-Cal patients because the reimbursement is so low.

“In the short term, I would not be surprised if people have trouble getting to health care, a physician or another provider,” said Assemblyman Richard Pan, a Democrat from Sacramento and a practicing pediatrician. “There will probably be backups and waits and so forth.”

But Pan said he thinks the backlogs will clear once the surge of new patients settles in and people get treatment for problems they have been neglecting because they could not afford to pay for care.

Beginning January 1, nearly every Californian will be required to have health insurance, or else pay a penalty on their taxes. But many of those who do not get insurance at work and are not eligible for Medi-Cal will be able to get subsidies from the federal government to make their coverage more affordable.

The subsidies, in the form of tax credits paid in advance on the consumer’s behalf directly to an insurance company, will be available through Covered California. This new online marketplace managed by the state has contracted with 13 health insurers to offer coverage in 19 regions around the state.

Every plan will offer the same 10 essential benefits: coverage that will be, in most cases, more comprehensive than is generally available today.

And the plans will be classified into four categories—platinum, gold, silver and bronze—depending on how much of the cost of care is covered by the insurance company.

“Consumers will be able to make apples-to-apples decisions that they have not been able to make in the past,” said Peter Lee, executive director of Covered California. “We are changing the focus of health insurance from being a shell game, hiding from consumers what’s covered and not covered … to providing the best care possible to [help consumers] stay healthy and get care when they need it.”

The platinum plans will have the highest monthly premiums, and they will cover 90 percent of the cost of a consumer’s care. The cheapest plans will be bronze, but they will cover only 60 percent of the cost of a person’s care. Within each category, all the plan details will be identical. The insurance companies will compete by trying to offer better networks of doctors and hospitals and better service.

A crucial change: Consumers will be able to choose any of these plans regardless of their health history. They can’t be denied coverage or charged more if they have been sick. Rates will vary based on geography to reflect the cost of care in different parts of the state. And older people will have to pay more than younger people, though they cannot be charged more than three times as much for the same plan. Today, it is common for older people to pay five times more than younger people, if they can get coverage at all.

As an example, a 32-year-old single person living in Sacramento County with an annual income of $30,000 a year will have choices ranging from $197 a month to $445 a month, after taking the subsidies into account.

A couple in their 40s earning $50,000 would pay between $215 and $776 a month, depending on what level of reimbursement they wanted the insurance to provide.

A crucial question is whether healthy people will enroll or pay the penalty, which in many cases, will be far less expensive than the monthly premiums. If too many healthy people opt out, the system will be top-heavy with sicker patients that are more expensive cases. That could force insurers to increase rates in the second year, leading even more healthy people to leave the system and starting a spiral from which the program might not be able to recover.

Critics point out that the law’s provisions, by putting everyone into one big insurance pool, will increase costs on the young and the healthy, while making insurance more accessible to older people and the sick. The tax-credit subsidies available to low-income people will relieve part of that cost shift for many young, healthy people, but not for all of them.

To overcome potential resistance, Covered California is planning a massive media blitz in the coming weeks to promote the new insurance exchange. The agency will spend millions while enlisting celebrities, churches, community groups and civic organizations to encourage people to enroll.

The biggest target will be young adults, dubbed “young invincibles,” because of their tendency to think they won’t get sick and need health care.

That’s where the “culture of coverage” Belshé envisions becomes important. She and others involved in implementing the ACA hope to see a new paradigm in which everyone who comes of age just assumes they will get coverage one way or another, on their own or, if they need it, with help from the government.

“For this to be successful, it requires a community norm in which insurance is valued, expected and accessible,” she said.

Another big question for the law is how employers will react. America’s health-insurance system is built around the concept of employers providing coverage for their workers, but that custom evolved by accident. The method got its start during World War II, when wage controls forced employers to try other ways to compete for labor. One solution: They started paying for health benefits as a substitute for higher wages.

Many economists and health-care experts question whether this is the smartest way to pay for health care, but the Affordable Care Act builds on the tradition by requiring employers of 50 or more full-time workers to provide coverage or pay a penalty. But just like the individual mandate, the penalties on employers will likely be less expensive than the cost of providing coverage, so some employers may opt to not offer benefits and send their workers into the health exchange. Obama waived the fines altogether for the first year of the program, which might make it even easier for companies to stop providing benefits to their employees.

One major example of that trend surfaced this month: Trader Joe’s, the popular supermarket chain, told employees that the firm will no longer provide coverage to its part-time workers. Instead, it will give them a stipend of $500 a year to use toward buying coverage in the health exchange. Because most of those workers are low-income earners, they might be better off with this deal once they collect the subsidies offered by the federal government. But the change will be disruptive, and if it is repeated throughout the workforce, it could drive the cost of those subsidies far higher than the Obama administration or Congress anticipated.

Meanwhile, the rule requiring insurance companies to sell to anyone regardless of their health history—and not charge them more—is just one of many major changes the ACA will make to the way the industry does business.

The law has already forced insurers to phase out their caps on annual and lifetime reimbursements—limits on coverage that once forced seriously ill people to give up their benefits just when they needed them most.

The companies have also had to let young adults remain on their parents’ policies until age 26, even if they were married with families of their own. That rule change has helped an estimated 400,000 young Californians get or keep insurance coverage.

The new law will also set strict new rules on how insurance companies spend the money they collect from consumers. They will have to spend at least 80 percent of the premiums they collect on medical care, leaving no more than 20 percent for administration, marketing and profits. If they exceed that threshold, they will have to issue rebates to their customers.

And while insurance companies’ rates won’t be regulated directly, they will have to give public notice of any rate hikes and seek to justify them with data showing why the increases are necessary. State regulators will issue a public notice declaring whether the increases are justified or not. The scrutiny is expected to pressure insurance companies to minimize their price increases.

If it doesn’t work, consumer advocates have a backup plan: A measure has already qualified for California’s November 2014 ballot that would subject health-insurance rates to direct regulation by the state.

While the Affordable Care Act is supposed to provide nearly universal health coverage, 3 million to 4 million Californians will likely be left behind.

Many of these will be people who have immigranted here illegally, who will be excluded by law from buying coverage in the exchange, even with their own money. Others will be people exempted from the insurance mandate because the cost of coverage exceeds 8 percent of their income, people who opt out and pay the fines, and people who are simply disconnected from civic society and aren’t reached or persuaded by the marketing campaign.

For these people, the counties will maintain a scaled-back safety net that will be the health-care provider of last resort. But because many of the people the counties have been caring for will now have insurance, the state wants to reduce the amount it has been paying the counties to care for the indigent.

“On paper, you’d think there would be savings,” said David Luchini, assistant director of the Fresno County Department of Public Health.

But Luchini and other county officials say it is too early to know how much those savings will amount to. And if the state pulls back too much too soon, it could leave the safety net in shreds. This year’s state budget calls for a shift of $300 million next year from the counties to the state, of the $1.3 billion the state has been supplying for this population.

The funds will be redirected to local human-services programs, offsetting state general-fund costs in the CalWORKs welfare program.

The community clinics that undergird the health-care safety net in much of the state will also be in a bind. On the one hand, many are preparing to compete for paying patients for the first time as part of the provider networks consumers can access with insurance through Covered California. On the other hand, the clinics are likely to experience a drop in funding because they will be treating fewer uninsured patients on behalf of the counties.

“These are essential institutions that need to survive and thrive in the post-reform world,” said Wright of Health Access. “We need their capacity, both for the remaining uninsured and for the newly insured.

“It means that they, as well as the system as a whole, have to agree to do things in a different way,” Wright said.

One such institution adapting to the new environment, the Mendocino Coast Clinics, has been operating its nonprofit health center in Northern California for nearly 20 years. Based in Fort Bragg, the three clinics treat patients living along 50 miles of the remote California coastline. The clinics are the only provider in town offering a sliding-fee discount to qualifying patients, offering everything from primary care, pediatrics, reproductive health, dental and behavioral health care.

Paula Cohen, executive director of the Mendocino Coast Clinics, says while the clinics are facing a great deal of change and uncertainty under the coming health reform, they are far from becoming obsolete.

“It’s a word of caution, this is not going to be the end of any discussion for any need for safety-net providers,” Cohen said.

To address that need Assemblyman V. Manuel Pérez has called for the establishment of a trust fund paid for by employers, private donors and philanthropic organizations to provide comprehensive health-insurance coverage to workers who are not covered by the ACA or the expansion of Medi-Cal.

The California Department of Health Care Services would administer the fund, and nonprofit community health centers would apply to the trust for money to serve the number of uncovered workers coming to their clinic for the time those workers are employed by the employers contributing to the fund. The trust would serve employees of small businesses, agriculture, restaurants, sales and service industries, primarily people who don’t receive health insurance through their jobs and who can’t afford to buy it on their own.

“The ACA is historical for us,” Pérez said. “But it doesn’t go far enough.”

Sacramento’s Assemblyman Pan said he sees the Affordable Care Act as a turning point in the history of American health care.

“Is it as grand a transition as some people would prefer? No,” he said. “But the insurance reforms, combined with the expansion of coverage, provide an opportunity for the health-care community to say, ’Look, let’s see if we can do a better job taking care of people than we do now, particularly people with chronic conditions.’

“Ultimately, that is going to be the measure of success: Do we change the health-care system in a way that makes it make more sense for our population?”