Learning from California’s Experience to Build Successful Health Insurance Marketplaces

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By Micah Weinberg

For the transformation of our healthcare system toward higher quality and lower costs to be successful, we must adopt best practices pioneered in the Bay Area.  From 1993 to 2006, California had a health insurance purchasing pool for small employers much like the “SHOP Exchanges” created as a part of federal healthcare reform.  What did we learn from that experience?

A new report authored by Micah Weinberg from the Bay Area Council and Bill Kramer from the Pacific Business Group on Health concludes that California’s experience is one that should convince those who are developing SHOP Exchanges throughout the country to proceed with caution.  California’s purchasing pool ultimately failed due to “adverse selection” which caused it to have an unhealthier group of enrollees as compared to the broader market.  California’s experience demonstrates, though, that these exchanges can provide real value to a segment of the market and suggests that those setting them up can take actions that will greatly enhance their long-term viability.

The most important lessons from California’s experience are: 1) The key value proposition of SHOP Exchanges is meaningful consumer choice in which the quality of choices is as important as their quantity, 2) Adverse selection will remain a significant concern post-healthcare reform, 3) Policymakers must be vigilant and adaptable in preventing risk selection against SHOP Exchanges, 4) Participation in SHOP Exchanges must be attractive for health insurers, and 5) Successfully marketing SHOP Exchanges means building partnerships with health insurance agents and brokers.

You can access the full paper here.

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