Congress may have rejected a public plan option for private health insurance coverage, but the California Legislature gave it new life with its passage of legislation to implement the federal health care reform laws.

The federal Affordable Care Act (ACA) requires each state to establish a health insurance Exchange by January 1, 2014. The Exchange creates a market vehicle to provide individuals and small businesses with access to affordable, standardized health insurance coverage. Payers must be approved by the Exchange in order to be certified as a qualified health plan. Recently passed state legislation, AB 1602 (John Perez, D, Los Angeles), would  allow any health plan with a Knox-Keene license to be certified.  California’s Medi-Cal managed care entities (i.e., public plans) holding Knox-Keene licenses would therefore be eligible to participate and to expand their service lines to include health plan offerings to individuals and group plan subscribers through the state Exchange.

Many stakeholders support pluralistic financing for our health care delivery system. To preserve pluralism, they argue, viable public and private payment systems must exist. They believe that the balance could be altered significantly if public financing becomes the predominant source of payments for health care services to privately-insured individuals.

Historically, in a competitive market, public and private plans rarely competed. Medicare and Medi-Cal do not directly compete with private payers, even when these programs are offered to beneficiaries through private payers. However, if government (public) plans become certified as qualified health plans in the state Exchange, they will compete with private sector health plans for private enrollees.

Health plans participating in the state Exchange will offer coverage to individuals, small groups and eventually (2017) to all groups. Currently, nearly 7 million of California’s 38.5 million residents are enrolled in Medi-Cal. Approximately 5 million Californians are Medicare beneficiaries (1.1 million Medicare beneficiaries are dual eligibles, that is, they also qualify for Medi-Cal, which is the secondary payer). The ACA expands Medicaid eligibility to 133 percent of the federal poverty level (FPL), bringing approximately 2 million more Californians into the Medi-Cal program. As a consequence, when combined with Medicare, nearly 40 percent of the state’s population will be enrolled in a governmental program. If Medi-Cal managed care plans participate in the private market, a majority of California’s population could obtain health care coverage through a governmental agency.

Should government compete with the private sector in the financing of health care in California?

Your thoughts?