Ready for Reform? Health Insurance Regulation in California Under the ACA

Health reform offers chance to reexamine the state's bifurcated health insurance regulation

California’s dual health insurance regulatory structure has evolved over decades based on policy, political, and marketplace dynamics. Oversight of health coverage is divided between the California Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), which have unique statutory histories, administrative structures, and legal frameworks.

This dual structure contributes to consumer confusion, government and insurance carrier administrative burdens, and difficulty in monitoring what is being bought and sold in the insurance marketplace.

As part of its expansion and transformation of health coverage, the federal Affordable Care Act (ACA) enacts sweeping changes to the way health care services are purchased, delivered, and regulated. It seeks to reshape health insurance markets and establishes new federal rules for coverage, competition, and service delivery. The ACA, and the implementation tasks facing California, provide an opportunity to reexamine how California regulates health coverage.

A new report, Ready for Reform? Health Insurance Regulation in California Under the ACA, prepared for the California HealthCare Foundation (CHCF) by Kelch Associates, informs a discussion about health insurance regulation in California and the policies, structures, and new responsibilities needed to implement the ACA.

“There are few defenders of the existing complex and duplicative regulatory environment in California,” said Mark D. Smith, M.D., M.B.A., CHCF president and CEO. “This has been a problem for the state for some time — there has been confusion for consumers, cost inefficiencies, and a lack of clarity for the industry. The magnitude of the changes that will be required under ACA implementation provide a chance to address many of these issues.”

Marian Mulkey, director of CHCF’s Health Reform and Public Programs Initiative, added, “The obstacles for consumers and market observers presented by having two state agencies regulating health insurance have been apparent for years.” Insurance products now regulated by the two agencies are no longer as distinct as they once were, Mulkey noted. “The ACA imposes new requirements with the potential to further narrow the differences between CDI- and DMHC-regulated health coverage.”

The report suggests criteria by which to assess health insurance regulatory reform and presents two options for California: (1) consolidating into one regulatory agency, or (2) institutionalizing coordination and consistency between the two agencies.

The criteria include: improving the consumer experience; ensuring transparency and accountability; ensuring consistent interpretations of federal law; evaluating potential system costs and savings; and building on the strengths of the existing regulators.

Option 1: Consolidation

The report notes that the most efficient way to address regulatory duplication and confusion would be to consolidate health insurance oversight in one department or agency. The authors point out that such consolidation would require significant analysis and comparison of the statutory and regulatory purviews of each department, as well as the legal, operational, and organizational changes necessary to combine regulatory jurisdiction.

Such consolidation also presents many political and logistical considerations in merging two departments currently under the jurisdictions of two independently elected officials, the governor and the insurance commissioner. Based on the ACA, the report highlights some of the relative advantages for consolidating jurisdiction within either DMHC or CDI.

Option 2: Institutionalize Coordination and Consistency

If California continues to have two separate health insurance regulators, the report notes, policymakers should consider policies and strategies that promote greater consistency and cooperation between CDI and DMHC. It outlines options to accomplish this goal in the context of ACA implementation.

Options include requiring regulatory consistency between the two agencies; expanding the activities of the senior-level working group made up of staff from both departments; requiring timely public reporting; improving and consolidating data collection and reporting; requiring joint public reporting on the ACA; and realigning statutes and regulations between the two entities. The report also suggests mandating functional integration on an issue-specific basis using the relative strengths of each regulator.

Interviews available upon request.

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About the California Health Care Foundation

The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the way the health care delivery system provides care to the people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford.