Knox-Keene license is the entry ticket to the Affordable Care Act

March 13, 2013

ACA_signingWEB The Knox-Keene license is about to become more important than ever before. The holder of a Knox-Keene license has the right to create and offer health plans in the California healthcare marketplace. That market is about to undergo the greatest change in 50 years. The Medicare Act that was created in 1965 changed everything about healthcare by providing government sponsored coverage for two vulnerable and uninsured populations – elderly and the poor. It’s déjà vu all over again.

The Affordable Care Act, or ACA, is here to stay. The Supreme Court shocked us all when Justice Roberts joined the blue crew and upheld the law last summer. Beginning January 2014 thirty million Americans will become insured who were formerly not insured. Twelve million will participate in the new Health Exchanges. Many of these folks will be insured for the first time.

What does this have to do with a Knox-Keene license?

California is implementing the ACA plan according to the “ideal” legislative plan. California is going to be an “active purchaser” of insurance plans meaning the state will determine which insurance companies get to sell insurance to the newly qualified.

There is one pre-condition. Unless you hold a Knox-Keene license you do not get to offer your insurance plan.

The Department of Managed Health Care (DMHC) regulates all Knox-Keene licenses. Approximately 125 of these licenses have been issued over the previous 40 years in California. The DMHC along with the Department of Insurance are positioned to be key regulators of the ACA.

Covered California is the newly funded org that will operate the Health Benefits Exchange (HBEX). As operators they are applying for and distributing hundreds of millions of federal dollars to make it all happen in our state. CoveredCalifornia1WEBThat is very good. Covered California and HBEX have been working a couple of years already to figure out how to organize this mammoth undertaking. They have divided the state into 19 regions. They expect about 33 plans to participate in HBEX. Federal subsidies will be extended to families earning $92,000 or less. Everyone must buy insurance or be fined a penalty (or taxed depending on your point of view). Two to three million Californians are expected to buy in. The health insurance market is expected to double by 2021 with total revenues in the hundreds of billions.

Now we understand why we did not see the negative ads for health insurance reform in 2008 that we saw in the Clinton era. This deal is just too good to pass on. Why then is it so many Knox-Keene license holders are passing?

Hefty subsidies, millions of new customers, captive market mandated to purchase a plan…why is it only one quarter of the eligible Knox-Keene licensees plan to get involved?

We are not sure. There is a feature – something named the risk corridor – that supposedly limits the profit margin to 3%. California Covered is not concerned. 33 licensees may seem like plenty of coverage for 19 regions. With such great prospects is it reasonable expect an uptick in new Knox-Keene applications? The DMHC application process can be costly – as much as $1 million – and require more than a year. We realize the most important priority is to get the program going now. Timelines are very tight. Applications for insurance companies to participate and what plans they intend to offer are due in July 2013. Approvals are supposed to be ready for the first enrollment phase to begin 90 days later in October. The whole program is supposed to go into action Jan 1 2014.

The DMHC is not known for its speedy reviews. In order to meet these deadlines it will have to move much more quickly, which it has promised to do. We hope for the best but cannot help wondering how much of a factor the applicant’s previous experience and reputation has played in keeping the player pool to 25%.

One thing is certain. We won’t have to wait long to find out!

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