On September 30, California Gov. Arnold Schwarzenegger signed legislation creating the California Health Benefit Exchange, making California the first state to establish such an insurance marketplace as outlined in the Affordable Care Act. The two bills, SB 900 and AB 1602, institute the insurance exchange system and delineate the duties of its 5-member board. In a statement, Rep. Pete Stark (D-CA), chair of the U.S. House Ways and Means Health Subcommittee, claimed that California’s exchange “will give everyone a set of clear, more affordable choices for health care, and provide a great example for other states that are creating their own exchanges.”

The purpose of health insurance exchanges is to provide a means through which individuals and small businesses can compare and purchase health insurance. Individuals earning up to certain thresholds will be eligible for coverage through Medicaid or for federal subsidies to offset the cost of insurance. These exchanges will be regulated and subject to certain standards, procedures, and consumer protections. Among other things, the exchanges must offer insurance plans that maintain adequate provider networks, operate an Internet portal and toll-free number through which consumers can obtain information on their insurance options, present information on insurance plans in a format that will enable participants to easily compare packages and rates, and identify employers that are required to pay a penalty for not offering coverage to their employees and individuals who are exempt from the law’s requirements.

The Affordable Care Act permits states to create and run their own health insurance exchanges, which are set to begin operation in 2014. If states do not establish such exchanges, the federal government will manage a multi-state exchange run by the Department of Health and Human Services (HHS). The HHS recently announced that it will provide 48 states with $49 million in grant aid to further their insurance exchange efforts.

States have the option of allowing a state agency to operate the exchanges, or – as will be done in California – creating a private, nonprofit entity to do so. As outlined in the new state legislation, California’s Exchange will be governed by an executive board consisting of five members who are residents of California. After the first year, members of the board, other than ex officio members, will be appointed for 4-year terms. According to an article posted on amednews.com, California was the first to establish a state insurance exchange because its legislature – unlike those of other states – was still in session to adopt a fiscal year 2011 budget.

This entry was written by Ilyse Schuman.