During the 1930s and ’40s, Kaiser wanted to make sure the workers at his Richmond, Calif., shipyard stayed healthy. then opened its doors to the public in 1945, owning its own hospitals and clinics and directly employing physicians.

(Kaiser Health News is not affiliated with Kaiser Permanente.)

That ownership is a key difference between Kaiser Permanente and its competitors: Other insurers had to negotiate with outside hospitals and doctors demanding ever-higher payments. Without those burdens, Kaiser could offer health coverage that was high-quality and less expensive than conventional insurers.

Today, it’s a different story, says , head of the . The organization is no longer the bargain it used to be, he says, possibly because of what economists call “shadow pricing.”

“If your competitor takes $4 to make a banana and it only takes you $2 to make a banana, you price your banana at $3.95 and you pocket the rest,” Smith says.

It’s difficult to discern just how Kaiser fares against other companies since negotiations between health plans and employers are largely confidential. Kaiser says its costs increase by about 5 percent each year. But some of Kaiser’s biggest customers say their premiums have jumped much higher, in some cases 20 percent.

That’s a charge Kaiser CEO denies. “We’re at least 10 percent better everywhere. Sometimes we’re 15 to 20 percent less expensive,” he says.

Halvorson insists Kaiser’s rates are based on how much it spends on patient care, not based on what other insurers are charging. And, he adds, Kaiser offers richer benefits than other plans.

But according to , of the , Kaiser Permanente has difficulty explaining how it sets its prices.

This may stem in part from the very trait that makes Kaiser Permanente so efficient: The health maintenance organization, unlike other providers, doesn’t have a menu of fees.

, a former health care adviser to President Obama, says Kaiser’s model was at the back of policymakers’ minds when they wrote what are essentially Kaiser look-alikes into the health overhaul law.

Kaiser hospitals have shown they can deliver top-shelf care for happy-hour prices. Recent Medicare data show all but one of Kaiser’s hospitals cost significantly less than the national average. And the company’s electronic medical record system is one of the most advanced in the world and has largely eliminated duplicative tests.

But Kocher suspects that as more doctors and hospitals band together into Kaiser Mini-Me’s, Kaiser Permanente could face more competition.

Kaiser Permanente, meanwhile, is marching east. Long dominant in California, it’s expanding in the Washington, D.C., area, as well as in Georgia. Some health policy experts assert that the company is setting its premiums, in part, to underwrite this expansion.

Halvorson says Kaiser Permanente spends its surplus to benefit its customers.

“We use our money to invest in our care system; we use our money to invest in our computer systems,” he says. “We reinvest money in hospitals and clinics and that’s the only use of the money.”

Halvorson contends if all Americans got their care at Kaiser-like facilities, the U.S. would save hundreds of billions of dollars in health care costs. Others are less convinced. The cautionary tale of Kaiser Permanente, they say, is that even under the best circumstances, U.S. health care prices may still be untamable.

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His everyman demeanor belies his stature: As director of the county’s Department of Health Services, Katz oversees LA’s public hospitals and clinics, the health care of last resort for millions of low-income Angelenos. He has 22,000 employees and a $3.7-billion dollar budget.

Los Angeles, the nation’s second largest city with some 2 million uninsured residents, has long had one of the most disorganized systems. To fix it, Katz, the former director of San Francisco’s health department, insists on seeing patients at this public health clinic one afternoon a week. It’s a demand that struck many as odd, if not impossible. How would Katz have time to treat patients with a system in ruin? Katz is starting one clinic at a time.

On a recent morning, Katz sits opposite his patient, a middle-aged man who is a bundle of nerves. Katz speaks Spanish with his native Brooklyn accent and patiently explains the possible causes of his tumor and what he hopes a visit to a lung specialist will reveal.

“I wanted him to know that he would never be abandoned or alone figuring it out. My view is that this lowers people’s anxiety levels and they don’t wind up in the emergency room because now they’re very frightened about what they have. They need a plan,” he explained.

Katz’s primary aim though, and what he came to Los Angeles to do, is to steer low-income Angelenos away from the overburdened emergency rooms they’ve long relied upon and into primary care clinics where costs are lower, chronic diseases can be managed and problems, like a tumor, can be detected earlier.

He says that when he took the job, “they sent me the LA org chart. I said, ‘Where’s primary care?’ They said, ‘Well, it’s under the hospitals.’ [I said] ‘Well, that may explain why you have a problem with primary care!’

It didn’t take long for that to change: In the last six months, his team has assigned nearly 250,000 people to a primary care doctor at county clinics, he says, adding: “I didn’t have to hire a single additional doctor. What I did is say: ‘No, we’re not running this anymore as a drop-in, see-who-you-see-and-no-one-is-responsible’ system.”

Katz’s predecessors promised many of the same reforms, but government observers here say they were stymied by a Board of Supervisors which often governs Los Angeles like five competing fiefdoms.

But Michael Cousineau, a professor at the University of Southern California’s Keck School of Medicine, says those supervisors are scared of what’s to come. Under the health law, many of those currently uninsured are expected to be covered beginning in 2014. When that happens, the federal government will reduce the extra money they now give to public hospitals to offset the burden of caring for these patients.

One report commissioned by the county put it bluntly: If LA loses its paying customers and is left treating only undocumented immigrants, the financial survival of its health system is at stake. Cousineau argues that to move the system from one of  “last resort to a system of choice is not going to be an easy thing. But the price of failure is: thousands of people losing their jobs, closing of health centers and hospitals. So that’s what the supervisors have to grapple with.”

Gloria Molina, who represents East Los Angeles, is one of the supervisors, each of whom represents more voters than some U.S. senators do. She is supremely and ununusally confident in Katz:  “I was one that was worried he was just going to be another guy that just took us so far and then would leave us. But instead he’s had the most daunting challenges and he’s meeting all our expectations.”

One test of Katz’s vision for re-making LA into a desirable public health system is taking place at the heart of where it all went terribly wrong. The Martin Luther King Junior-Harbor Hospital in South Los Angeles closed in 2007 after it reached near-Third World standards and one woman died of egregious errors.

It’s now re-opened as a clinic where patients with chronic diseases are counseled by a team of nurses and medical assistants. The clinic’s nurse manager, Kimberly Thomas, says customer service is now a top priority: “They’ll bring patients who have diabetes and high cholesterol then bring them in again and look at their labs and see if they’re improved or gone down.” She says patients love the gifts they get if they improve their test results.

Assigning low-income patients to a medical home makes for better medicine, but whether it engenders goodwill – and loyalty – when these same patients gain insurance is an open question.  And this may, in fact, be Director Katz’s greatest challenge: giving Angelenos a reason to believe in what the county can offer.

“Someone will talk to me about their medical problems, and I’ll start asking them about what’s going on in their marriage, with their kids, in their home and people will begin to cry,” says Katz. “People will begin to tell you amazing things about what are really the issues. And often the physical symptom both to you and to them is just the opening salvo in a conversation that they want to have with someone who cares about them.”

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Here, just a few miles from the entrance to Yosemite National Park, is the Sweetwater Steakhouse, a local watering hole where no one is shy about their opinions of President Obama’s signature initiative.

“Obamacare is absolutely horrible, horrible, horrible,” Joe Stern, owner of a local water-conditioning company, says as he sips a glass of pinot noir. “It should be struck down immediately.”

By 5 o’clock on most weekday evenings, the Sweetwater bar is hopping, and locals, like Stern, stop by to josh and jest. Stern is a registered Republican. He’s 66 years old and covered by Medicare, a program Stern says he is thankful for. Before he qualified for the federal program, Stern, who is single, used to pay $670 a month for insurance – more than $8,000 a year.  

“I thought it was pretty brutal,” he says, “but I was still against Obamacare by far.”

Oakhurst caps the eastern end of Madera County, a largely conservative and agricultural region where unemployment runs stubbornly high, at 14.7 percent, and 32 percent of people have no health insurance. 

By and large, conservative voters in the county despise the federal health law’s mandate that all Americans have health coverage, and many suspect the health insurance system isn’t really all that broken. 

Reflecting a common sentiment, Stern says, “I don’t know of anyone that was left on the street to bleed to death. I don’t know anyone that is really left out.”

It’s not that Stern doesn’t know people who don’t have insurance. He cheerfully introduces his friend, Mary Westover, who is sitting next to him at the bar. Westover is a registered Republican and a self-employed artist and businesswoman who says she can’t afford health insuance. She’s been uninsured for 17 years – she hasn’t had a pap smear in all that time –  and is among the  who are uninsured and opposed to the health law.

Westover, too, is against the individual mandate but wasn’t aware the federal government would give subsidies to people like her – whose incomes are below 400 percent of the federal poverty level – to buy a policy. That’s once that part of the law kicks in, in 2014.

“If it were subsidized, if it were made, you know, manageable, I would want that,” she says, adding that she doesn’t know how people who can afford it “can sit there and say that we shouldn’t have that — because there are a lot more of us, than them.”

Although many here in Madera County say they want the U.S. Supreme Court to throw the federal law — and all of its big government mandates — out, they are struggling to reconcile their political ideologies with the basic need for health insurance and protection from financial calamity.

Paul Ruffino, the manager of Chateau du Sureau, a five-star, luxury inn overlooking the mountains of Yosemite, is uninsured for the first time in his life.  

“It’s probably when I need it the most,” he says, sitting in the inn’s salon, with its frescoe-painted ceilings and roaring fire.

Ruffino says the health insurance policies he’s looked at are expensive and won’t cover his pre-existing conditions. Still, he says it was his decision to leave a previous job in Southern California that came with insurance and move to Oakhurst. As a Libertarian (the GOP is too liberal, he says), he doesn’t think he should have help in getting insurance: “Do I make the government responsible for my choices? I made the choice. I knew beforehand.”

Ruffino seems torn between his unsparing self-reliance and a sense that the insurance industry is unfair. He thinks the insurance companies should not be allowed to pick out only the healthy and leave guys like him behind. He says there is a role for government in setting some of the rules, but he’s uncertain just how far he wants to go. 

“Does there come a time when government has to get involved and at what levels? But when you are distrustful of the system in whole it makes it difficult, he says. “I go back and forth. I ping-pong on this issue all the time.”

It doesn’t surprise Oakhurst insurance agent Doug Macaulay that many people are torn.

Macauly, who is also Republican, says people get mad at the insurance companies, but they don’t see “ObamaCare”, as they derisively call it, as the answer: “You’re complaining over here that you don’t have health insurance and you can’t buy it. And over here [the government is] trying to provide you with it but that’s the worst thing ever. So there seems to be a disconnect in the thinking there.”

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These phone operators working in a non-descript office park in Alameda are employed by a large health insurance plan, and they’re willing to go the extra mile for their customers. They’ll schedule a doctor to come to your home, a pharmacist to drop off a prescription, and they’ll even help you fill out an application for food stamps.

“We do things for them that a traditional, commercial health plan doesn’t do,” says Ingrid Lamirault, chief executive officer of the Alameda Alliance for Health, a county-run, not-for-profit insurer.

The much celebrated, and much maligned, public option may have died in Congress, but it’s alive and well in California.

Unique in the nation for having public health insurance plans that are run by counties, California has plans that stretch from San Francisco to the Mexican border and cover 2.5 million residents.

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Looking Ahead To 2014

The Alameda Alliance for Health has a network of doctors and hospitals just like a private health insurance company, and it covers 200,000 people in Oakland and neighboring cities. Just like private health insurance companies, the alliance also administers a managed care plan for Medicaid beneficiaries and additional plans for county workers.

The alliance’s CEO Lamirault doesn’t plan on stopping there.

In 2014, under the federal health overhaul law, millions of Americans will be able to buy coverage through state-based insurance exchanges. In California, government-run public plans, like the Alameda Alliance for Health, will go head-to-head with private insurance companies to compete for all those new customers, and those who run the county plans believe they can offer a robust network of doctors and hospitals to bargain shoppers looking for low-cost coverage.

“I think when some people get to make a choice,” says Lamirault, “having local offices they can walk into and get help with things and get their questions answered, and when they call customer service they get their calls answered in under two minutes. Those kinds of things are important to them.”

Throughout California, county plan members largely go to public health clinics and county hospitals. But many counties also contract with private physicians and top-notch research hospitals. They even share the same lobbying group as the big-named insurance companies, the California Association of Health Plans.

Some of those companies don’t have a lot of love for their public brethren. “Certainly, there are some health plans that didn’t like the idea of having to compete with these public plans,” says Anthony Wright, a public plan booster and executive director of Health Access, a Sacramento-based health care consumer advocacy group. “Especially ones that, having come out of the Medicaid program, are used to providing care at cheaper rate.”

A Continuum Of Care?

In 2010, when California became the first state in the nation to pass legislation establishing an insurance exchange under the Affordable Care Act, Anthem Blue Cross tried to bar public plans from the new marketplace. In a letter to state lawmakers, the company said Congress soundly rejected the notion that the government should sell coverage in the private market, and California should not follow suit.

Wright, and others, argued successfully that almost half of those expected to buy insurance through the exchange are likely to be low- and moderate-income consumers, and many of them may have, at one point, been on Medicaid or another government-sponsored health program. “Some of these folks who are close to the poverty line may have already been in these public plans previously,” says Wright. “And so it made sense that this might actually be a good environment for them, to be an option and for people to continue their care with them even as they move up the income ladder.”

As the public plans try to attract new customers, one of their biggest advantages may simply be disgust among some consumers with well-known health insurance brands.

“I think insurance companies have made a bad name for themselves, deservedly so,” says Kim Burke, an art school teacher in San Francisco, who was turned down for coverage by private insurers because of pre-existing medical conditions.

For the last several years, Burke has paid a low-monthly premium for coverage in San Francisco’s public health plan. She says when the exchange opens in 2014, she’ll hold on to her public plan–and her grudge. “I applied to four different insurance companies, all of which denied me for pre-existing conditions,” says Burke. “So I’m not really too keen on purchasing their product since they already denied me care when I really wanted it.”

For many health insurance customers, though, the ultimate selling point may simply be who has the cheapest product.

Insurance companies in California say they will happily compete on price so long as the public plans do not get preferential treatment. Today, doctors and hospitals accept low reimbursement rates from public plans, in many cases as part of their charity care. That allows the public plans to keep their premiums low, but private plans say they are charged higher prices.

The preferential treatment is not likely to last into the new world of insurance exchanges. When the exchange opens in 2014 in California to people with higher incomes, the government-run plans will have to pay providers more than they do now, says Sumi Sousa, officer of policy development at the San Francisco Health Plan.

Sousa says the utopian belief that public plans always cost less just doesn’t pencil out. “Some commercial providers, because they’re so large, they’re able to spread their cost over a much broader network,” says Sousa. That’s not the case for many county-run health plans in California, which tend to be quite small. Still, says Sousa, the public plans do have low overhead: Executives like her earn a fraction of the salary paid to the big CEOs, and they don’t have stockholders.

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Lawrence DiCarmo (Photo by Sarah Varney)

“He has swallowing difficulties,” says program director Celine Regalia, “that put him at higher risk, so that’s why he’s in this specialty group.”

Because of those difficulties, DiCarmo will continue to qualify for adult day health care services under new, stricter guidelines the state agreed to in November, Regalia says.

Adult day health care centers in California  after lawmakers in the Golden State voted to cut all Medicaid funding for the centers in order to save about $85 million. Advocacy groups quickly sued to stop the cuts in federal court, arguing that the centers, which offer services such as health care, physical therapy, mental health treatment, shared meals and exercise, help keep some 35,000 frail seniors and disabled people out of costly nursing homes.

The groups reached a last minute  with the state that is meant to keep a scaled-down program in place for those who need it the most. Under the settlement, the state will continue to pay for the services through its Medicaid program but only for those who have severe illnesses, disabilities or dementia.

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• .

To determine who will qualify under the tighter eligibility rules, two hundred state nurses have fanned out to centers around California to review patient records. The state has guaranteed services to more than 9,000 Californians. The remaining 26,000 will be evaluated face-to-face by the nurses.

 will be one of the first sites to be assessed. The center opens its doors five days a week to about 100 elderly and disabled people who come from Napa and neighboring counties. Most of the clients are eligible for both Medicare and Medicaid; a minority of the clients pay for the service out-of-pocket.

Martha Norris lives at home in Napa Valley and comes to the center twice a week. When the program looked like it would be eliminated entirely, Norris says it hit her hard (Photo by Sarah Varney).

At lunchtime just before the Christmas holiday, dozens of men and women, many in wheelchairs, sat patiently waiting for their plates of sliced beef and mashed potatoes. There was not a lot of chatter. About half of the people here have some form of dementia.

Even though DiCarmo uses a wheelchair and an oxygen tank, it’s not hard to imagine him in his younger years when he was a hard-working brick layer in Los Angeles. It’s a life he doesn’t remember, though, he says in a halting, gravelly voice. DiCarmo was in a horrific car accident years ago that left him with a traumatic brain injury. “Any of my working time is all gone,” he says.

Every weekday morning, a van picks up DiCarmo and brings him here to the center. He says he likes the exercises and the music and when he’s not here he sits at home, bored and watching television. DiCarmo, like many frail elderly people, frequently gets pneumonia, and before he started coming to the center, he often ended up in the hospital. “I don’t enjoy it,” he says. “There’s no pleasure in the hospital that you get. Besides their food is worse. Terrible.”

A trip to the hospital can be traumatic and expensive says Karen Proteau, a registered nurse who works at Napa Valley Adult Day Services. Now, she watches DiCarmo closely for any sign of respiratory infection. “We have been able with the close nursing monitoring to keep him out of the hospital quite often,” Proteau says. “We’re able to catch the symptoms early and notify his doctor and get antibiotics started a lot sooner.”

State health officials have estimated that about half of the 35,000 participants will qualify under the new rules, which are meant to control Medicaid costs. But if the Napa center is any indication, it might be much harder to achieve any savings. Regalia says she has already compared her patients against the new eligibility standards to get a sense of what the state nurses might find. “We screened all of our people and we found one person that wasn’t eligible. Everybody else qualified for the program.”

As president of the  that represents adult day centers, Regalia has been in frequent contact with other center directors. She says they too believe most of their current participants are frail or disabled enough to qualify under the stricter standards. It’s hard to say whether the state nurses will agree with those initial assessments. But if the nurses do agree, the state will be obligated to continue funding the program, and it’s unclear how the state will achieve any savings.

What is clear, though, is the toll the uncertainty over the program’s fate has taken on those who depend on it to maintain their independence.

Martha Norris lives at home in Napa Valley and comes to the center twice a week. At age 62, she has shiny red hair and soft skin. But her deteriorating spine and severe arthritis have left her in a wheelchair. She also suffers from depression, which is a big threat for the disabled and frail seniors.

Norris says the social activities here, like the local band that on this day is playing a festive rendition of Frosty the Snowman and Rudolph the Red Nosed Reindeer, help keep her from turning inward.

When the program looked like it would be eliminated entirely, Norris says, “I just felt really lost. And I wasn’t sleeping for the longest while. I was really stressed. I didn’t know what was up or down.”

This article was produced by Kaiser Health News with support from .

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Governor Jerry Brown this week announced nearly a billion dollars in additional reductions to state spending. But advocates for the elderly and disabled have had success in recent months thwarting the automatic reductions by asserting that the state’s severe cuts — some $15 billion to health and human services since 2008 — are beginning to violate federal law.

That defense has largely been the result of an aggressive legal strategy by disability rights groups, something witnessed recently when the state aborted a plan to eliminate funding for adult day health care centers in the face of a lawsuit by . The centers offer health care services, shared meals and exercise among other activities and, most experts agree, help keep seniors and disabled people out of nursing homes.

But that’s not the only place where state lawyers are busy. Officials in Sacramento are also preparing to defend the recent decision by state lawmakers to reduce what it pays doctors who care for Medicaid recipients before the U.S. Supreme Court. Legal advocates also successfully sued in federal court to stop $100 million in automatic cuts to the state’s home care program for the disabled and frail seniors known as In-Home Supportive Services.

Calif. Gov. Jerry Brown (Photo by Randy Bayne via Flickr)

Melinda Bird, an attorney with Disability Rights California, based in Los Angeles, says the state cuts are running headlong into the Americans with Disabilities Act, the two decades old civil rights law that bars discrimination based on disability. “The ADA mandates that people be provided services in the most integrated setting appropriate to their needs,” says Bird. “And that means providing the services to people at a home rather than in a nursing home.” Without home aides to help them bathe, dress, eat and take medications, many of these disabled Californians, says Bird, would end up in costly nursing homes or psychiatric hospitals.

Not all of which is bad news for some politicians, says , Executive Director of the , a nonpartisan watchdog group. Lawsuits can provide political cover for legislators and agency directors reluctant to cut programs they support, says Ross, but which are vulnerable in tight economic times.

“When the proposed policies the courts in some cases have ruled against were debated before the legislature, advocates [and] others would raise the concern that they might not pass judicial muster,” says Ross. In several cases, those familiar with the budget process say, lawmakers approve budget reductions knowing that the courts will likely stop them from going into effect.

In some cases, advocates for such programs are also just stalling for time. Attorneys can slow budget cuts down by arguing that recipients of public programs haven’t received adequate notice, says Mike Herald, a legislative advocate for the in Sacramento. He cited a suit that his group filed against former Governor Arnold Schwarzenegger after that adminstration sought to cut child care programs for the working poor.

“We were able to go and get a judge to say, ‘No, you’ve got to send out a notice that gives people 30 days advance warning,’” says Herald. “That pushed back the whole schedule and by then we had a new governor, and then voila he changed his position and the cuts never really went into effect.”

That said, Herald and other legal advocates insist they do not just sit on the sidelines waiting to file lawsuits. Herald says that they would much rather negotiate up front with lawmakers to find ways to save money and preserve vital programs. But trying to make deals with anyone in a state with as many financial problems as California can be difficult.

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Most major hospitals in California give the data voluntarily to independent researchers who analyze and publish consumer-friendly reports.

The project was considered a pioneering effort when it started in 2004, but Jan Emerson-Shea, a spokesperson for the California Hospital Association, says the report cards have outlived their usefulness. “Today there are numerous places consumers can get information on the quality of care delivered by hospitals,” Emerson-Shea says. “Public reporting has very much come of age at this point in time.”

As a result, the California Hospital Association recently sent a letter to the California Hospital Assessment and Reporting Taskforce, which oversees the scorecards, announcing its intention to withdraw from the project.

Emerson-Shea says hospitals have become overwhelmed by the administrative burden of reporting data to multiple agencies.

Indeed, Medicare now requires all hospitals to publicly report a limited number of quality measures, but patient safety advocates say the federal data suffers from the Lake Wobegon-effect: just about everyone is above average, and consumers have a hard time making truly informed choices.

“Chances are you won’t find a hospital that stands out,” says David Hopkins, a senior advisor at the Pacific Business Group on Health, an employer group concerned about health care costs and quality.

Hopkins also sits on the California Hospital Assessment and Reporting Taskforce, and he argues that Cal Hospital Compare uses a more rigorous, and ruthless, analysis than the Medicare report cards. That means hospitals that don’t do a good job stand out.  “This is one of the problems in the industry,” Hopkins says. “The provider says, ‘Wait a minute, this is affecting my business.'”

Patient safety advocates insist the only way hospitals will become safer is through unflinching transparency. Indeed, Cal Hospital Compare publishes a hospital’s ICU mortality rate, measure of how frequently people die in a hospital’s intensive care unit. The measure is adjusted for the mix of patients.

Hopkins says publicly reporting ICU mortality has gotten hospitals to pay attention. “We’ve been reporting the ICU mortality rates for the last three years, and they’ve been getting steadily better, by about 1 percentage point per year, and that has saved a lot of lives. Thousands of lives, as a matter of fact.”

The board of directors of the task force which includes consumer advocates, health insurance companies, hospitals and employers, will meet in the coming weeks to make a final decision on the future of the reporting effort. But with the California Hospital Association withdrawing its support, it seems unlikely that Cal Hospital Compare can continue.

Jan Emerson-Shea from the hospital association says nearly all of the measures, except ICU mortality, will continue to be reported either to Medicare or to California state regulators.

A new state law requires health officials to collect and publish their own hospital quality data, but there’s widespread agreement that the reports are so unreliable, they can’t be used to compare hospitals.

There is plenty of data, to be sure, says Betsy Imholz, a longtime safety expert with Consumers Union, but it’s not necessarily useful. “We’re at a really critical crossroads in health care quality and safety,” Imholz says. “The public needs the data. And we need it uniform and we need it really accessible and understandable.” If consumers are being asked to take responsibility for their health care, she says, they should at least know what they’re getting.

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House Majority Whip Kevin McCarthy, R-Calif., discusses H.R. 2, a bill to repeal the 2010 health law, during a Jan. 18 press conference (Photo by Medill DC via Flickr).

But back in his hometown of Bakersfield, Calif., local officials are welcoming one aspect of the health overhaul law. Earlier this year, the Kern County Board of Supervisors — all Republicans — voted to accept federal money to expand insurance coverage for low-income adults.

The federal law extends Medicaid coverage to millions of Americans in 2014, including childless adults. But with permission – and dollars – from the federal government, California started the expansion early.

Indeed, all 58 counties in California, except Fresno, are offering care to more poor residents, which includes the most conservative counties, like Modoc, Orange, San Diego and Kern. 

Expanding coverage to the 63,000 uninsured county residents couldn’t come too soon for Paul Hensler, the administrator in charge of the county’s public hospital, Kern Medical Center.

“Our proposal was to expand coverage to those that don’t have coverage and reduce the cost of care and improve outcomes,” he said. Because the county is now assigning uninsured, low-income adults — who up until now have been excluded from Medicaid – to primary care clinics, their chronic diseases are managed better, keeping them out of his emergency room. 

Surprisingly though, the roll-out of what conservatives derisively call “Obamacare” has largely gone unnoticed in Bakersfield.

“This is one of those things that is being implemented under the radar,” says Ken Mettler, who helped found the Tea Party in Bakersfield. A dogged critic of the local Board of Supervisors, even Mettler wasn’t aware what the county was doing until asked about it by a reporter.

He says elected officials vigorously denounce the federal health law, but then are all too eager to roll it out.

“They always have to make this leap of logic that if we don’t take the money somebody else will. We will not be able to provide services that we’re mandated to provide,” Mettler said. “No one has the political courage to stand up and say, ‘look, this is wrong on all levels and if we don’t take a stand, who will?'”

But Supervisor Ray Watson, who has represented Kern County’s west side for nine years, says the move was necessary because California law mandates that counties offer basic medical care and emergency services to impoverished residents.

“We are on the hook already,” says Watson. “We get some funding, but it’s far from what is required to care for those people.”

Counties – which have suffered mightily in the economic downturn – are often on the losing end. When the economy slows and people lose their health insurance, demand for county services goes up. Watson, a Republican, says it’s a matter of fairness, not ideology.

“We have one of the lowest rates of returns of federal dollars,” Watson says, referring to the ratio of dollars paid in federal taxes to dollars returned to Kern County. “It’s not fair for our taxpayers to have to pay the burden of indigent care. … If it’s a policy of the government to make sure that we don’t have people suffering in the streets then the government needs to find a way to pay for it.”

Watson is no fan of the federal health law, but he says the uninsured do need some basic level of care and moving them away from the emergency room and into regular primary care makes sense.  

Republican Supervisor Karen Goh, who represents Kern County’s poorest neighborhoods, agrees.

“We have obesity. We have high blood pressure. We have just about every bad thing,” says Goh. “Getting people to have those regular checkups. That’s a very important thing in a community of poverty.”

Goh is of two minds when it comes to the federal health law. She says it’s unfair that sick people can’t get health insurance, but she also opposes mandates on private businesses. She thinks local church groups – including one that runs a mobile van called the Jesus Shack – are filling some of the need. But, it seems implausible church groups could do it all.

Still, to some conservative voters in Kern County, the supervisors’ support of the early Medicaid expansion – explicitly stated or not – is tantamount to an endorsement of the federal health law. And that, says Republican political consultant Stan Harper, is a liability.

“I would say in Kern County and the immediate surrounding counties that if a candidate was out to run and support ObamaCare they would lose,” Harper said.

It’s unclear how the county’s Medicaid expansion might play in any future elections. Despite repeated requests for an interview, Rep. McCarthy would only say that in theory moving people into preventive programs was a good idea, but he didn’t comment specifically on the efforts underway in Kern County.

The Bakersfield Tea Party says they’re paying attention now, and they’ll be looking to back candidates, even on the county level, that want to get rid of the federal health entirely.

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“We’re eating at home a lot more than we did before, and we’re not going to the movies as much,” she says. “Every single time we go to the movies, it’s 50, 60 bucks.”

But for one of the family’s biggest bills — health insurance premiums — Anderson is unwilling to switch to a cheaper plan that doesn’t have access to her doctors and her local Sutter hospital. “I’ve been a Sutter patient for years,” she says. “I’m a loyal person. And I’m happy with Sutter.”

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What Anderson might not know, however, is how Sutter’s battle for market share in her corner of suburbia is affecting her bottom line. Hospital prices in the Sacramento region are among the highest in California, driven in large part by the negotiating clout of the hospital chain Sutter Health.

Dominating The Market

Over the last decade and a half, Sutter has gradually accumulated hospitals and amassed a roster of doctors who contract exclusively with the company. Sutter is now one of the largest hospital chains in California with 22 acute care hospitals.

“In this Roseville market, which is a big suburban area, the hospital is Sutter,” says John Murray, a veteran insurance broker. “It’s a lock right now. Because Sutter dominates the market, major insurance companies, like Blue Cross and Aetna, can’t sell policies that exclude Sutter hospitals and doctors. That dependence means the hospital chain can dictate high prices.”

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 In fact, according to government data, Sutter’s charges for a day of care are 37 percent more than the state average. Sutter’s CEO Patrick Fry says its costs are fair and that it pours a portion of its profits back into state-of-the-art facilities.

“People choose Sutter because they believe that the care that they are going to receive is going to be extremely good,” Fry says.

Even still, the average stay at the Sutter hospital in Roseville costs some $30,000 — about $12,000 more than its closest competitor who offers similar quality of care. It’s impossible to say how much Sutter’s pricing influences the cost of health insurance in Roseville. The company’s price list is confidential. But what’s happening in Roseville offers a glimpse into how one large hospital chain can effectively dictate insurance premiums.

Murray pulls out a list of insurance options for a sample employer — plans he could sell to a prospective client. The plans have similar co-pays, deductibles, benefits and premiums. But there are two plans that are dramatically less expensive. They’re the only ones which contract with non-Sutter hospitals.

The difference in dollars can be staggering. In Murray’s example, an employer with about 20 workers would pay $29,000 a month for coverage that includes Sutter hospitals. The other plans are $10,000 cheaper. And yet, Murray says, the price break doesn’t sway his clients, even in this example where the customer could save $120,000 a year. “Our customers really perceive the need to have Sutter in the network, Murray says.

Patient Loyalty, Despite Prices

One of those clients is Kenyon Lederer, who runs a small investment advisory firm in Roseville. When Lederer’s insurance premiums went up 19 percent last year, he asked his insurance broker, John Murray, to find some alternatives. There was one stipulation though: any new plan had to include Sutter hospital and its doctors. The only lower priced options Murray found didn’t meet that requirement, and Lederer decided to stay with the higher priced plan because “we like to go to the doctors we have and we get good quality care there.”

It’s a common explanation employers in Roseville give, and something insurance brokers and health plans hear all the time. No one wants to switch plans if it means changing doctors or hospitals, even if it could save them a lot of money without sacrificing quality of care.

For their part, Sutter executives say they’ve earned their patients’ loyalty. Indeed, the Sutter hospital in Roseville has a new neonatal intensive care unit and an impressive rehabilitation center. None of that comes cheap, says Pat Brady, CEO of Sutter Roseville Medical Center.

Sutter And Insurance Companies

Brady says complaints that Sutter’s prices are too high for services like MRIs are unfair because a standalone imaging center in a strip mall doesn’t have the same costs as a full-scale hospital. Still, Brady says, the hospital is trying to bring down its prices.

“We’re about ready to open a very significant outpatient imaging facility,” he says. “We have every intention to have the pricing be very competitive with any outside entity.”

But Brady doesn’t understand why insurance companies charge so much for including his hospital, and other Sutter hospitals, in their networks. Especially, he says, because he typically asks Sutter’s corporate negotiators for a single-digit increase — not the double digit hikes that health insurers are demanding. “We’re very conscious of this because we recognize if that cost the insurer is passing on is significantly higher and even more so the say Sutter is the reason for that, we need to respond.”

While Brady may be asking his corporate parent for a slight increase, it’s unknown just how much Sutter negotiators are demanding from insurers. Such negotiations are confidential.

Still, Brady’s hospital is practically printing money. Its operating margin is an envious 17.1 percent. And the hospital’s corporate business strategy seems unshakeable: weave hospitals, physician groups and surgery centers into one regional juggernaut that employers and insurers can’t live without.

It’s a strategy that makes health care reformers anxious. The growing market power of providers, they say, will make cutting down on the nation’s out-of-control health care bill that much harder. 

Ñî¹óåú´«Ã½Ò•îl Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about .

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This story can be republished for free (details).