On September 30, 2010, Governor Arnold Schwarzenegger of California signed into law two bills—Senate Bill 900 and Assembly Bill 1602—enacting the California Patient Protection and Affordable Care Act to implement reforms under the federal bill and establish a health insurance exchange in California.

The California legislature and governor made several key policy choices in drafting the legislation. Most importantly, they decided that the exchange should be governed by an independent, five-member board. This board will be charged with making a majority of the operational decisions for the exchange. Two of the members will be appointed by the governor (in the case of this legislation, Governor Schwarzenegger has two days to make appointments between the enactment of the law and his final day in office) and another member will be the secretary of health and human services appointed by the new governor. The remaining two members will be appointed by the legislature, specifically the Senate Rules Committee and Assembly Speaker John Perez, who will each get to appoint one member.[1]

The California legislation also required that all plans that offer coverage inside the exchange offer a product at all five benefit levels. This was done to prevent adverse selection and to ensure choice at all actuarial value levels; this addressed concerns that insurers in the exchange would not offer a platinum level plan. In addition, whatever products a plan sells inside the exchange must also be sold outside the exchange. The new law also gives the board latitude to determine participation requirements, premium schedules, rates paid to plans, and cost-sharing provisions for qualified health plans.

In addition to establishing the exchange, California legislators explicitly authorized state regulators to enforce several insurance reform provisions of the Affordable Care Act. These include: guarantee issue for children, restrictions on recissions, a requirement that all family plans include coverage for dependent children up to age 26 and several other provisions.