UnitedHealth, the nation’s largest private insurer, Aetna Inc.and Cigna Corp. are sitting out the first year of Covered California, the state’s insurance exchange and a key testing ground nationally for a massive coverage expansion under the federal healthcare law. …

Covered California, the state agency implementing the federal Affordable Care Act, is announcing the winning bidders and proposed rates Thursday for its insurance exchange, where as many as 5 million residents are expected to shop for coverage next year.

Winning bidders?  Yes, these exchanges aren’t actual marketplaces, where providers compete on prices and services.  Insurers had to bid their plans into the exchanges rather than to consumers, and only those whose prices met Covered California’s arbitrary standards are allowed to offer their programs to people without employer-based coverage.

That was enough for the three insurers to take a pass on the exchange altogether:

UnitedHealth, Aetna and Cigna are small players now in California’s individual health insurance market. More of their business is focused on large employers, where most Californians receive their health coverage. But the companies signaled a wait-and-see approach on these new government-run marketplaces.

Together, in 2011, those three big insurers had 7% of California’s individual health insurance market, according to Citigroup research. In contrast, Kaiser, Anthem Blue Cross and Blue Shield had nearly 87%, collectively. Anthem Blue Cross is a unit of WellPoint Inc., the nation’s second-largest health insurer.

This doesn’t impact their employer-based coverage — at least not yet.  The exchanges exist for those who have to buy their coverage individually rather than as part of a group.  However, as the incentives for employers to dump coverage increase as premiums skyrocket, more and more Californians will be forced into these exchanges and onto federal subsidies to pay for the cost themselves, which will make it more expensive for everyone but the employers, and provide less choice for the consumers.

Covered California denies that fewer choices in the exchange means, er, fewer choices:

Peter Lee, executive director of Covered California, declined to comment on specific companies ahead of Thursday’s announcement. But he rejected any criticism that diminished competition could lead to higher premiums and fewer choices.

“There will be plenty of price competition for California consumers,” Lee said in an interview Wednesday. “They will be benefiting from robust competition.”

Clearly, that’s not what’s happening here.  The three companies that control 87% of the individual market now will soon control nearly 100% of it.  Thanks to the terms of the exchanges, the kind of plans they can offer also have to be restricted to comply with ObamaCare mandates, and the price controls placed on the entry to the market will limit choices even more.  One of the biggest problems in the pre-ObamaCare environment was a lack of choices thanks to barriers to interstate sales of insurance plans, and at least in California, the “solution” has made that problem even worse.

Just wait until ObamaCare comes to your state.