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The single payer bill is supported by a broad coalition of labor, consumer and health advocacy groups. But it faces insurmountable obstacles, at least this year.

California’s Legislature is moving closer to implementing a major piece of the federal health reform, the creation of an insurance exchange that would allow individuals and small businesses to join a giant pool that would give them market power in bargaining for a better deal with insurance companies.

The Senate on Tuesday passed two bills that would create the exchange and establish its governance. It would open for business in 2014.

The exchange would run largely on the Internet, governed by a state-appointed board that would screen the insurance companies that participate, establish benefit levels, premiums and co-pays, and provide consumers with an easy-to-use matrix comparing costs and benefits.

The idea is to give small purchasers the kind of market clout now enjoyed only by big business and government, including CalPERS, the state benefit manager that is often cited as a success story in at least moderating the rate of increase in health care costs.

Anthony Wright, executive director of Health Access California, called the exchange a “one-stop shop” for people and business owners buying insurance.

“The bills allow millions of Californians to pool together to bargain for the best price and value with the insurance industry, as opposed to the current individuals market where consumers and small businesses are left all alone at the mercy of the big insurers.” Wright said. “This is a big step to a better health care system.”

Wright estimated that as many as 4 million Californians would be eligible to shop through the exchange when it opens in 2014, and more in later years when larger employers are allowed to participate.

SB 900, which sets up how the exchange would be governed, has passed both houses of the Legislature and is on its way to the governor’s desk. AB 1602, which creates the exchange, is pending final passage in the Assembly.

Gov. Arnold Schwarzenegger has not said if he will sign the bills. If he does, California would be the first state in the nation to establish an exchange under the federal reform law. If Schwarzenegger vetoes the bills, his successor would work with the Legislature to create the exchange before 2014.