The Consumer Federation of California regrets that we must oppose Governor Schwarzenegger’s health care proposal that is being heard by the Assembly Health Committee today.
We applaud the governor’s willingness to tackle the long-festering problem of escalating health insurance costs and reduced coverage. Our system of health coverage is failing millions of uninsured Californians, millions more who are underinsured, businesses that are being crushed by escalating premium costs, workers, retirees and their families who must shoulder ever increasing co-payments, and physicians, hospitals and other providers whose ability to provide care is undermined by insurers who deny coverage and ratchet down reimbursement rates. The governor has opened a badly needed debate, and he has developed some good concepts, including coverage for all regardless of immigration status, and regardless of pre-existing conditions.
While the governor’s proposal contains some good provisions, it is, on balance, unacceptable. Ten months after it was first put forth as a concept, the governor has made almost no movement to address its many shortcomings. CFC is always open to consider any amendments. The current measure would need a drastic re-write before it would begin to enter the realm of acceptable options that we could consider supporting.
We oppose mandating individual coverage without cost controls or subsidies to Californians of modest means. The proposal requires all Californians to obtain coverage. For a family of four earning $41,500, which is 201 percent of the poverty line, the state would cap the cost of purchasing from the state pool at $2075, or five per cent of income. For a family of four earning 251 percent of the poverty line, or $51,625, there would be no premium cap, and the only assistance would be in the form of a tax credit for premium costs once they exceed $2581 per year. For a family of three earning 351 percent of the poverty line, or $60,095, there would be no state assistance. These levels of out of pocket cost are a significant burden on families that are barely making ends meet.
Compounding this, there are no guidelines developed to describe what type of coverage these payments would buy. The proposal authorizes the Secretary of Health and Human Services to determine the costs and benefit levels. Uninsured individuals with limited income would feel compelled to buy high deductible catastrophic coverage plans in order to comply with the individual mandate. These high deductible plans would leave the individual responsible for thousands of dollars in medical costs for their family each year, with no help from the insurance they purchased. Previous drafts of the governor’s plan included $5000 deductibles and $10,000 maximum out of pocket expenses for a family. If the Secretary of Health and Human Services followed these guidelines, many Californians would end up with the illusion of insurance with almost no effective coverage.
The governor’s proposal does not spell out the payroll tax, or fee, that would be levied on an employer choosing not to provide health coverage. In his initial proposal this year, the governor stated that a fee of four percent of payroll would be levied on these employers for participation in the government insurance pool. This is simply not enough to fund comprehensive health services. Employers who provide health insurance currently spend on average about twelve percent of payroll for health care costs. The governor’s plan does not set standards for the coverage that would be provided by an employer who fulfills the mandate by spending four percent of payroll on health expenditures. Four percent would not buy basic medical and hospital coverage for a worker with a family. Further, there are no requirements that employers cover full time and part time workers. Without this requirement, it is likely that part time workers will be left on their own to purchase health coverage.
The Consumer Federation of California opposes any expansion of Health Savings Accounts. In his earlier proposal, the governor included employer contributions to Health Savings Accounts as one method for an employer to fulfill its health expenditure mandate. HSAs place the burden on the patient, and militate against efforts to reign in skyrocketing premium costs by forcing each individual to go it alone, through individual spending for coverage. Coupled with high deductible catastrophic insurance that is most likely to be purchased by individuals of modest means, HSAs are a recipe for inferior health coverage and greater cost shifting to the individual.
The measure fails to address skyrocketing health insurance premium costs. During the years 2000 – 2005, health insurance premiums escalated by 87 percent, which is over four times the rate of inflation. As employers felt compelled to pass along some of these costs, the average worker contribution for insurance went up a staggering 143 percent from 2000 – 2004. The Lewin Group and others estimate that only seventy cents of every premium dollar spent for private insurance is used for the delivery of health care. We can no longer allow this industry to raise prices and increase profit margins at our expense.
At a minimum, rates charged by insurers and HMOs should be regulated by the Insurance Commissioner or the Department of Managed Health Care. A successful model for this exists under Proposition 103. California has regulated automobile and homeowners insurance for eighteen years. California’s insurance premium rates for these products have been held in check while they have increased at a brisk pace in the rest of the nation.
Rate regulation is called for in any instance in which Californians are required to purchase mandated insurance coverage. In the governor’s previous concept for health reform, a cap of fifteen percent was placed on insurers’ overhead expenses. This percentage is too high. The governor’s plan is an invitation to the handful of insurers and HMOs who dominate the market in California to use their market power to raise premium prices.
The current proposal includes selling the state lottery to a private business, and using some of the revenues of this sale to finance part of the cost of providing health coverage to lower income Californians. The rationale for the sale is that a private operator will increase revenues through more aggressive marketing. We are opposed to the sale of the state lottery. Californians of modest income spend a disproportionate amount of their income on gambling. We do not believe it is good public policy to entice lower wage Californians to spend more of their limited incomes on gambling.
This is a brief review of several of the more objectionable aspects of the governor’s health care proposal. To his credit, the governor has opened a public debate on the need for health care reform. As this debate has moved beyond slogans about universal coverage to actual proposals to make this a reality, it has exposed the weakness of our current employment-based private insurance model. It is our hope that after the governor’s proposal is defeated, he and others will move forward, with new proposals that control costs, improve coverage, guarantee affordability, and that remove the for-profit insurers from their dominant role in the system.
The Consumer Federation of California is a non-profit advocacy organization. Since 1960, the Consumer Federation of California has been a powerful voice for consumer rights. CFC campaigns for state and federal laws that place consumer protection ahead of corporate profit. Each year, CFC testifies before the California legislature on dozens of bills that affect millions of our state’s consumers. CFC also appears before state agencies in support of consumer regulations.