California Should Not, Could Not Import Massachusetts Law
Santa Monica, CA -- Two California proposals would mandate that every Californian buy health insurance, without any limits on what insurers can charge. This would lead to higher premiums, more, not less uninsured people, and increased medical bankruptcies, according to Foundation for Taxpayer and Consumer Rights (FTCR). FTCR said that requiring Californians to buy health insurance without regulating insurer rates will lead to the same kind of price gouging that the state has experienced under electricity profiteers and gas-pump gougers.
The bills to be voted on by the Assembly health committee tomorrow would require every Californian to buy coverage or face civil penalties and liens on future taxes.
"Californians know all too well what happens when profiteering companies are allowed to charge whatever they want for products and services we cannot live without. These proposals would give the green light to even more health insurer price gouging. Already, HMOs like WellPoint and United Health are the new Enrons," said Jerry Flanagan of FTCR. "Requiring us to buy health insurance from high-overhead, for-profit health insurers would be a boon to the companies but would bankrupt families. Real affordability would be achieved by using the state's buying power to bypass insurers altogether, pay hospitals doctors directly and purchase prescription drugs in bulk."
FTCR's Jamie Court and Judy Dugan wrote a recent Op-Ed for the Los Angeles Times -- "Hummer in Every Pot Healthcare" -- that describes the problem with the so-called "individual mandate" approach.
In a letter sent to authors of the bills -- AB 1952 (Nation ' D, San Rafael) and AB 2450 (Richman, R-Northridge) -- FTCR wrote:
"Forcing Californians to buy something they cannot afford is not the solution to the health care crisis. This bill will guarantee a windfall for insurers and other health care providers who would be assured new customers but would not be accountable for what they charged them...
"Already, unpayable medical bills have bankrupted California families. In 2005, medical bills were responsible for half of all bankruptcies nationally. Of the approximately 1 million Americans who file for bankruptcy each year as a result of illness, most have college degrees, are working and own their homes. Three-quarters have insurance. Your bill will exacerbate the problem by putting working families at the mercy of profiteering insurance companies that are allowed to charge whatever they choose."
FTCR voiced similar concern about the affordability of the recent Massachusetts law requiring families to buy health insurance without any limits on what insurers can charge. FTCR outlined two key aspects of the Massachusetts market that might provide some protection against the rampant profiteering that would surely plague such a system in California:
- Massachusetts is dominated by not-for-profit insurance companies, so profiteering is limited, unlike in the national and California markets, where high-overhead for-profit companies dominate.
- The state requires insurers to sell policies to every similarly situated individual at the same price regardless of health status, past medical conditions, age or gender -- unlike the underwriting that exists in most markets. In most states, including California, insurers may charge more, raise rates or simply refuse coverage to the sick.
Key problems with legislation requiring patients to buy health care without regulating insurer rates include:
1. Employers Drop Comprehensive Health Insurance Coverage
These proposals would likely mean that many workers with good health insurance through their employers would be forced into inadequate "bare bones" policies. Comprehensive policies offered by employers would likely be replaced by high deductible plans that require patients to pay more for fewer services.
More families will likely lose employer provided health care altogether and be forced to buy health insurance in the volatile individual market. The lack of an adequate required payment by employers who drop comprehensive coverage makes this outcome even more likely.
2. No Affordability
Unlike the auto insurance market where the voter-approved Proposition 103 guarantees affordability by requiring insurers to get approval for premium increases from the elected Insurance Commissioner, AB 1952 and AB 2450 fail to provide any such protections.
The measure by Assembly Member Keith Richman (AB 2450) gives lip service to affordability by proposing a so-called county-level "purchasing exchanges" run by the Managed Risk Medical Insurance Board -- a state run program for those who cannot find insurance in the private market. Like the auto insurance assigned risk pool, which is not required to abide by the provisions of Proposition 103, premiums for this pool would be very high since it would contain individuals with higher medical risks.
AB 1952 by Assembly Member Joe Nation would require every Californian to pay full price for health insurance regardless of their annual income.
3. "Bare Bones" Coverage
Even if families were able to afford monthly premiums for the minimum coverage required -- a $5,000 deductible plan in the Richman bill -- they could not afford to visit the doctor for many procedures because those costs would have to be paid out-of-pocket until the deductible was met.
Requiring patients to pay the first $5,000 out-of-pocket before coverage kicks is not health insurance. Instead of making health care affordable, these plans discourage early diagnosis of disease -- when sickness is cheaper to treat and good outcomes are more likely. High deductible plans are insurance for insurers who know that working families cannot afford to pay out-of-pocket costs and will be forced to delay or skip necessary medical care. Many will never reach the deductible limit.
4. More Control to Insurer Monopoly
In California, just 5 HMOs provide coverage for over 80% of insured Californians. In many areas of the state, one, two or three insurers take advantage of regional monopolies without any check on skyrocketing insurance premiums. As a result of the uncompetitive health care market, health insurers have become inefficient and wasteful. In 2003 -- the latest data available -- health insurers' overhead costs and profit, which can account for 20% to 25% and more of spending by insurers, became the fastest growing component of total health care spending.
Requiring families to buy health insurance without any affordability protections is not the remedy Californians need. In addition to regulating health insurance overhead costs, FTCR recommends that the legislature pursue other health care cost controls like prescription drug bulk purchasing.
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The Foundation for Taxpayer and Consumer Rights (FTCR) is California's leading nonpartisan consumer advocacy organization. For more information, visit us on the web at: http://www.ConsumerWatchdog.org