Los Angeles, CA — In a letter sent today, the Foundation for Taxpayer and Consumer Rights (FTCR) called on Governor Schwarzenegger and Assembly Speaker Núñez to answer seven questions about the details of their reported compromise on health care reform, that has not been publicly released even though there are only a few days remaining in the legislative session. The full letter available below.
FTCR wrote:
“Nearly all Californians embrace reform and expansion of health care in the state, particularly state-subsidized coverage for children. But your emerging health care compromise, according to news reports, remains focused on putting everyone into a private health insurance policy regardless of what it costs or covers.
“The expense of such a requirement, without strict cost controls, would fall hardest on Californians who don’t give political contributions and aren’t eligible for a state subsidy: middle-income families. The greatest benefit would flow to insurance companies, hospitals and doctors. The fundamental failure in the Capitol has been the political inability to focus on controlling health care costs instead of focusing on who pays them.
“Speaker Núñez we are particularly concerned with your recently reported reversal on the question of requiring all Californians to buy insurance, and the dramatic weakening of protections for those with past or current health problems. In the interest of reform however, we ask the following questions in hope that you will clarify your current stance.
“The answers to these questions are vital for the public to understand the details of what could be an eleventh hour back-room deal in which lobbyists have the only input on.”
The seven questions raised by FTCR and elucidated in the letter below are:
1. If all patients will be required to buy coverage, will there be a cap on how much they must spend?
2. Will you make the individual mandate contingent upon the passage of a funding mechanism to pay for it?
3. What is your method for cost control?
4. How will you prevent employers from dropping more expansive coverage and placing larger burdens on employees?
5. Will Californians in less than perfect health be guaranteed a policy that they can afford and that provides them sufficient coverage?
6. How will your state purchasing pool achieve continuing affordability to both individuals and taxpayers?
7. Will a statewide prescription drug bulk purchasing pool be required or simply allowed?
LETTER TO SPEAKER & GOVERNOR:
Dear Speaker Núñez and Governor Schwarzenegger,
Nearly all Californians embrace reform and expansion of health care in the state, particularly state-subsidized coverage for children. But your emerging health care compromise, according to news reports, remains focused on putting everyone into a private health insurance policy regardless of what it costs or covers.
The expense of such a requirement, without strict cost controls, would fall hardest on Californians who don’t give political contributions and aren’t eligible for a state subsidy: middle-income families. The greatest benefit would flow to insurance companies, hospitals and doctors. The fundamental failure in the Capitol has been the political inability to focus on controlling health care costs instead of focusing on who pays them.
Speaker Núñez, we are particularly concerned with your recently reported reversal on the question of requiring all Californians to buy insurance, and the dramatic weakening of protections for those with past or current health problems. In the interest of reform we ask the following questions in hope that you will clarify your current stance.
These questions must be answered for the public before an eleventh-hour vote of the Legislature on the plan, since there will likely be too little time for full discussion and debate of your reported compromise. We look forward to seeing your final proposal, and your answers to the following questions:
1. If all patients will be required to buy coverage, will there be a cap on how much they must spend?
Neither the most recent version of AB 8, the bill sponsored by Speaker Núñez, nor the limited outline of the Governor’s proposal limits yearly health care payments — combined premiums, deductibles and copays — by employees or individual purchasers with incomes over 300% of the federal poverty level. Nor have either of you been willing to embrace state regulation of health insurance premiums, despite the effective model in the property casualty insurance system. With premiums increasing 250% faster than medical inflation, this is a key concern.
We have read that you are considering a cap of 5% of income on the cost of insurance premiums, which is a step forward. Yet if the 5% cap can be met with a very high-deductible plan, IT would not make health care affordable to middle-income Californians. For example, a family of three making $50,000 per year would actually pay $7,500 for a $5,000 deductible plan if a family member needed even minor hospital care. Co-pays could add thousands more.
We are also concerned that you will concede to the profit demands of insurers, hospitals, and doctors whose rates are not capped under your proposal by shifting costs to individuals. Low-benefit policies that either do not limit out-of-pocket costs or limit them at such a high level that purchasers risk medical bankruptcy when they get sick keep people from seeking care until their illness is critical and more expensive to treat. Those policies secure profits for insurers who know patients will be reluctant to use their insurance and may not even be able to afford out-of-pocket costs.
Speaker Núñez’s bill in its current form fails to ban such junk insurance policies, though Gov. Schwarzenegger has said he will prohibit such policies. Without caps on out of pocket costs, regulators do not have the tools they need to prevent cases like that of Marina Del Rey resident Dana Christensen, who unknowingly bought a junk policy and was left with $450,000 in medical bills when her husband, Doug, died of bone cancer. Your proposal should cap annual out-of-pocket costs, preferably at $3,000 for individuals and $5,000 for families.
2. Will you make the individual mandate contingent upon the passage of a funding mechanism to pay for it?
We have read and heard that your compromise may sidestep a required 2/3 vote in the Legislature by separately asking voters to approve funding the measure through certain fees and taxes.
Your proposal must at least be written to withhold the individual mandate if the ballot measure establishing a funding mechanism fails.
3. What is your method for cost control?
Without effective regulatory limits and oversight, taxpayer subsidies will be wasted on insurer profit schemes and related medical inefficiencies.
You both have proposed capping insurer overhead and profit at 15%. But this is unlikely, on its own, to lead to lower costs because it provides an incentive for insurers to pay hospitals and doctors whatever they ask rather than encourage medical efficiency. Insurers, who will keep 15% of premiums no matter what they pay doctors and hospitals, would benefit from medical duplication of services and other deliberate inefficiencies.
In addition, unless there are strict definitions of which insurer payments are administrative and which are medical, extensive cost-shifting to the “medical” column is likely.
4. How will you prevent employers from dropping more expansive coverage and placing larger burdens on employees?
Your proposal allows employers to provide coverage on their own or to pay into the state pool to provide coverage. We assume the employer cost will be from 4% to 7.5% of payroll, the percentages range in current proposals. If employers’ mandatory contributions to health care are capped at substantially less than they pay now, business imperatives will push them to cut benefits or simply transfer employees to the state purchasing pool. In either case, employees would shoulder a larger burden even as health care costs rise faster than their wages.
5. Will Californians in less than perfect health be guaranteed a policy that they can afford and that provides them sufficient coverage?
We know that insurers want to segregate up to 5% of Californians into a state-administered “high risk” pool that may provide more limited benefits at higher costs.
Currently, the state’s high-risk coverage for individuals costs more than private insurance yet has a hard limit of $75,000 in annual medical payments — roughly the cost of a one-week hospital stay. The governor’s plan rightly called for across-the-board “guaranteed issue” of insurance, efficiently spreading risk, yet was silent about what insurers could charge. Speaker Núñez, your last proposal submitted to insurers’ segregation scheme.
6. How will your state purchasing pool achieve continuing affordability to both individuals and taxpayers?
You both have said that the state will negotiate lower rates with insurance companies, at least for the state pool that provides coverage that employers do not. A purchasing pool serviced by the five HMOs and insurance companies that currently control 80% of the market will be subject to cartel-like pricing, highly resistant to negotiation.
Unfortunately, you will lack full leverage in such negotiations unless there is a nonprofit state-sponsored health plan to compete with private insurers. We fear that private insurers will reap a captive customer base while preserving too much leeway over what they can charge. There should at least be a stop-gap measure to protect against gouging in the event that the negotiations fail to produce a fair result. For example, your Cal-Rx program would have excluded drug companies from the lucrative Medicaid market if they refused to provide adequate discounts for the public.
7. Will a statewide prescription drug bulk purchasing pool be required or simply allowed?
We are encouraged to see that amendments to AB 8 would give the state permission to create a prescription drug bulk-purchasing program. As written, the drug pool could include individuals in the state insurance pool, any employers and any state, county, or other public or governmental agency that wishes to join.
Yet the governor’s line-item veto of start-up funding for Cal-Rx, an earlier drug discount plan sponsored by both of you, shows that such drug affordability measures must be required and immediate. Otherwise they will always fall victim to pharmaceutical company pressure and budget shortfalls.
Further, to maximize bulk purchasing power and provide discounts to those who need them most, all Californian should be allowed to join the prescription drug program.
The answers to these questions are vital for the public to understand the details of what could be an eleventh-hour back-room deal in which lobbyists have the only input on. We appreciate your response.
Sincerely,
Jamie Court
Jerry Flanagan
Judy Dugan
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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at www.ConsumerWatchdog.org.
