FTCR Calls On Núñez to Fix Flaws Which Could Increase Costs and Leave Californians Without Dependable Coverage
Santa Monica, CA — In a letter sent today to California Assembly Speaker Fabian Núñez, the Foundation for Taxpayer and Consumer Rights (FTCR) applauded the legislative efforts to expand health coverage for children, but pointed out nine key provisions of the latest version of Núñez’s health care reform that could increase costs for many and leave other Californians without dependable coverage. Download the letter here.
In the letter, FTCR wrote:
“The latest version of your health care reform bill, AB8, is evidence of the effort that you and the Legislature have invested in this complex and urgent issue. It is also, however, evidence of the pressure being applied by influential lobbying forces including the private insurance industry and organized labor. In this amended bill, people without such monetary or lobbying power — particularly non-unionized workers who already have private, employer-paid insurance and individuals who must purchase their own health insurance — may be left with poorer rather than better choices.
“We do commend your bill’s continued strength in extending affordable health care to all children whose families earn less than 300% of the federal poverty level regardless of their immigration status and new provisions allowing state bulk purchasing of prescription drugs. We urge that these parts of the bill be passed separately if no larger reforms can be agreed upon in the time left in this legislative session.
“We also commend the development of a state health insurance purchasing pool, though its dependence on the private insurance market will leave it at the mercy of double-digit premium increases. Still, this pool could ultimately be the basis for a nonprofit health insurance pool available to all Californians.”
FTCR pointed out nine key problems and proposed solutions to Núñez’s bill, AB 8, the new version of which was made public on Monday:
1. There Is No Premium Regulation for Employees, Employers, Taxpayer- Subsidized Plans, Or Individuals Buying on Their Own.
2. Employees Can Be Forced to Buy Coverage With No Limit on Premiums, Co-Pays or Out of Pocket Costs.
3. Individuals Buying Their Own Policies Will Have Less Protection Against Losing Health Coverage, Because Policies May Be Revoked Annually.
4. Sickest People Forced Into Pool That Will Likely Offer Substandard Benefits and Higher Prices.
5. Organized Labor Protected, Everyone Else Exposed.
6. Insurance for Insurers, Not Necessarily for Patients.
7. Individual Premium Rates Should Follow Limits Imposed on Insurers for Group Coverage.
8. Allow All Californians to Take Advantage of Drug Discounts.
9. Individuals Still Need Limits on Out-of-Pocket Costs.
LETTER TO SPEAKER NUNEZ:
August 22, 2007
The Honorable Fabian Núñez
Speaker of the Assembly
State Capitol, Room 219
Sacramento, CA 95816
Dear Speaker Nunez,
The latest version of your health care reform bill, AB8, is evidence of the effort that you and the Legislature have invested in this complex and urgent issue. It is also, however, evidence of the pressure being applied by influential lobbying forces including the private insurance industry and organized labor. In this amended bill, people without such monetary or lobbying power — particularly non-unionized workers who already have private, employer-paid insurance and individuals who must purchase their own health insurance — may be left with poorer rather than better choices.
We do commend your bill’s continued strength in extending affordable health care to all children whose families earn less than 300% of the federal poverty level regardless of their immigration status and new provisions allowing state bulk purchasing of prescription drugs. We urge that these parts of the bill be passed separately if no larger reforms can be agreed upon in the time left in this legislative session.
We also commend the development of a state health insurance purchasing pool, though its dependence on the private insurance market will leave it at the mercy of double-digit premium increases. Still, this pool could ultimately be the basis for a nonprofit health insurance pool available to all Californians.
Other parts of the amended bill raise serious concerns:
1. There Is No Premium Regulation for Employees, Employers, Taxpayer- Subsidized Plans, Or Individuals Buying on Their Own.
Auto, home, marine, aircraft, medical malpractice, farm, and many other insurers must submit to state regulation of the rates they charge customers. Health insurers, with no such regulation, may charge what they please. Your proposed cap of 15% for insurer overhead and profit is only half of the cost-control equation and will not succeed without rate regulation. With no tested regulatory review of where the money is going and whether rate increases are necessary, the cap will encourage insurers to give hospitals and doctors whatever they ask for ‘ at the expense of individuals and the state. Insurers, who will keep 15% of premiums no matter what they pay doctors and hospitals, will be all too happy to pay more — and charge policy holders more — in order to keep more.
An effective regulatory review of proposed health insurance rate increases like that required of auto and property/casualty insurers under Proposition 103 would close this gaping loophole. As you know, State Farm, Farmers and Safeco agreed to reduce homeowner rates by $478 million in the last few months alone. Since 1988, Proposition 103 has saved California drivers $23 billion in premiums. A robust regulatory review can follow the health care money trail and ensure that premiums are not excessive.
2. Employees Can Be Forced to Buy Coverage With No Limit on Premiums, Co-Pays or Out of Pocket Costs.
A cornerstone of your proposal is a requirement that all working Californians with an annual income of more than 300% of the federal poverty level — and whose employers choose to provide coverage through a state pool — must pay an uncapped share of premium costs in addition to copays, deductibles and other out-of-pocket costs.
Your bill offers a financial incentive to employers to drop better health coverage they currently offer in favor of coverage provided through the state pool, thereby guaranteeing that many working Californians will be exposed to potentially un-affordable health costs. Employers would have the choice to provide coverage on their own or to pay into the state pool to provide coverage. Whichever they choose, employers’ contributions to health care are capped at 7.5% of employee wages. The state pool offers a shelter to employers facing large health care cost increases and requires workers to fund the difference for rapidly rising health care premiums. In recent years, health premiums have risen at many times the rate of wage increases.
We understand that you are leaning toward making more amendments that would exempt employees from the requirement to pay a share of premiums if that coverage is deemed “un-affordable.” That change may be better than the alternative, but it also makes clear that some people now covered, or potentially covered, may be forced out by their employers’ deliberate shift to coverage through the pool.
Employers that choose to join the pool also would not be allowed to quit the pool and re-purchase outside coverage for two years. An employer concerned about huge cost increases for employees would be barred from taking corrective action during that time period.
3. Individuals Buying Their Own Policies Will Have Less Protection Against Losing Health Coverage, Because Policies May Be Revoked Annually.
As you know, three in four California voters worry they might not be able to afford the costs of a major illness or injury. More than half think that your top priority this year should be to require that affordable health plans be offered without regard to a person’s health status or pre-existing health conditions. However, your plan falls far short of this, and actually makes conditions worse for the growing number of Californians who buy coverage on their own.
Under your proposal, Californians would be guaranteed that insurers would sell them a policy unless they fall within the sickest 3%-5% of the state residents. Yet individuals would be required to re-apply for their private coverage after the first year of coverage, a dramatic shift in policy guaranteeing that people will lose that coverage within a year of suffering a major illness.
Currently, those who have been sick in the past and are worried about being unable to buy new coverage are at least able to retain their existing coverage. They may face huge cost increases but for the most part not the threat of cancellation. Your bill would remove this limited safety net by putting people who get sick at risk of losing coverage on an annual basis, offering them only a state-run high-risk policy.
4. Sickest People Forced Into Pool That Will Likely Offer Substandard Benefits and Higher Prices.
Under your plan, people who don’t qualify for individual coverage because they have, or develop, serious illnesses, would be allowed to apply for state-run high-risk coverage, Yet your bill offers no detail about what that coverage will be. Currently, the state’s high-risk coverage costs more than private insurance and has a hard limit of $75,000 in annual medical payments — roughly the cost of a one-week hospital stay.
Individuals who are not in the high-risk pool would have a choice of five “classes” of plan, from bare-bones HMO to comprehensive, and priced accordingly. Another draconian provision in the bill would limit switches to a higher “class” of plan to once a year — with only one level of increase allowed. Insurers, on the other hand, are allowed to change policy provisions and reduce benefits on several times each year. This inequity adopts the worst provision of the federal Medicare drug plan: Consumers are locked into a plan that may arbitrarily drop the coverage they most need.
5. Organized Labor Protected, Everyone Else Exposed.
Amendments to the bill protect union members from being forced to pay for potentially un-affordable premiums in the state pool but leaves the non-unionized with no premium limits or other affordability protection. Under new amendments to the bill, organized labor may revoke an employer’s decision to join the state pool if the employer fails to reach an agreement with the labor union to switch health care benefits.
6. Insurance for Insurers, Not Necessarily for Patients.
Consistently you have said that savings on insurance premium will be realized by the state pool because it will negotiate lower rates with insurance companies. Unfortunately, your plan offers access only to coverage provided by private insurers, who are reaping a captive customer base while preserving too much leeway over what they can charge. Further, an insurance purchasing pool limited to several million Californians and run by the five HMOs that currently control 80% of the market will face cartel-like pricing, not the group discounts you envision.
A workable plan would give all Californians access to a purchasing pool that bypasses insurers and their growing overhead and profit demands. Competition with a low-overhead public alternative would force private insurers to prove that they can be cost-effective while offering similarly comprehensive coverage.
7. Individual Premium Rates Should Follow Limits Imposed on Insurers for Group Coverage.
We are encouraged to see that the new amendments to your bill acknowledge the need to limit the factors on which insurance companies can set and change rates, and bar insurers from charging more based on a person’s health histories. Your bill would adopt the risk factors on which insurance rates are based in the small group market — age, family size, geographic regions — but none of the details that would give such limitations meaning. For instance, could health premiums go up yearly, monthly or quarterly, based on age? The effect is a policy that could be a boon or bust for consumers depending on the decisions of bureaucrats made long after the bill passes the Legislature.
Without such specifics, such as the rules applied in the small-employer market, the broad categories themselves do not offer any protection from arbitrary rate increases. For example, in the small group protections, insurers’ rate increases are limited to seven broad age categories. Under those rules, there can be only one age related increase for persons under 30, and only one between 30 and 39 and one between 40 to 49. No such restrictions would apply under your bill in its current form.
8. Allow All Californians to Take Advantage of Drug Discounts.
We are encouraged to see that amendments to AB 8 would give the state purchasing pool the ability to create a prescription drug bulk-purchasing program. As written, the drug pool could include members of the insurance pool in addition to employers and any state, county, or other public or governmental agency that wishes to join.
To guarantee savings, creation of the bulk purchasing program must be required, not left to the discretion of state officials. Further, to maximize bulk purchasing power and provide discounts to those who need it most, any Californian should be allowed to join the prescription drug program.
9. Individuals Still Need Limits on Out-of-Pocket Costs.
Your plan fails to ban junk insurance policies that leave patients bankrupt when they get sick. The bill should cap annual out-of-pocket costs for individuals at $3,000 and $5,000 for families. Without caps on out of pocket costs, regulators do not have the tools they need to prevent cases like that of Californian 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. Insurers must cover the sickest patients without requiring patients to impoverish themselves.
Sincerely,
Jerry Flanagan
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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at www.ConsumerWatchdog.org.
