Santa Monica, CA — In a letter sent today to California Assembly Speaker Fabian Núñez and key legislators the Foundation for Taxpayer and Consumer Rights (FTCR) urged their opposition to any health care reform compromise that includes mandatory purchase of private health insurance.
Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Nuñez are rumored to be close to a deal on health care reform that will require every Californian to prove they have a private health insurance policy — but does not cap how much insurers can charge for it.
The letter is available below and for download here.
In the letter FTCR wrote:
"A mandatory purchase regime, particularly one without vigorous cost controls and premium regulation, amounts only to a customer delivery system for the fragmented, wasteful private insurance market. It will not solve California’s health care problems and will only encourage the industry to demand more money in taxpayer subsidies and premium costs while providing less health care.
"There is a big difference between mandatory participation in a cost-effective government program that protects us all (like Medicare) and being forced to buy an unregulated private product. A mandate may get us closer to universal insurance coverage, but we’ll still be far from achieving universal health care. Why? Because the requirement will likely be for "affordable," bare-bones policies — the kind that come with $5,000 deductibles, big co-pays and holes in coverage and benefits.
…
"Whether [taxpayer] subsidies are provided to those earning 300% or even 450% of the federal poverty level, throwing money at insurers will only encourage them to demand more money and provide less coverage."
Read Jamie Court’s Los Angeles Times Op-Ed critiquing the mandate proposal.
In the letter FTCR raised the following 6 point critique with the mandatory purchase scheme:
1. At $12,000 a year for family coverage, mandatory purchase of private insurance is unaffordable — particularly without regulation.
2. Mandatory purchase of private insurance will lead to more high-deductible, bare-bones policies.
3. Taxpayer subsidies without price caps will feed insurers’ profit demands and overhead.
4. Those who need coverage the most would face an uncertain future.
5. Mandatory purchase of private insurance will un-insure some of those who currently have coverage.
6. Rate regulation, not the mandatory purchase of private insurance, is the first step to major reform.
LETTER TO LEGISLATURE:
Wednesday, September 26, 2007
Assembly Speaker Fabian Núñez
Majority Leader Karen Bass
Assemblymembers Hector De La Torre
Mervyn Dymally
Patty Berg
Mark DeSaulnier
Ed Hernandez
Mary Hayashi
RE: Oppose Any Proposal that Forces Californians to Buy Private Insurance
We are writing to urge you to oppose mandatory purchase of private insurance as part of the legislative compromise on health care. Forcing Californians to buy private health insurance is unacceptable.
A mandatory purchase regime, particularly one without vigorous cost controls and premium regulation, amounts only to a customer delivery system for the fragmented, wasteful private insurance market. It will not solve California’s health care problems and will only encourage the industry to demand more money in taxpayer subsidies and premium costs while providing less health care.
Proponents of mandatory purchase, a plan first conceived of by health insurance companies, say you cannot force insurers to sell policies to everyone if Californians are not required to buy them. The truth is that people want to buy health insurance. Sick and well would join the new market if the product was affordable and those with trivial medical conditions were not excluded.
Small employer groups of two or more have to be sold a policy today, regardless of employees’ health condition. There is no gaming by employers and groups. The 7 million uninsured are largely well, working families who often flit in and out of coverage. They are trying, but they just cannot afford to stay insured. The insurers and the medical complex are the problem, not the uninsured.
Mandatory auto insurance has been in force in California for two decades and has failed miserably. When insurance was mandatory, without premium regulation, 38% of drivers were uninsured. After passage of Prop 103 and the creation of the strongest auto insurance regulation in the nation, rates fell and so did the uninsured motorist rate. Today, one in seven drivers still has no auto insurance. That compares to one in five without health insurance under a non-mandatory system.
There is a big difference between mandatory participation in a cost-effective government program that protects us all (like Medicare) and being forced to buy an unregulated private product. A mandate may get us closer to universal insurance coverage, but we’ll still be far from achieving universal health care. Why? Because the requirement will likely be for "affordable," bare-bones policies — the kind that come with $5,000 deductibles, big co-pays and holes in coverage and benefits.
While we can choose not to own a car and avoid mandatory auto insurance, Californians’ only choice to avoid mandatory purchase of health insurance would be to flee the state. That is unfair.
Massachusetts’ mandatory purchase of private insurance is not a model. The promise of an "affordable mandate" has become a major financial imposition, even as insurers have reduced coverage to tweak prices. Next April 15, Bay-staters must prove on their tax returns that they have purchased coverage. In the future, those who can’t will pay a penalty of up to $2,000 and lose their personal tax exemptions. Under Governor Schwarzenegger’s vision of the mandatory purchase of private insurance, those who cannot afford to buy would have their wages garnished.
A mandate’s problems, in more detail:
1. At $12,000 a year for family coverage, mandatory purchase of private insurance is un-affordable — particularly without regulation.
Cost of Coverage:
Insurance premiums have increased 78% since 2001, compared to a 19% increase in wages and a 17% increase in inflation. A recent report showed that the average cost of coverage for a family of four is already more than $12,000 a year. That price is un-affordable for California families earning above the amount available for subsidies — 300% of the federal poverty level ($62,000 for a family of four) in the current Núñez plan — and costs will not decrease under a mandatory purchase requirement.
– Just five companies — Blue Cross, Kaiser, Blue Shield, PacifiCare, and Health Net — control 80% of California’s health insurance market. That extreme consolidation has given the major companies a stranglehold over pricing, allowing them to raise rates to boost profits. A mandate would solidify their cartel-like pricing.
– A proposal to cap insurer overhead and profit at 15% is only half of the cost-control equation and, without rate regulation, may actually drive up premiums. 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. Doctors, hospitals and insurers will have common cause to raise rates at the expense of individuals and the state. Insurers would be encouraged to define as medical expenses what common sense tells us are administrative expenses — such as call centers intended to deter policyholders from seeing a doctor or making claims.
Massachusetts Experiment:
The Massachusetts experiment shows that under a mandatory purchase system, insurers will use both price increases and coverage reductions to boost profits from a captive customer base:
– Proponents of the Massachusetts mandatory purchase of private insurance sold it on a promise of comprehensive health insurance for about $200 a month. In fact, premiums for health plans for a 55-year-old through the Massachusetts state pool reach up to $531 per month for basic coverage.
– The same 55-year-old wishing to purchase more comprehensive coverage will pay up to $906 monthly.
– Insurers in Massachusetts have already signaled that prices will increase next year.
2. Mandatory purchase of private insurance will lead to more high-deductible, bare-bones policies.
Unregulated mandatory purchase of private insurance regimes have only one method of suppressing premium prices: selling higher deductible policies that provide less coverage. Studies show that higher out-of-pocket costs force people to delay care until conditions become chronic, when treatment is more expensive and good health outcomes less likely. Such manipulation is already evident, even without a mandate.
– In addition to dramatic premium increases, many individuals and families already face un-affordable out-of-pocket costs in the form of deductibles of $2,000 to $5,000 a year or more in addition to physician co-pays. The Kaiser report found that 95% of workers face additional costs for hospital admissions, such as separate hospital deductibles, co-pays and per diem charges.
– The report also found that the number of workers whose policies provide no out-of-pocket limit increased to 29%. Without caps on out-of-pocket costs, regulators do not have the tools they need to prevent cases like that of Playa Del Rey resident Dana Christensen, who unknowingly bought a junk no-limit policy and was left with $450,000 in medical bills when her husband, Doug, died of cancer.
– In many policies that do have out-of-pocket caps, not all services count toward the out-of-pocket limit, requiring workers to spend more before insurance coverage kicks in. For example, 32% of workers enrolled in PPOs are already in plans that do not count the annual deductible towards the out-of-pocket limit. 79% of workers in PPOs are in plans that do not count prescription drug cost sharing toward the out-of-pocket limit.
Such reductions in benefits will only increase under mandatory purchase of private health insurance. In Massachusetts, the "cheapest" plans carry $2,000 individual deductibles, co-pays of up to 35% for most health services, separate deductibles for prescription drugs and up to 50% co-pays. They cap only some out of pocket costs. Individuals in each of the following scenarios would be required to buy health insurance because plans are considered "affordable" under the state’s formula:
– The state says a Boston couple in their late forties, with a $60,001 income, can afford premiums of $500 a month. The only plan available to them, for $468 a month (9.3% of their income), has no drug coverage, charges a $2,000 deductible and 20% coinsurance on most health services.
– A single 55-year-old making $51,000 a year in Boston would pay $4,510 in premiums for the cheapest plan available with prescription drug coverage. This is 9% of her income. The plan includes a $2,000 deductible, and co-insurance of 20% up to $5,000 a year. If her additional out-of-pocket costs next year are only the plan’s $2,000 deductible, she would spend $6,510, or 13% of her income, on health coverage.
– A couple in their late forties living in Barnstable would pay a minimum of $760 a month, or $9,121 a year, for the cheapest plan with prescription drug coverage — 11.4% of annual income even for a family making $80,000 a year.
3. Taxpayer subsidies without price caps will feed insurers’ profit demands and overhead.
The following three points assume that the mandatory purchase requirement supported by Governor Shcwarzenegger would be added to consensus health care reform provisions supported by the legislature in AB 8.
The current version of AB 8 already allows insurers too much latitude to sell low-benefit, high deductible plans outside the state pool. Under a mandatory purchase scheme, consumers would have no choice but to buy and taxpayer dollars would flow even if insurers raise rates and reduce benefits.
– Whether subsidies are provided to those earning 300% or even 450% of the federal poverty level, throwing money at insurers will only encourage them to demand more money and provide less coverage.
– Insurers are not required to abide by price caps as a condition of providing taxpayer-subsidized care. Insurers would receive taxpayer funds with no accountability over the product they sell or the price they charge.
4. Those who need coverage the most would face an uncertain future.
As you know, a January Field Poll found that 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.
– Under the current version of AB 8, insurers could still exclude from coverage the "sickest" 3%-5% of the state residents. The only option for those Californians under a mandatory purchase law would be state-run high-risk policies of unknown price and quality.
– A bill by Assemblymember Dymally that is part of the legislative plan leaves the price and benefits of that high-risk coverage to be decided later. Currently, high-risk coverage costs more than private insurance and has a limit of $75,000 in annual medical payments — roughly the cost of a one-week hospital stay.
In addition, those who are insured now and fall ill 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. Under § 1366.115 of AB 8, it appears that individuals would be required to re-apply for their private coverage after the first year, a dramatic policy shift that virtually guarantees people will lose their coverage within a year of a major illness.
5. Mandatory purchase of private insurance will uninsure some of those who currently have coverage.
Under the current version of AB 8, some employed Californians will not be able to afford to keep their existing coverage. They will be forced into higher-deductible plans or drop coverage altogether.
AB 8, as well as the governor’s proposal, caps an employer’s contribution to health care coverage at a level below the amount that most employers currently spend on coverage. Under AB 8, employees are required to buy coverage — an employee mandate — and their "share" of cost would make up for the employer’s reduced payment. Such a system offers shelter to employers facing large health care cost increases and requires workers to fund the difference for rapidly rising health care premiums.
– An individual employee or family earning more than 300% of the poverty level under the current version of the Núñez bill would not be required to spend more than 5% of annual income on health care. While this may exempt many families from the requirement to buy insurance, it will not help them get comprehensive health care. According to a Kaiser Foundation report, families who receive coverage from an employer now pay an average of $3,281 per year, not including deductibles and co-pays.
– Families of four earning 300% of the federal poverty level, $61,950, already pay more than 5% of income on their employer-provided health care.
6. Rate regulation, not the mandatory purchase of private insurance, is the first step to major reform.
Rate Regulation’s Proven Record:
A robust regulatory review would follow the health care money trail, oversee what insurers define as "medical spending" and ensure that premiums are not excessive. Since 1988, property and casualty insurance rate regulation under Proposition 103 has saved California drivers $23 billion in premiums. Our consumer group alone has saved Californians $800 million in auto, home, and medical malpractice insurance premiums by intervening against excessive rate increase proposals under Prop 103. According to a report released this year:
– California auto insurance premiums have declined by 7% since voters approved Prop 103 in 1988, while rates nationally have increased 47%.
– In the fifteen years following the passage of Prop. 103, California fell from 2nd most expensive state for auto liability premiums in the country to 21st.
– At the same time, the stability of rate regulation has provided above-average profits for California insurers.
Health Insurer Waste & Profiteering:
Regulation of rates would squeeze billions of dollars of fat out of the health care system, leading to level or reduced rates even if guaranteed issue and community rating are required:
– Just four HMOs regulated by the Department of Managed Health Care (DMHC) have transferred $4 billion in profit to out-of-state parent companies since 2002 — enough money to provide full coverage to 1 million Californians for an entire year.
– Just three companies, including Blue Cross and the non-profits Kaiser and Blue Shield, have $14.4 billion in excess reserves — enough money to provide full coverage to 4.6 million Californians for an entire year. Kaiser has 1,200% of the required minimum, for a total of $11.3 billion in premium-funded excess reserves.
– Since the company’s merger with out-of-state Anthem in 2004, Blue Cross has made $7.6 billion in payments to affiliated companies in the form of so-called "management and service agreements." All told, dividends and transfers to affiliates represent up to $6.5 billion in possibly illegal profit transfers in violation of a 2004 merger agreement with state regulators.
Reforms should reduce health care costs by first requiring these profiteers to tighten their belts, not by requiring Californians to buy health insurance policies they already can’t afford.
Sincerely,
Jamie Court
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.
