Consumer Groups: Reform Plan Must Include Cost Controls

As gubernatorial recall candidates refine their positions on health care reform, the state legislature is preparing to convene an historic conference committee to consider a proposal requiring all California employers to provide health care benefits, a reform model know as “pay or play.” Consumer advocates applauded the debate but warned that absent cost controls, such reforms will bankrupt the already foundering state health care system.

Health insurers are vying for control of the legislation in attempt to secure a policy that guarantees insurers a vast new customer base while allowing them to operate absent appropriate oversight of their rates. In California, insurers commonly spend between 20-30% of every health care premium dollar on administrative costs, advertising, executive salaries, surplus, and profit. California is not one of the 26 states that currently requires state oversight of health insurance rates.

“Whether or not politicians will take insurers, hospitals and doctors to task for skyrocketing health care costs will determine the success of the reform debate. Candidates influenced by insurance company campaign contributions must remember that their constituents are being priced our of the health care market due to insurer waste and profiteering,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). “For consumers, rising costs equate to decreased access. The fundamental public policy issue is the lack of control over costs whether it concerns prescription drugs, monthly insurance premiums, hospital charges, or physician rates. The verdict is still out as to whether politicians will protect California consumers and small business owners by requiring all players to abide by efficiency standards.”

Under the proposed “pay or play” scheme, employers would have to either provide benefits to employees and their dependents directly through group health care contracts or pay a fee for the employee and dependents to receive care from a state run health insurance program. This approach has the potential of significantly increasing access to health care in that over 82% of California’s uninsured are working families. Yet, Hawaii’s 30-year experience with a similarly constructed “pay or play” system has shown that without insurer cost controls, the solubility of state businesses is threatened:

– After 3 consecutive years of 10-28% premium increases, in 2002 the Chamber of Commerce of Hawaii asked the state legislature and the governor to provide independent oversight of rates.
– During that same year, health care premiums increased 250 times faster than medical inflation.
– The Hawaii legislature approved, and the Governor signed, legislation allowing a regulator to deny unfair premium increases.

In California, small employers have been hit hard in recent years by skyrocketing costs:

– Businesses with 50 or fewer employees experienced a premium increase of approximately 20 percent in 2002, 19.99 percent in 2001, and 17.12 percent in 2000.
– According to the State Trade and Commerce Agency, small businesses comprise nearly 98 percent, or 2.5 million, of all businesses in this state, employ more than 50 percent, or 7.5 million, of California’s workforce, and generate more than one-half of the state’s gross domestic product,

“Fueled by a flailing state budget, skyrocketing costs, and inequitable cost shifting, all health care stakeholders are suffering due to irrationalities in health care financing. Uninsured rates among middle class Californians are on the rise for the first time in a decade. Politicians must address the tremendous cost inefficiencies, waste, and unregulated profiteering in California’s health care system,” said Flanagan.

The vehicle of reform in the legislature will be a “pay or play” bill sponsored by Senate President pro Tem John Burton, SB 2. Two other versions of the model will be considered in the committee, one by the chair of the Assembly Health Committee, Dario Frommer, AB 1527, which would provide tax credits for small businesses, and a health insurer sponsored bill, AB 1528, by Rebecca Cohn.

FTCR is a non-profit and non-partisan consumer advocacy organization. For more information visit us on the web at http://www.consumerwatchdog.org or http://www.calhealthconsensus.org

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