Analysis of Governor Schwarzenegger's Legislative Language on Health Care

* CONCEPT PAPER: A mandate that all Californians must have insurance coverage, without condition, exception, or limit. “Minimum credible coverage” was previously defined as a policy with a $5,000 deductible, and $10,000 out-of-pocket cost maximum.
* CHANGE: The legislative language continues to have a broad mandate, and begins to detail the enforcement through various state agencies. The “minimum credible coverage” is no longer defined; instead the Secretary of Health and Human Services will define it; and employer-based coverage would count even if it was below the minimum.
* COMMENT: The individual requirement is in force, even if the individual does not get help from an employer or public program. Unlike employers, hospitals, or counties, there’s no limit to the expected requirement based on income.

PUBLIC PROGRAM EXPANSION:
* CONCEPT PAPER: Expansion of public coverage programs for all children up to 300% of the federal poverty level, and many qualified parents and adults without children at home up to 250% of the federal poverty level ($25K for an individual, $50K for a family of four). Some streamlining of these programs.
* CHANGE: The legislative language is similar to what was proposed, with some tweaks: it no longer includes the “bright line” language that would have disenrolled many from no-cost Medi-Cal, and raises the qualification for no-cost Medi-Cal up to 150% of the poverty level ($15K for an individual; $30 for a family of four).
* COMMENT: The public program expansion has been the area of greatest consensus between the Governor and the Legislature, although there are still issues about how to sustainably finance the expansion. And while there’s a limit of premium costs for those between 150-250% FPL at 5% of income, there’s no guideline for potential out-of-pocket costs, significantly diluting that protection.

EMPLOYER CONTRIBUTION:
* CONCEPT PAPER: A requirement that employers of 10 or more workers spend at least 4% of payroll for health care benefits.
* CHANGE: The legislative language does now include employers with fewer than 10 workers, setting a minimum requirement at a sliding scale of 0-4%.
* COMMENT: There is not much change in this category, which has significant differences with AB8 (Nunez) in both contribution level (7.5% of payroll) and structure (for example, in getting coverage to part-timers). Given that employers who provide coverage currently spend over 12% of payroll for health care, consumer advocates are concerned that the less employers are expected to contribute, the more their workers are expected to bear in the context of an individual mandate.

INSURANCE MARKET RULES:
* CONCEPT PAPER: Insurers would be prevented from denying people based on “pre-existing conditions,” and have to spend 85% of their premiums on patient care, rather than administration and profit.
* CHANGE: The legislative language does have a phase-in that maintains the existing high-risk pool and intends to gradually reduce difference in rates based on health status. The limit on how much older people can be charged more than younger people is unspecified, left up to the regulators. And the “medical loss ratio”—how much insurers spend on patient care—is reviewed in terms of an insurer’s whole book of business, rather than product by product, or even market-by-market.
* COMMENT: The change to allow unsubsidized individuals to get coverage through the purchasing pool is an improvement, but there are concerns that the language doesn’t prevent the insurers from being able to select risk through pricing, marketing, age rating, benefit design, etc.

PROVIDER RATES AND FEES:
* CONCEPT PAPER: Medi-Cal rates would be increased for doctors and hospitals. In turn, the doctors and hospitals would pay a “dividend” in the form of a provider fee.
* CHANGE: The legislative language does include the Medi-Cal rate increase for both doctors and hospitals, but no longer includes the assessment on doctors.
* COMMENT: This element, supported by many advocates who want to see increased access and quality for Medi-Cal recipients, was not included in AB8 because of the 2/3 vote requirement for taxes and the resulting blockade by Republican legislators. The Governor and legislative leaders would get this piece by going through to the ballot.

The bill continues to have various language about prevention (such as obesity and smoking cessation) and cost containment (such as transparency and information technology), which we will describe more in future alerts.

AFFORDABILITY ISSUES: The Governor also acknowledged issues about affordability by placing intent language in the draft to suggest a “tax credit” for those between 250-350% of the federal poverty level. However, that tax credit is only for the premium, and does not include “out-of-pocket costs.”

Consumer advocates have focused on the issue of affordability and out-of-pocket costs over the past several months—the Its Our Healthcare! campaign even ran ads with the tag line “it’s not real health care unless you can afford to use it.” But the Governor’s legislative language and the changes he made since January, don't address this issue, except for those who are just above the poverty level (100-150% of FPL) who would qualify for Medi-Cal with no cost-sharing. Other than that, the new language goes backwards:

• The new legislative language gives the Administration the ability to set “minimum coverage” at any level. Consumer advocates disagreed with the level it was set at in January with a $5,000 deductible policy, but giving the Administration the ability to set it at a potentially worse level is not an improvement.

• Whatever the “minimum coverage” that is set really won't be the minimum. Under the individual mandate, there’s no standard for employer-based coverage in terms of benefits or cost-sharing, so people could be called “covered” with less-than-minimum benefits. It also means that many people with even sub-par employer-based benefit will then be excluded from subsidized coverage or the tax credit--yet still subject to the mandate.

• The language provides state tax breaks to promote Health Savings Accounts, (which can only be used with high-deductible plans).

MANDATE WITHOUT AN AFFORDABILITY TEST: The Governor’s health care reform website has a chart showing how specific “hypothetical” people may get helped.

But responding to the legislative language, consumer advocates are also concerned there are significant populations that would have the burden of an individual mandate, but would not get the assistance needed to meet the mandate with coverage that was actually of value to them.

They include the following categories, each of which includes hundreds of thousands of Californians:

* Low-income adults under 250% that would not qualify for subsidized coverage because of the documentation requirements of the Deficit Reduction Act, including both citizens and undocumented Californians. They would be subject to the mandate although it would simply be too expensive.

* Low-income adults under 250% without children at home who are offered employer-based coverage at work with significant cost-sharing, high deductible health plans, or no out-of-pocket costs maximum. They would be forced to take up such coverage, with any associated costs, and many would thus not be eligible for public program coverage.

* Medium-income individuals and families who would have no assistance offered. For example, this could include an individual 50- or 60-year olds at $40K, $50K, or $60K, but for whom to buy coverage on the individual market would require premiums and out of pocket costs of $10,000 or $20,000.

NEXT STEPS: Health Access and other organizations and advocates are looking over the details. More will be posted on our website and blog, at http://www.health-access.org/blogger.html.

To view other resources from the Year of Health Reform, visit our website.

Health Access California is a statewide health care consumer advocacy coalition of over 200 groups. This article has also been published on the Health Access Weblog.