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Why the Consumer Federation of California Opposes Governor Schwarzenegger's Health Care Proposal

R.Holober-2005.gif By Richard Holober
Executive Director
Consumer Federation of California

The Consumer Federation of California regrets that we must oppose Governor Schwarzenegger’s health care proposal that is being heard by the Assembly Health Committee today.

We applaud the governor’s willingness to tackle the long-festering problem of escalating health insurance costs and reduced coverage. Our system of health coverage is failing millions of uninsured Californians, millions more who are underinsured, businesses that are being crushed by escalating premium costs, workers, retirees and their families who must shoulder ever increasing co-payments, and physicians, hospitals and other providers whose ability to provide care is undermined by insurers who deny coverage and ratchet down reimbursement rates. The governor has opened a badly needed debate, and he has developed some good concepts, including coverage for all regardless of immigration status, and regardless of pre-existing conditions.

While the governor’s proposal contains some good provisions, it is, on balance, unacceptable. Ten months after it was first put forth as a concept, the governor has made almost no movement to address its many shortcomings. CFC is always open to consider any amendments. The current measure would need a drastic re-write before it would begin to enter the realm of acceptable options that we could consider supporting.

We oppose mandating individual coverage without cost controls or subsidies to Californians of modest means. The proposal requires all Californians to obtain coverage. For a family of four earning $41,500, which is 201 percent of the poverty line, the state would cap the cost of purchasing from the state pool at $2075, or five per cent of income. For a family of four earning 251 percent of the poverty line, or $51,625, there would be no premium cap, and the only assistance would be in the form of a tax credit for premium costs once they exceed $2581 per year. For a family of three earning 351 percent of the poverty line, or $60,095, there would be no state assistance. These levels of out of pocket cost are a significant burden on families that are barely making ends meet.

Compounding this, there are no guidelines developed to describe what type of coverage these payments would buy. The proposal authorizes the Secretary of Health and Human Services to determine the costs and benefit levels. Uninsured individuals with limited income would feel compelled to buy high deductible catastrophic coverage plans in order to comply with the individual mandate. These high deductible plans would leave the individual responsible for thousands of dollars in medical costs for their family each year, with no help from the insurance they purchased. Previous drafts of the governor’s plan included $5000 deductibles and $10,000 maximum out of pocket expenses for a family. If the Secretary of Health and Human Services followed these guidelines, many Californians would end up with the illusion of insurance with almost no effective coverage.

The governor’s proposal does not spell out the payroll tax, or fee, that would be levied on an employer choosing not to provide health coverage. In his initial proposal this year, the governor stated that a fee of four percent of payroll would be levied on these employers for participation in the government insurance pool. This is simply not enough to fund comprehensive health services. Employers who provide health insurance currently spend on average about twelve percent of payroll for health care costs. The governor’s plan does not set standards for the coverage that would be provided by an employer who fulfills the mandate by spending four percent of payroll on health expenditures. Four percent would not buy basic medical and hospital coverage for a worker with a family. Further, there are no requirements that employers cover full time and part time workers. Without this requirement, it is likely that part time workers will be left on their own to purchase health coverage.

The Consumer Federation of California opposes any expansion of Health Savings Accounts. In his earlier proposal, the governor included employer contributions to Health Savings Accounts as one method for an employer to fulfill its health expenditure mandate. HSAs place the burden on the patient, and militate against efforts to reign in skyrocketing premium costs by forcing each individual to go it alone, through individual spending for coverage. Coupled with high deductible catastrophic insurance that is most likely to be purchased by individuals of modest means, HSAs are a recipe for inferior health coverage and greater cost shifting to the individual.

The measure fails to address skyrocketing health insurance premium costs. During the years 2000 – 2005, health insurance premiums escalated by 87 percent, which is over four times the rate of inflation. As employers felt compelled to pass along some of these costs, the average worker contribution for insurance went up a staggering 143 percent from 2000 – 2004. The Lewin Group and others estimate that only seventy cents of every premium dollar spent for private insurance is used for the delivery of health care. We can no longer allow this industry to raise prices and increase profit margins at our expense.

At a minimum, rates charged by insurers and HMOs should be regulated by the Insurance Commissioner or the Department of Managed Health Care. A successful model for this exists under Proposition 103. California has regulated automobile and homeowners insurance for eighteen years. California’s insurance premium rates for these products have been held in check while they have increased at a brisk pace in the rest of the nation.

Rate regulation is called for in any instance in which Californians are required to purchase mandated insurance coverage. In the governor’s previous concept for health reform, a cap of fifteen percent was placed on insurers’ overhead expenses. This percentage is too high. The governor’s plan is an invitation to the handful of insurers and HMOs who dominate the market in California to use their market power to raise premium prices.

The current proposal includes selling the state lottery to a private business, and using some of the revenues of this sale to finance part of the cost of providing health coverage to lower income Californians. The rationale for the sale is that a private operator will increase revenues through more aggressive marketing. We are opposed to the sale of the state lottery. Californians of modest income spend a disproportionate amount of their income on gambling. We do not believe it is good public policy to entice lower wage Californians to spend more of their limited incomes on gambling.

This is a brief review of several of the more objectionable aspects of the governor’s health care proposal. To his credit, the governor has opened a public debate on the need for health care reform. As this debate has moved beyond slogans about universal coverage to actual proposals to make this a reality, it has exposed the weakness of our current employment-based private insurance model. It is our hope that after the governor’s proposal is defeated, he and others will move forward, with new proposals that control costs, improve coverage, guarantee affordability, and that remove the for-profit insurers from their dominant role in the system.

The Consumer Federation of California is a non-profit advocacy organization. Since 1960, the Consumer Federation of California has been a powerful voice for consumer rights. CFC campaigns for state and federal laws that place consumer protection ahead of corporate profit. Each year, CFC testifies before the California legislature on dozens of bills that affect millions of our state's consumers. CFC also appears before state agencies in support of consumer regulations.

Posted on October 31, 2007

Comments

Richard,

Your comments on Health Savings Accounts are completely incorrect.

A Health Savings Account is just a savings account that allows you put away up to $5650 for familys, $2850 for individuals for 2007 with a dollar for dollar federal tax deduction for health care expenses.
The state of California currently does not give the state tax deductions. (One of only four states) To have an HSA you must have high deductible health insurance.

In CA more and more insurance companies are offering excellent High Deductible Health Plans. You can buy a $1500 deductible policy which pays 100% after you meet the $1500 and put up to $2850 into a HSA. If you are in a 25% tax bracket that savings alone would pay for 2 or 3 months of your insurance premiums.

Your statement of "HSAs are a recipe for inferior health coverage and greater cost shifting to the individual." could not be further from the truth.

Tim Morales

Posted by: Tim Morales at October 31, 2007 07:39 AM

While I am definitely pleased that your group has come out against the odious individual mandate, I wish that it had been a broader kind of opposition, to the concept and not just to Arnold's specific version. Because insurers still have a number of means to deny care, stall payment of claims, and the like. The business model of insurers guarantees it - they make money by taking in more in premiums than they pay out in claims.

As Massachusetts has found, it is impossible to provide affordable health insurance under an individual mandate - unless it comes with a high deductible policy that has limits on what it will cover, a policy usually known as "junk insurance."

Further, 5% of one's income is not exactly "affordable" especially when we get down to the $50,000 and below income range. Given that insurers cannot guarantee that a policyholder will actually get health care, even a 5% cap is unacceptable.

The fact is there is NO version of an individual mandate that is acceptable. All it would do is force people to hand over their wallets to corporations without any guarantee they'd get anything in return. If we want truly universal health *care* then we need to instead be looking at single-payer.

Posted by: Robert in Monterey at October 31, 2007 08:43 AM

Robert,

You are correct. In fact, CFC actively and enthusiastically endorses SB 840, Kuehl's single payer health care plan.

Posted by: ZJK at October 31, 2007 10:46 AM

For the first time in the history of America. The life expectancy of today's children is less than that of their parents. This is catastrophic. And our infant mortality is equal to that of a third world country. Current U.S. adult life expectancy is down from #1 to #42. And dropping fast. These facts are what is known as EXTINCTION! indicators. These are the early signs of the final phase of the EXTINCTION of the American people.

You have to take the profit motive out of health care delivery. The profit motive does not work with health care. Or any other essential public service like police, and fire. The sooner everyone faces this truth. The sooner you will be able to adopt a real solution to the problem. The days of paying for health care out of pocket are at an end. Just like the mob days of paying for protection out of pocket came to an end.

HR 676 is the way to go. Single payer Universal National Health Care For All. Medicare for all. Accept no substitutes. The sooner you face this. The sooner you begin to heal the Cancer of private for profit medicine that is destroying this entire society. Other developed countries realized this years ago. It's a no-brainer now. See sickocure.org

Money, greed, and the profit motive has just decimated health care in America. And killed, and injured millions needlessly. Just for profit. But that is what large amounts of money, greed, and a lust for power always does. No one is immune from this corrupting power. The smart ones know this. And avoid letting them-self be put in compromising positions. But that is easier said. Than done. And very few succeed.

Most in the US go into medicine primarily to become wealthy. That is who the medical schools mostly choose. Most of the medical schools faculty are in bed with the drug companies, and others. And like the story of Dr. Faustus. They end up selling their soles. One compromise at a time. Until Lucifer owns them.

In medicine. Compromised care means. Injury, disability, and death. It's sad really. But HR 676 can fix this disgrace. Like it has in other developed countries. The only question is. How many more millions will be hurt, injured, and killed. And how many more of your children will die before their time. Before we fix this disgrace of private for profit health care in America.

I realize there will be a few people that have what they believe is good health care coverage. Who will want to opt out of a single payer system like HR 676. But let me remind you we rank # 37 in quality of health care for all. Down from #1. Never the less. A few opting out is not a problem. As long as all other Americans are automatically covered at birth through life. Unless they choose to opt out of HR 676. The government takes out 1.4% from your paycheck now for Medicare. All they have to do is substitute for HR 676 what they now take out of your paychecks for private health insurance. Remember, we already spend more on health care than any other country in the world. Right Now. We are being ripped off. And raped.

The SCHIP program is a desperately needed program for Americas children. But with the impending EXTINCTION of Americas children. And their current catastrophic health care condition. SCHIP needs to be extended to cover all of Americas children, immediately. Parents should have no hesitations, or financial worries about seeking medical care for their children. Whenever they have any concerns about their children's health. Especially in the richest country in the world. I would submit that any President, or politician that fails to do this for the children. Betrays their most solemn oath to protect the American people. Especially when you consider that all other developed countries have done this. And that we are the richest country in the world.

So get on it America. Get it done. You have been doing great over the past several months. Keep it up. And step it up. You have to force it, and take it. It's the right fight, and the right thing to do. Now is the time... Take no prisoners.

Posted by: jacksmith at November 1, 2007 04:25 AM

Jack Smith,
You don't know Jack Crap.
What does the government do better that the private sector? Postal Service? Schools? not much. Every year my school says they are out of money, another bond more cash and ther rich send their children to private school.

The SCHIP program was working perfect now they want to cover families that make up to 84K and 25 year old men. Not just children.

Profit is what drives us to get better. HR676 is the worst possible thing that could happen. Look at the Canadian system, they come to the USA for care. Look at England they have to import thousands of doctors because there is no profit for them.
Go to Cuba and get work done Mr Sicko movie man .

Posted by: Jeff at November 3, 2007 04:02 PM

Jeff is the perfect example of what is wrong with America; an indoctrinated laissez faire zealot who forgets that laissez faire capitalism is exactly what led the United States to implement GOVERNMENT REGULATION of everything from building codes to the Great Society programs of Lyndon Johnson's time. Profit only drives the wealthy to get wealthier AT THE EXPENSE OF THE POWERLESS and IMPOVERISHED.
Gov. Schwarzenegger's so-called "healthcare" plan, devised in part by insurance industry insider and lobbyist William Gausewitz is a direct assault on the working poor by a neo fascist cadre of capitalists. If a profit driven model is so wonderful, then why has America's private, for-profit HMO system brought us the shame of the world???
And a little note to the likes of Jeff on American history: it was the Republican party which first began the PROGRESSIVE regulation by the American government. That party has so badly lost its way.
This regressive health insurance mandate (for it is NOT healthcare!) will ensure only one thing: more IMPOVERISHED Californians with LESS healthy families. But that's what fascism is all about. To quote the father of modern fascism, Benito Mussolini:
"Fascism is more approriately termed 'corporatism' for it is the ultimate merger of State and corporate interests." The Republican Party has succeeded in turning the American government into a collection agency for the rich.

Posted by: Ed Benti at November 10, 2007 08:58 AM

Ed,
Before you go back to your government job, Please give me some examples of what the government does better that the private sector?
Even some examples of what the government does well?

Schools? New today:State's schools are bad - L.A.'s are the worst
Post Office? DMV? Government controls heathcare now, VA hospitals, County Hospitals how about Walter Reed?
They are going such a great job?

Posted by: Jeff at November 14, 2007 04:50 PM

Ed,
Well after a few weeks of thinking about it, I see you came up with the same number I did ZERO, ZIP, NONE!
I thought so. Good job Ed.

Posted by: Jeff at November 30, 2007 09:27 PM

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