New Amendments to California Health Reform Released

They are the issues that provide confidence that the reform is workable and pencils out; and that determine whether a proposal would provide a benefit or a burden to many California consumers.

AREAS OF AGREEMENT: There continue to be major areas of agreements in concept, although with important details continuing to be worked out. In any compromise being discussed, the proposal would include several major steps forward in making coverage more available and affordable for Californians:

• The biggest public program coverage expansion since the creation of Medicare and Medicaid 40 years ago.

• The proposal would expand Medi-Cal and Healthy Families to lower-income children, parents, and even adults without children at home who currently have no access to public program coverage. All children up to 300% federal poverty level would be guaranteed coverage; the coverage expansion for adults goes up to 250% FPL (around $25K/year for an individual, or $50K for a family of four).

• The proposal would also streamline these programs so that they are easier to get on and to stay on. This includes the elimination in Medi-Cal of the depravation test, and the asset test.

• The proposal would improve these programs by increasing Medi-Cal reimbursement rates, so even the six million Californians on Medi-Cal now have better access to providers.

• Mentioned in the bill and expected in the ballot measure is additional financial assistance, through tax credits and/or subsidies, for people from 250-400% FPL (up to $80K for a family of four), and for early retirees of higher incomes, but who have particularly high premiums.

• The establishment of a minimum employer contribution for health care, of the similar import to the creation of a minimum wage 70 years ago. Providing more security the majority of Californians who get employer-based coverage but who are concerned about losing it, the bill would sets a standard for a minimum employer contribution to spend a percentage of payroll on health benefits, either by paying into the purchasing pool or by expending the funds on health insurance or other health benefits. (This section is proposed to go into the ballot measure rather than the bill, and there’s no specification, but the belief is that the minimum employer contribution would be a scaled amount up to 6% or 6.5% of payroll for most larger employers.)

• This statewide purchasing pool could create a new affordable option for employers to cover their workers, initially for employees and dependents of employees that choose to use the purchasing pool. The pool would offer subsidized coverage for all workers of employers who pay into the pool.

• New oversight over the insurance industry would especially help individuals and small businesses who don't have the market power of large group purchasers of coverage. The proposal would have:

• Reforms of the individual insurance market so that coverage is available to anyone who wishes to purchase it, by establishing “guaranteed issue” rules to prevent insurers from being able to deny people based on “pre-existing conditions.” The guaranteed issue would start immediately; “community rating” rules to prevent insurers from pricing people differently because of health status would be phased in fully in four years. There would also be a limit, determined by regulators, to the difference that insurers could price on age.

• An organization of the individual insurance marketplace, so all insurance products get classified in five tiers, with benchmark plans in each, to allow consumers a better sense of the value of the product they are buying, and to facilitate price and benefit comparisons.

• Other efforts, including reinsurance and risk adjustment, to ensure than insurers compete on price, quality and service, rather than on avoiding people who may actually need care.

• A requirement that premium dollars go to patient care, and a 15% limit on the percentage of premium dollars that an insurer collects go to administration, marketing, and profit.

• Some reforms of the small group market, extending protections that now exist for those small businesses up to 50 workers to mid-size employers with up to 100 employees as well.

• A more secure and more fairly financed health system would be bolstered through shared responsibility from multiple different funding streams, including minimum employer and individual contributions, reinvested country and state savings from public program expansions, a hospital fee, a unspecified tobacco tax, and strategies for bringing in California's fair share from the federal government, to:

• Bring in almost five billion dollars in new federal matching funds to California ’s health system, by getting matching Medi-Cal funds for these expansions of public programs and employer contributions.

• Offer workers new tax savings, by providing the ability to pay premiums, or share-of-premiums, with pre-tax dollars through Section 125 plans, for a savings of 15-40%.

• Several cost containment strategies, which, working together, can slow the growth in ealth costs. The coverage expansions and financing provisions will help, by themselves, reduce the "hidden tax" that results from not having all employers provide coverage to their workers, and for having the uninsured go without cost-saving preventative care. Other cost-control efforts would include:

• Preventing Californians from getting sicker by helping patients to affordably control chronic diseases such as asthma and diabetes.

• Funding “community makeover” grants to build healthier neighborhoods.

• Requiring transparent public reporting on health care costs, and the quality of services, which would enable health purchasers and consumers to make wiser decisions about their care and the best way to spend their money.

• Requiring the adoption of health information technology, which could help avoid duplication and costly errors; and encouraging E-prescribing.

• Helping foster public insurer options for consumers out of county efforts, allowing these low-overhead, not-for-profit agencies to have regional networks and better compete.

• Allowing bulk purchasing of drugs for the new purchasing pool.

OUTSTANDING ISSUES: Consumer advocates, including Health Access California , are reviewing the proposal; it is clear that there are many elements of the proposals that we have long advocated for; that we didn’t get everything we wanted, and we need to see if we get everything we need.

While millions of both insured and uninsured Californians would be helped by this framework, there’s still a need to review the whole proposal—including the ballot measure—to ensure that no group of consumers is worse off under the proposal. Many consumer groups have adopted a “do no harm” standard.

THE INDIVIDUAL MANDATE AND AFFORDABILITY continues to be a major issue of negotiation. The measure does have an individual requirement to have coverage, with a combination of public program expansions and subsidies, as well as affordability and hardship exemptions. Many consumer, consumer, and constituency organizations insisted that any requirement to have coverage needs to have protections to ensure the availability and affordability of such coverage, and will need to evaluate the proposal in this light.

• The amendments would expand public programs up for children, adults, and families up to 250% of the federal poverty level ($25K for an individual, $50K for a family of four) for those who qualify; the mandate effectively exempts those under 250% who do not qualify for those public programs.

• Those without employer-based coverage between 250-400% FPL would have the ability to go to the purchasing pool and get a tax credit/subsidy to assist with getting coverage. The mandate is contingent on these subsidies.

• Over 400%FPL ($40K/year for an individual; $80K for a family of four), there may be subsidies available for early retirees (who by virtue of age have some of the highest premiums).

• There would be a process at the MRMIB board to provide temporary and permanent exemptions to the mandate based on affordability and hardship.

• Benefits and cost sharing of the coverage offered are different depending on income.

• Those in public programs up to 250% FPL have fairly comprehensive benefits and low-cost sharing similar to Medi-Cal or Healthy Families. In the individual market and the purchasing pool, regulators would organize and “tier” the market, setting a minimum benefit that everybody would have to buy, that would include doctor, hospital, and preventative care, as well as four tiers of products above that minimum that people could purchase from.

These issues of affordability also have an impact on the finalizing of individual insurance market reforms, particularly the requirement on insurers to provide guaranteed issue. Both the Governor and the legislative leaders have been committed to reforming the market so that people with “pre-existing conditions” have access to buy insurance. But insurers balk at any exemptions that would allow sicker people to get coverage but allow healthier people not to contribute. By extending the subsidies and narrowing the affordability standard, few people would be exempted at first, allowing all those in the individual market to have guaranteed issue.

Another outstanding issue is one of a “safety valve,” to protect people from the mandate in the future with government shortfalls or rising costs. While the vast majority of uninsured would be significantly helped in meeting the requirements of the mandate, at biggest risk are some middle class Californians just over 400% FPL. They do get some benefit: this population would have guaranteed issue access to products, and most workers will have access to a Section 125 plan to get a significant discount (potential 20-40%) off of a premium by using pre-tax dollars. The vast majority of those already have insurance—less than 15% of the uninsured is over 400%FPL. However, if health costs rise, they will need either additional help or subsidies, or greater need for exemptions from the individual mandate. New language includes a periodic evaluation of the program.

PURCHASING POOL STRUCTURE: There continues to be an issue about the financing of the pool. Most of the attention has been about the exact level of the employer contribution: the Legislative leadership has a 6.5% minimum employer contribution; the Governor has a 5.5% level. Both also have lower levels for some small businesses with differing definitions of “small” business, between $250,000 and $1 million in payrolls: both the levels and the cutoffs remain the subject of discussion.

The pool would include those who have public program coverage up to 250% of the federal poverty level; those who are eligible for a tax credit or subsidy between 250-400%, as well as early retirees; and all workers of those employers who pay the fee. It also includes other workers whose employer chooses to set up a Section 125 plan through the pool.

FINANCING: While there’s substantial agreement on these elements of a health reform proposal, there is not language on a proposed companion ballot measure, which would include much of the financing. The ballot measure is likely to include the substance of the employer fee, the hospital fee, the county share-of-cost, and probably a tobacco tax of some amount.

Obviously, the more subsidies that are needed to make coverage affordable, the more financing that is needed. With additional financing, it would be possible to use this framework to improve the benefits for low- and moderate-income families, and to extend subsidies beyond 400% FPL.

FUTURE FIGHTS: Other items of interest for health advocates would also be left for future discussion, either in the next few days, or in future regulatory or legislative arenas. Insurance regulators, for example, will determine the variation allowed for insurers to be able to charge premiums based on different ages. And then there’s other possible legislative additions: for example, there’s significant interest by some advocates in allowing the self-employed to be able to use the purchasing pool, but there was not enough time to develop the concept.

DETAILS TO DISCUSS: Many organizations are waiting to see the rest of the proposal, most particularly the ballot measure with the financing, as well as the second round of amendments to this bill that are expected to come out early next week. The bill also includes some language that remain “open issues” between the Governor and the Speaker, so it continues to be subject to change.

INITIAL OVERALL COMMENT: This is a framework that would provide significant help to the vast majority of Californians in getting coverage they need and want, both for the insured and uninsured. While it includes many elements that health and consumer advocate have long fought for, we continue to seek more assurances about affordability for consumers, especially for very specific populations. Consumer and health advocates will be vigilant in reviewing additional amendments and the ballot measure on behalf of California patients. However, with the rapidly deteriorating status quo in health care, the urgency for reform is real for millions of Californians.

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.