They asked the right questions…

Friday, February 16, 2007

* Senators grill Administration on affordability of health coverage for consumers
* Optimism expressed on passage of reform this year
* More information released on modeling of new proposal
More on the Health Access Weblog:
Of Pirates and Snowboarders…

The state Senate Health Committee took its first crack at drilling down and exploring the interlocking components of Gov. Arnold Schwarzenegger’s health proposal on Thursday. The four-hour hearing, based essentially on a 10-page fact-sheet proposal that still has not been written in bill format, indicated that much still needs to be done – both on by the Legislature and the Administration side – before a health reform plan is to be passed.

Committee members and the administration all expressed appreciation at the intense focus on health care and the urgency to do something this year. Senators from both parties, including Republicans Senators Cox and Aanestad, and the introductory remarks by Senate President Pro Tem Perata, expressed the desire and overall optimism about passing major reform this year.

But as a caution, Sen. Sheila Kuehl, chair of the committee and a longtime advocate (and author for five years) of legislation for a universal, single-payer system, displayed the sign “Do No Harm’’ at the dais to remind all policymakers that any changes must not make Californians worse off than they are now.

In the meantime, Governor Schwarzenegger was speaking on his health proposal at the “National Pay for Performance Summit.” His comments are available on his website here:

The Governor’s Office also released a new paper, “Modeling Health Care Reform in California,” by MIT professor Jonathan Gruber, which reveals some of the assumptions behind the Governor’s plan and the assumed impact, on individuals, employers, and the state government:

Back to the hearing, it started with a presentation by Health and Human Services Secretary Kim Belshe, with substantial give-and-take from the members of the committee. A second panel featured LAO analysts and academics, and a third panel featured quick response from selected stakeholders.


Most notable was the discussion between the lawmakers and Administration officials, which mostly focused on the impact of the individual mandate on California consumers. The governor’s plan calls for an individual mandate, combined with rules on insurers such as guaranteed issue and modified community rating, to assure individuals can get covered. It’s unclear, though, how much the plans would cost under the proposal.

The biggest issue raised by the Senators was the issue of whether health coverage was affordable for consumers, either to buy it, or to use it. Their questions indicated that reform plans would not be helpful if all Californians were forced to buy plans – through an individual mandate — that were too expensive or that didn’t provide much coverage – like high-deductible plans.

Sen Sheila Kuehl started out by saying that she agreed with the broad concepts of the Governor’s plan, including “universality,” “shared responsibility,” and “affordability.” However, she “worried about whether Californians can afford it,” both those Californians with subsidized coverage–she called the 6% of income that many would have to pay “a lot”–and those who would have no subsidies. She was concerned that there were “no limit of premiums.” She also wanted to make sure that consumers received valuable and meaningful coverage for their premium dollar. “There’s a tension between what people have to pay and the level of benefits that will be provided,’’ said Kuehl, who added that she was “not confident that affordability will be achieved.”

The Administration’s theory, said Administration official Richard Figueroa, is that with double the number of people buying health insurance in the individual market (from the current nearly 2 million to around 4 million Californians) prices would either go up 1.2 percent – if new enrollees were of “average’’ health — or come down by 1.2 percent – if the newcomers were younger and healthier.

Belshe summoned the oft-used analogy to auto insurance, which Kuehl pointed out, also was not universal. In California 14 percent of motorists remain uninsured and policyholders pay an uninsured motorist premium. This analogy is also not apt because auto insurance is priced, in part, based on the vehicle that you choose to drive (ie can afford.).

There were no assurances that any reduction in health premiums for individuals would actually result from the governor’s plan. Kuehl alluded the now-infamous California energy crisis six years ago, where the “market’’ was supposed to behave and lower prices. As history now tells us, that never happened and California and its 37 million electricity consumers suffered higher prices, and rolling blackouts.

“We need to hire a pirate to tell us how the system could be gamed,” Kuehl said, noting that such expertise would have been helpful in the crafting of energy deregulation as well.Many senators chimed in with the same concerns about taming the market.


Sen. Leland Yee requested data sets that would show how market assumptions worked.
“How does the economics of this work?’’ asked Sen. Elaine Alquist. “How do you ensure that premiums will be kept at a reasonable level?’’

Administration official John Ramey argued that by “putting money at the bottom of the system,” with many uninsured patients covered and Medi-Cal provider better reimbursed, “the market will become more functional” which is intended to “relieve pressure at the top.” Ultimately, he said, “we’re placing confidence in the market.’’

Belshe said the administration’s directive to put a 15% on non-medical expenditures should help funnel more money to patients. Currently, HMOs already have to meet that mark, but PPO plans do not. Some spend as little as 50 cents of every premium dollar on health care. Belshe added that all of the changes in the market taken together, including the influx of new enrollees, fewer people using high cost care, more money from employers, would serve to drive down cost.

Sen. Darrell Steinberg followed up, seeking to understand the consumers’ recourse if things didn’t go as planned. He did call the plan an “elegant proposal” and congratulated the Governor for putting forward “a vision.”He also said: “we know there are no guarantees in life. You’re counting on a better market. In some ways, this debate comes down to ‘who bears the risk?’

The market may work in the way that you describe. But has the administration addressed whether or not the mandate should be modified or eliminated if we are wrong?”More to the point: “If the premiums do skyrocket, is there going to be any failsafe way for the individual who won’t be able to afford the insurance?” he asked.

Belshe said the administration was building in a “review mechanism’’ to assess how things will shake out in the coming years.

Steinberg indicated that wasn’t enough. While waiting for the “review mechanism” to kick in, consumers will still have suffered the unaffordability of insurance if the market fails. He propose, a “trigger,’’ which would be activated if premiums and out of pocket costs increased above 5 percent (or some benchmark), then there would be some kind of relief from the mandate.


Aside from the issue of affordable premiums, Sen. Elaine Alquist also asked about the affordability of the plans themselves, once consumers were enrolled. “How do low income people meet the high deductible?’’ she asked, referring to those families who are just above 250% of poverty, and therefore would not be eligible for subsidies and low-cost comprehensive coverage in an insurance pool run by the state.

Belshe said the Administration drew the subsidy line at 250% because most uninsured Californians earn less than that. But, she said, “It’s a balance we’re trying to find.’’

The concerns about the individual mandate and its workability and affordability were also expressed by several stakeholders, including Health Access California, SEIU and the California Nurses Association, and others. Belshe did state that “an individual mandate doesn’t work on its own,” but many of these presenters indicated that the Governor’s proposal for insurance market reforms and subsidies was not sufficient.

Health Access indicated that while it did not oppose the notion of an individual contribution to health coverage, but couldn’t support a mandate to buy coverage along as an individual without consideration for ability to pay, without a defined and meaningful benefit, without the power of group purchasing, and without shared risk with an employer or public program.

Professor E. Richard Brown, director of the U.C.L.A. Center for Health Policy Research later testified that he believed the subsidies should be increased to 400% or 500% of poverty and that anyone in the state should be permitted to buy into the state insurance pool. He also said the out-of-pocket ($10,000 for a family) limits drawn by the administration were high and “seems like excessive risk.”


Because Belshe’s time as a witness was limited, other issues were not explored in great depth. Senator Mark Ridley Thomas asked about long-term care. Senator Cedillo asked about care to the undocumented, which if left as a county responsibility under the Governor’s plan. Senator Steinberg and Kuehl talked about the intersection of health care reform with worker’s compensation.

Senator Aanestad asked where the provider rate increase was in the Administraton’s budget. Belshe responded that the health care plan was self-contained and self-financed as a package, and thus not included in the budget.

Here are some other comments and ideas that the administration and other panelists traded on these issues.

Employer mandate: Some advocates said that requiring employers to provide coverage was a good start but the 4%-of-payroll requirement was too low, as many employers (who provide coverage) provided more than twice that level already.

Professor Brown said that the way the employer mandate was structured could cause employers to drop coverage – or reduce it to the level required. Employees would have no leverage because they would still be required to buy insurance through the individual mandate. Brown proposed that the administration require all employers provide coverage – including those with fewer than 10 employees, which are currently exempt under the governor’s plan. For those smaller businesses, he recommended a lower contribution rate – starting at 2%. But he also would require a higher contribution — around 7% — from larger companies with higher paid workers.

Local governments: There was a concern among lawmakers and some presenters, including Harbage, Health Access, and Yolo Country Supervisor Helen Thomson, that local governments would be left holding the bag and public hospitals – in particular – would be unable to afford to stay around and meet the ongoing demands. The governor’s plan would take $2 billion away from public hospitals, but these providers would still be the safety net and be expected deliver health services to the undocumented adult community.

Belshe, however, said “public hospitals and counties would have ‘significant funding’ to assure” that they could met their obligations.

Federal government: The Legislative Analysts’ Office said many of the assumptions were “plausible,” but believed the administration’s reliance on $1.4 billion from the federal government was too optimistic. They will be putting out their analysis on the Governor’s proposal next week.

Belshe characterized their critique as a “difference in opinion.’’ Both agreed that the bulk of the money from the federal government was from straight matching funds that did not require addition negotiation, but there was dispute about the impact on existing waivers and agreements.

Peter Harbage of the New America Foundation applauded the Administration for identifying new ways to bring in federal funds, but raised the need to be active in federal budget debate, especially around SCHIP reauthorization.

Doctors and hospitals: Providers said they were concerned about the “dividends’’ that the administration was going to ask them to pay (2% for doctors and 4% for hospitals).But Senator Steinberg did not believe that the “dividends’’ were either a “fee’’ or a “tax’’ because of the administration’s estimates that providers stood to gain $10 to $15 billion more dollars because of higher insured and paying patient loads, higher Medi-Cal reimbursements, and fewer uninsured patients seeking uncompensated care.

A public option?: Presenter Peter Harbage suggested that Californians in the individual mandate could be given the choice to join the purcahsing pool, to have a public option that could compete with the private sector. Senator Steinberg followed up with Secretary Belshe at the end of the hearing, noting the Governor’s opposition to a single-payer system, but asking if the Governor would consider a statewide or regional public plan that could be something that competes with the private plans. Secretary Belshe did not reject the notion, stating that competition and market solutions were values that the Governor supported.


There were lots of issues raised: For example, the Chamber of Commerce representative, spent twice her allotted time simply reading off a list of questions about the reform proposal. Senator Steinberg, however, boiled the major questions down to two: 1) the affordability for consumers, and 2) the need for sustained funding. He noted that the employer contribution was only $1 billion of the $12 billion, and that most of the financing came from the federal government and the fee on providers.

Kuehl’s hearing is only the first of many in the coming weeks. Belshe said she was “very encouraged’’ by the discussion and the ‘clear recognition that we have a significant set of problems for the uninsured and insured alike.’’ The sense of urgency gave her confidence something could be accomplished this year.

Perhaps the most important thing she said was that the administration would remain flexible. “We need to talk about different policies before we put pen to paper. We need to identify the paramount principles and policies.’’

Stay tuned next week, on February 20th, when the same cast of characters – and more – reconvene before the Assembly Health Committee.

For more information, visit the Health Access website at, or contact Hanh Kim Quach, Health Access, at 916-497-0923, or

Health Access California promotes quality, affordable health care for all Californians.
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