Gov. Schwarzenegger provided a more detailed look at his universal coverage plan today. (His overview is here.) The Governor’s initiative has enormous significance for three reasons:
- It will affect one out of every 10 Americans.
- Congress is watching state initiatives closely, looking for a workable national model.
- It will be more easier for Democrats to push a national health plan that includes ideas proposed by one of the country’s most prominent Republicans.
A preliminary look suggests the plan has some very smart ideas, and that there are areas of concern. It also gives us a good idea who the winners and losers will be if this plan becomes law. (Please note that these observations are based only on the high-level plan information that’s been made available. Details of the plan could change some of these conclusions.)
Pro’s. First, here are some good things about the plan:
- It appears to provide universal coverage for all children in the state, as promised.
- The plan addresses the fact that insurance premiums are subject to an “invisible tax,” because providers mark up charges to cover the cost of caring for the uninsured. That’s smart and important.
- There is an emphasis on preventive care and health maintenance. The plan “rewards healthy behaviors.” That’s a good idea, although there is the risk it can be abused in the underwriting process.
- The plan creates a purchasing pool that could be used to push for better rates and more efficient administration.
- It requires all employers to set up “Section 125” plans that allow employees to set aside pre-tax dollars for out-of-pocket health-related expenses. That help reduces the financial sting for working people.
- The Governor’s action on this topic raises the political visibility of universal coverage, and of health care reform in general.
Con’s. The potential negatives include:
- The plan doesn’t address overbilling abuses that contribute to the “invisible tax,” and only promises to cut that “tax” by half. Where’s the other half?
- It requires people to buy insurance, but only allows them to buy it from private health plans. This prevents insurers from having to compete with a government system, or to improve overall efficiencies throughout the industry. (They only have to be compete with each other, not the government or a more efficiently-managed private insurance system.) The only offset to premium rate increases are the subsidized purchasing plans – and political pressure.
- The plan, like all “mandated coverage” programs (e.g. Massachussetts’ law and the Wyden Plan) could be viewed as a regressive tax that disproportionately impacts lower-income people, although that may be offset by the subsidies and the purchasing pool.)
Neutral. These provisions of the plan are neutral, in my opinion:
- It allows people to make pre-tax contributions to Health Spending Accounts (HSA’s). These haven’t caught on with the public, despite the Federal tax provision that does the same thing. There’s no reason to expect that will change now. So this doesn’t really make much difference either way.
- It caps the percentage of premium dollars an HMO can use for administrative expenses. That’s more good than bad, and I understand the logic. But the percentage it uses as a cap is still pretty high – 15% – and, perversely, it creates an incentive to keep premiums higher in order to support the fixed overhead costs of a large corporation and its executives.
- Here’s an idea: Why not waive this provision for any plan that’s able to provide coverage at 10% less than the average premium, and eliminate it altogether for plans that figure out how to provide coverage really inexpensively? That’s an incentive program that makes sense.
Likely Winners. Here are some parties who appear likely to benefit if the plan becomes law:
- Health insurers – They’ll get a boost in enrollment as Californians are forced to purchase health insurance. In addition, provider charges should level off or decrease as a result of the “invisible tax” provisions. Insurers won’t like the new requirements to use community rating and accept enrollees with pre-existing conditions, but the plan doesn’t seem to exert much downward pressure on rates. Health insurers do risk a backlash if this works out too well for them, so they would be wise to offer innovative/imaginative new programs and go easy on premium rates for a while.
- Medium-Sized/Large Employers – Premiums should drop for employers who already provide health insurance, and there are no new penalties or burdens on them.
- People who already have insurance – Their out-of-pocket share of premiums should be less, if rates ease up.
- Employers With 10 Employees or Less: They don’t have to comply with the employer mandate. “Universal coverage” is their employees’ problem, but not theirs. Plus, they now have a pricing advantage against larger competitors (small retail’s one example of a sector where this could be important).
Likely Losers. These parties stand to lose, if I’m interpreting the briefing sheet correctly:
- Small businesses – They will now have to buy health insurance for their employees or be subject to an additional payroll tax of 4%. The cutoff for this rule in 10 employees or under, which will place another hurdle on growing entrepreneurial businesses.
- People who work for businesses of 10 people or less: They will now be required to purchase health coverage. They should anyway, but until now they could avoid paying for insurance in the expectation that at least emergency care would be covered. The downside is minimized for workers in this group who qualify for the the purchasing pools and subsidies. They might even become winners if the plan eventually provides effective, low-cost coverage.
- The young uninsured – Young low-income workers have typically been the most reluctant to purchase health insurance. Not only is it difficult to afford, but they’re the least likely to need it – and the most likely to believe they never will need it. Of course, sometimes they do. The extent to which they’re impacted by this law will depend on how the community rating provisions affect rates.
Split Decision, or Too Close to Call. These parties win some and lose some under the new bill, and it’s too early to tell whether it’s a net gain or a net loss for them:
- Hospitals: Medi-Cal reimbursements go up, but hospitals will be expected to reduce rates for commercial payers, and they’ll pay 4% of their revenue back into the California plan. (Note: The press release’s language makes it unclear whether this will be 4% of total revenue, Medi-Cal revenue, or revenue realized from the increase in Medi-Cal rates.)
- Doctors: They should be stuck with fewer unpaid bills, but will be expected to pay 2% of their “revenue” (see above) back into the plan.
- Low-income people who quality for health-purchasing subsidies and purchasing pools: How much of their premium will these subsidies cover?
We’ll keep you posted as more details of the law are revealed.