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Don't mandate high healthcare costs

Legislators in Sacramento convened Wednesday to resume discussions of Gov. Arnold Schwarzenegger's universal healthcare plan. That plan is built around the notion that an individual mandate requiring every Californian to purchase insurance is the key to rescuing the state's healthcare system. Consumer advocates worry that such a requirement might prove unmanageable for many middle-class residents who'll just miss the cutoff to receive state-subsidized coverage (350% of the poverty level, or an income of $36,000 for a single person).

To discuss these events the editorial board on Wednesday met with Anthony Wright, executive director of Health Access California; Casey Young, advocacy manager for the California AARP; and Michael Russo, healthcare advocate for the California Public Interest Research Group. Some highlights:

Anthony Wright: Health Access works for the goal of quality healthcare for all of us. We've had 20 years in existence. And this is the kind of year we wait through the other 20 years for — in terms of major healthcare reform, as opposed to one building block here, another building block here. Here's an opportunity to do, if not the whole enchilada, then major structural pieces. And we are so very cognizant of the opportunity.

At the same time, we want to make sure we do it right. So there is that balance here. We're not very picky. My organization does believe in a universal single-payer healthcare system, but we also believe in lots of different ways to get there — whether we expand through employer-based coverage, or child coverage, or the single-payer bill. We've been active supporters of all of that. Our threshold is pretty low. It's been: do no harm. Let's make sure that whatever we do we don't place a burden on individuals moving forward. And that's the debate we're having now in California. What is the threshold for that, with regard to these proposals?

Even though the governor's plan has a lot of elements that we like, and that we want to see in a final package, in the context of an individual mandate without any exemption, without any conditions, without anything; what's in his plan is incomplete. There are populations — and they're not small populations, there's hundreds of thousands of people — that would actually probably on balance have more of a burden.

Eryn Brown: Can you break those down?

Wright: Two quick ones: people who are low-income but who are for a variety of reasons not eligible for public program expansion, and middle-income people. People who are not eligible for subsidies because of eligibility criteria or because of income.

Brown: Undocumented people?

Wright: It's not just an undocumented problem. And the middle income side is huge. A 60-year-old can make $30,000 a year or $45,000 a year, and very well have a $15,000 or $20,000 premium. That is an issue. That's, I think, the biggest issue. Our big thing is, we definitely want reform. It's necessary. But we need the governor to move from where he was in January.

Casey Young: I've been around the capitol since the early '70s, and it was amazing to me how everybody really kind of took a step back and said, "Ok, let's not go after what we say is bad here. Let's roll up our sleeves and see if we can make this thing work." And the spirit continues. We see this opportunity, and we don't want to let it pass.

Our folks are older, so healthcare is a significant issue for them. One thing we like about the governor's plan is the guaranteed issue. Most of our people have insurance. But if our folks lose it, they're very unlikely to be able to get it in the individual market. They're going to be denied. So we're very interested in getting this done.

We also see this as a model for the nation. We're looking at the presidential proposals, and proposals in other states that are modeled after this. So it's very important that if we do it, we get it right. And at this time, we are extremely concerned about affordability. If we enact here something that says you have to buy an insurance policy regardless of whether it is affordable, that will be a precedent that will take off around the country, too. Bad precedents take off just like the good ones.

We're making an effort to try and push the governor and his administration on this issue so they start looking at it a different way. To be fair to them, it's not easy. It's not easy practically, financially, or conceptually.

We've set up a framework that does like this: you've got to set up an affordability test. And to do that requires something that most people don't want to do. You've got to say, how much of income should people be expected to pay? And what should you be able to buy with that? And that's where a lot of the confusion goes. We've put out a proposal that says, say you have to put out 7.5% of your income. If you could buy a reasonably comprehensive policy with that, then you've got to be in the market — you don't have to buy the comprehensive policy, you can choose a plan with a high deductible, but you have to buy insurance.

The affordability test has to be the comprehensive policy. There are a couple of reasons for that. The requirement is most relevant to the people who are just over the subsidy level and don't get help with it, right? These are the people who are just making enough to meet this. Now, are these people who, when they get sick, can afford to put out $5,000, $7,000 before they start getting benefits in addition to the premium? Is that an appropriate policy for those people? Probably not. It's not that you shouldn't have those policies; if you have significant income or assets you should be able to meet the mandate with a higher-cost product that's appropriate to your needs. But it's not really appropriate for that person who's just over that level.

The test has to be something more comprehensive than the minimum benefit. That's a point that a lot of people don't get.

Brown: Necessarily doesn't that mean that there will have to be more subsidies in the package?

Young: It would. Well, it's one of two things. If everybody's going to be covered, you have to have a subsidy, right? But if you don't have a subsidy, then you can't legally require them to be in the market. It doesn't mean they won't be in the market. Frankly, my folks are going to be in the market. They'll pay 50% of their income to get insurance because they know they need it. But you can't be under a legal obligation if you can't afford it. There have to be exemptions for people who can't afford it or there's got to be subsidies.

Brown: In Massachusetts, there are exemptions…

Wright: Yes, they have two types of exemptions. They have something similar to what Casey's talking about, but it's on a sliding scale up to I think 7.9%, so that if you're at $10,000 to $20,000 a year you're at probably 1%, but if you're at a higher income you're at 7.9%, I think, is where they end up. That's a blanket exemption — they just have a minimum coverage, although it's a pretty good minimum coverage, a $2,000 deductible, better than the $5,000 deductible that's being proposed by the governor. But they also have the hardship exemption. If you can say, you have really high childcare costs — you have three kids, and it's really high — or for whatever reason, you can apply as an individual. In other words, there's a safety valve.

I think the key thing is that some people have said, "Oh, you guys are just like everybody else. You want stuff but you don't want to pay for it." But I think we're qualitatively different from where the employers are, which is "no mandates no mandates no mandates." [Laughter.] Or other constituencies. We're saying: "We're fine with paying, we recognize we have to pay. But we want the same deal that they're getting," which is, they get to say, it's 4%, or 7.5%, and then you're done.

Brown: So that doesn't exist for consumers anywhere, that cutoff?

Wright: Right. At some level the liability has to be limited, rather than a situation where the insurance companies get to be the private collector of whatever they decide to charge. In the governor's plan, there's no cutoff, no exemption, no limit.

Brown: As you've been looking at this, you said you've looked at plans all over the states, and the national plans. Do they usually include affordability tests?

Young: They're just starting.

Wright: Let's be clear. The individual mandate, there's only three places on earth that have the concept of an individual mandate: the Netherlands, Switzerland and Massachusetts. [Laughs.] And Massachusetts is just trying to figure it out, and the Netherlands and Switzerland have only done it in the last five years. So this is not exactly....

Young: We're kind of on the cutting edge here.

Brown: What is the state of talks in Sacramento?

Young: I'm sensing a pickup in activity up there, a pickup in interest. People see the wall coming. [Laughter.] And you know, and there's probably a month, maybe six weeks, to really get this done. And that's not a lot of time to work through this issue and the other big one, which is employer fees.

Brown: Do you all feel — we were talking about a national plan — that the levers that someone who's running for president can pull that the governor can't — some people feel that this sort of reform sort of has to come at the national level and won't work state-by-state. What do you think of that notion?

Young: I think there are good arguments on both sides of that. Clearly they have more tools. They don't have to dance around ERISA; they have tax code things they can do, they have those kinds of tools. But they also have the politics of this entire nation, too. Given the history of this, it's going to be very difficult. The argument for doing it in the states, or at least trying to do it here, is the traditional laboratory for experiments that the states provide. Let's see how it works. We've frankly fleshed out a lot of issues over the year, and we understand them better than we did before. As Anthony suggested, it may be better to try it in Wisconsin or something. [Laughter.] Lower risk.

Wright: I would say, with apologies to New York, if you can do it here, you can do it anywhere ... but because it is such a crisis here, there's political will that frankly is unmatched in a lot of places. I think the big thing in terms of Washington — waiting for Washington seems very scary to me. We have an opportunity here to do something.

And there's a lot of this stuff that's actually the domain of states. Insurance regulation is a the domain of states. MediCal, SCHIP are the domain of states. The employer-based stuff is hard. ERISA is tough. But historically there's a lot of this where the states have a huge role. We can make huge progress here, even if maybe we don't cross the entire finish line. I have friends who actively support single-payer, who have an all-or-nothing mentality. At some level that's where the governor has been, but with a different proposal. I'm not sure — I think there's a lot we can do that's not necessarily all the way there.

Brown: What happens if this blows up in the next six weeks and nothing happens?

Young: Then nothing happens.

Brown: Is that a massive failure, or a step along the path of reform?

Young: I don't think it's going to be good. [Laughter.] I mean, what you're really asking is, what does it mean for all of the efforts, nationally—

Brown: And here.

Young: And here. There's been a massive effort and focus on this. And the conclusion could well be, you know, with all the effort, the resources, and the focus, they just couldn't get it done. It's too complicated, it's too difficult. Do I want to stake my political career on this?

Michael Russo: I agree with Casey. In terms of how people approach this and think about it, it'll be, "OK, had the opportunity, but it just didn't happen." And especially then once we get into the primary season, it gets caught up in the national conversation, and it's really hard to see a way forward.

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