U.S. to Move in as State Falters on Health Plan

Federal officials are preparing to assume responsibility in California for enforcing key provisions of a widely hailed new health insurance law because partisan gridlock has stymied efforts to pass state legislation needed to carry it out.

Because Washington has limited resources and is only authorized to enforce the federal law’s minimum standards, the benefits to Californians will be less extensive than would have been the case if the state had enacted its own legislation, Clinton administration officials say.

Californians are likely to wind up with fewer--and potentially more costly--insurance options than they might have had if the state Legislature had acted.

The state is one of a handful that have not yet responded to some enforcement mandates contained in the Kennedy-Kassebaum insurance “portability” law passed by Congress last year. The law is designed to ensure that workers who leave their jobs can take their health insurance with them.

In the absence of state action, the U.S. Department of Health and Human Services says it will dispatch a team of officials to California soon to determine how to enforce the law from the agency’s regional office in San Francisco.

Sean Walsh, Gov. Pete Wilson’s press secretary, said the “federal government should stay out of the state and let us resolve this issue.”

The Wilson administration “has already proposed legislation that covers most of the elements required in Kennedy-Kassebaum,” he said. Any outstanding issues, Walsh said, are expected “to be resolved in the next legislative session,” which begins in January.

If federal officials want to be helpful, “they should encourage fellow Democrats in the Legislature to deal solely with the issue at hand, and stop playing games and trying to load up an issue that has nothing to do with Kennedy-Kassebaum conformity,” Walsh said.

“In the past, the states have been very jealous of their prerogative to regulate insurance,” said Paul Olenick, chief of insurance standards at the Health Care Financing Administration, a division of HHS. “The federal government was supposed to be the nuclear deterrent in the background--effective because we never had to be used.”

But in several states, that deterrent has proved ineffective.

Among other things, the Kennedy-Kassebaum law guarantees that workers who have health insurance and who leave their jobs for any reason--to become self-employed, to retire early or because of layoffs--can obtain insurance regardless of health status.

Insurers operating in each state are required to offer health plans to such individuals. But the law gives states leeway to decide how many and what type of plans insurers must offer to those who qualify.

The law also contains provisions affecting the availability of insurance for workers who switch from one employer to another and California has made the necessary statutory changes to carry them out. Kennedy-Kassebaum does not address the needs of people who have previously been uninsured.

Most of the bill’s provisions take effect Jan. 1.

California, Missouri and Rhode Island are the only states that have abandoned efforts to pass enforcement legislation this year for those who need individual insurance. One or two others could join the list if their legislatures adjourn without completing action on pending measures.

In Sacramento, efforts to pass legislation ground to a halt because Democratic lawmakers were unable to come to terms with Wilson. Democrats drafted measures that would have gone far beyond the dictates of Kennedy-Kassebaum and made health insurance available to several million Californians who lack it. Wilson advocated passage of a more modest bill, only slightly more generous than the new federal law.

“It’s not appropriate for the federal government to come in and regulate state health insurance, and our bill would have been better for consumers,” said Kathryn Lowell, assistant secretary of the California Health and Welfare Agency.

But California Democrats believe their proposals are far preferable to Wilson’s. “The fallback position the governor has taken will cover only 10,000 or 20,000 people,” said state Sen. Herschel Rosenthal (D-Los Angeles), who chairs the Senate Insurance Committee in Sacramento. “I’m looking for a compromise that can increase the numbers of people who would be covered.”

Administration officials note that HCFA is already responsible for enforcing an array of federal programs and it may be difficult to monitor the insurance market in a state the size of California. Moreover, because the new law provides no funding for enforcement, the agency cannot add permanent staffers at the San Francisco office. “It’s clearly going to be an additional burden on the department that they did not anticipate,” said Kathleen Sibelius, the Kansas state insurance commissioner who heads the health committee of the National Assn. of Insurance Commissioners.

“The real question is how the department is going to staff up and provide the resources to do what states do,” Sibelius said. “There’s no question that in the state of California, it raises all sorts of incredible resource issues.”

With enactment of Kennedy-Kassebaum, Democrats in the California Legislature decided to go well beyond the minimum requirements of portability. They drafted legislation regulating individual insurance rates and expanding access to insurance, even for people who had not been insured before. The Democratic legislation, which was vigorously opposed by the insurance industry, would have capped the price of all individual policies at no more than 20% above the average costs of such policies.

Wilson’s bill would have made individual insurance available only to people who had been insured for the previous 18 months and had exhausted their COBRA benefits. (COBRA is an existing law that requires employers to offer continued group health insurance coverage to employees and their dependents after job termination or the death of a worker. The former worker pays the full cost of the coverage.)

Wilson’s bill stated that the cost of an individual policy could not exceed the amount charged for policies offered through the state’s high-risk program. But that amount could still be two or more times as expensive as the cost of an average policy, according to state officials.

HHS lawyers are still analyzing the law to see if they have leeway to limit premium prices.

Times Staff Writer Max Vanzi in Sacramento contributed to this story.