Plan to ensure health coverage could raise costs
Gov. Arnold Schwarzenegger’s proposal Monday to make health insurance available to every Californian would end controversial practices under which consumers are denied individual coverage because of their occupations, medical conditions, use of medications or large medical bills.
But the measure could come at a cost, analysts said.
Health plans could face sharply rising expenses if they were inundated with customers who were generally in poorer health than their current enrollees. The health plans could respond by raising premiums or leaving the market, as they have in other states that require insurers to sell coverage to everyone.
And that could make it difficult for consumers to heed another part of Schwarzenegger’s proposal: that they must buy health coverage.
“I’m worried that if we don’t have limits on how much insurance companies can charge, people aren’t going to be able to afford healthcare,” said Scott Svonkin, chairman of the Los Angeles County Commission on Insurance, who was rejected for insurance by three health plans last year.
Under current rules, insurers selling individual insurance -- the type of coverage purchased by people who do not have job-based group health benefits -- are free to choose whom to cover and what to charge.
That has led to a system, documented in a series of Times articles, in which people seen as too medically risky are denied coverage and others risk having their insurance canceled after they run up high medical bills.
The governor’s plan would bar insurers from rejecting customers for any reason and would allow health plans to set premiums based only on how old a customer is and where he or she lives.
“Right now we have insurance companies that pick and choose who they cover,” Schwarzenegger said. “They turn away people who are sick or past a certain age. My plan would put an end to that and not allow insurers to deny coverage to people because of age or health status.”
Cindy Ehnes, director of the Department of Managed Health Care, which oversees health plans, said the proposal would “eliminate that long-standing barrier to access to individual coverage, which is if you need it, you can’t get it.”
The plan would help people such as Susan Jarett. The Realtor, 59, said she took a full-time job as a synagogue receptionist in November for the health benefits after an insurer turned her down, citing menopause, allergies and other common but not catastrophic conditions.
“It should be mandatory that insurance companies insure everyone,” the Oak Park woman said. “The older we get, the more we need it.”
The governor’s proposal includes several features designed to hold down premiums and underlying medical costs, including eliminating red tape and promoting prevention. It also would require health plans to spend at least 85 cents of every premium dollar on medical care, effectively capping the portion that may go to overhead and profits. Currently, some health plans spend less than 80% of premium revenues on medical care.
The plan also could hold down costs by significantly expanding the health plans’ customer base by requiring individuals to buy insurance and forcing employers of 10 or more people to provide coverage. Insurers “will benefit because mandatory insurance means private carriers will have 4 to 5 million new customers,” Schwarzenegger said.
Bruce Bodaken, chairman of Blue Shield of California, who supports universal coverage, praised the governor’s proposal, calling it visionary. A spokeswoman for Kaiser Permanente said the state’s largest HMO could support much of the plan, depending on the details. Kaiser, she said, already exceeded the proposed medical spending ratio.
HealthNet Inc. has “concerns with some of it, but overall we are very supportive of the effort,” spokesman David Olson said.
Blue Cross of California parent WellPoint Inc., the state’s largest seller of individual coverage, faulted some aspects of the plan. Requiring individuals to buy insurance would be tough to enforce, spokeswoman Shannon Troughton said.
“There is already an individual mandate for auto insurance in California, and an estimated 25% of drivers in the state do not have coverage,” she said. “The bottom line is that healthy, uninsured individuals are not likely to respond to a government mandate.”
In addition, she said, in New Jersey, where everyone is guaranteed access to health coverage, premiums for individual insurance are three times higher than in California.
The medical spending ratio also is problematic because “administrative costs are largely fixed costs that do not vary with premiums,” Troughton said. “Therefore, products with lower premiums naturally have a higher percentage of revenue attributable to administrative costs.”
As a result, Troughton said, too high a medical spending ratio could hinder health plans’ ability to offer some of their lower-priced products. Also, she said, much of insurers’ administrative efforts help control costs, such as disease management, care management, anti-fraud efforts and information technology.
Gerald Kominski, a healthcare economist at UCLA, said that based on other states’ experiences, Schwarzenegger’s proposal was likely to result in a “fairly major shake-out” of health plans. “Right now health plans can choose to ignore the riskiest individuals and have medical loss ratios as low as 50%,” he said. “This is not going to favor companies that are currently in that position, and it may lead to a consolidation.”
Chris Ohman, president of the California Assn. of Health Plans, said the group was still analyzing the potential effect of the proposal, including whether it would force premiums up.
The biggest problem, Ohman said, would be if the proposal passed in pieces. If health plans were required to take all comers, but individuals were not required to buy coverage, people who were sick and needed care would flood the market, forcing premiums up to cover their costs.
“If it’s ‘Let’s treat this as an a la carte menu,’ the plan breaks apart,” Ohman said. “We have to be very mindful of that.”
But consumer advocates said they would push for guaranteed access even if the whole package got bogged down. They said requiring insurers to spend a certain ratio on medical care was not an effective way to control premiums, and without consumer price protection, they would not support an individual mandate.
“It’s far more reasonable to make health insurance more available to more people at a reasonable price than to force them to buy it at any price,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights.