ABX1 1: Universal health insurance without health care

by Claudia Chaufan
Saturday, Jan 12th, 2008

The "Health Care Security and Cost Reduction Act", also known as ABX1 1, and described by New York Times reporter Kevin Sack as a "bipartisan blueprint" conceived by Republican governor Arnold Schwarzenegger and Democratic Assembly speaker Fabian Nunez to bring "near-universal coverage to the country's most populous state", will neither provide health care security nor reduce costs of medical care. This article explains why.

Virtually everybody agrees that the American health care system is broken: costs are rising well in excess of the rate of inflation [1], insured and uninsured alike are often an illness away from bankruptcy [2], and too many go without medical care altogether - and roughly 18,000 die each year for this reason [3]. With over 20% of its population uninsured and growing, California exemplifies well the sorrowful state of health care in the country [4]. As a result, it has become fashionable, for politicians and corporate executives alike, including CEOs of health insurance companies, to call for universal coverage. As Jonathan Cohn noted recently in the New York Times Magazine, universal coverage is today the "one thing Big Business and the Left have in common" [5]. And Cohn must be right, because, at least in California, traditionally opposed interest groups are about to tie the knot in Assembly Bill X1 1 (ABX1 1), the "Health Care Security and Cost Reduction Act". According to New York Times reporter Kevin Sack, this act is a "bipartisan blueprint" drawn up by Republican governor Arnold Schwarzenegger and Democratic Assembly speaker Fabian Nunez to bring "near-universal coverage to the country's most populous state" [6]. So, should we not be raising our glasses in celebration? Not really.

However wonderful it would be for this well-meaning legislation to provide health security and reduce costs, there is little if any reason to believe it will do either.

For one, it cannot keep at least half of its promise, controlling costs of medical care, because not only does it not remove the private insurers that created the current nightmare, it actually gives them a central role in the new system and no incentive to control such costs -- let us remember that the extraordinary administrative costs to private insurers, up to 34 cents out of each health care dollar [7], are for them no great burden, because they are easily offset, as they finance systems which allow insurers to never pay more in medical care than they collect in premiums. This is precisely the reason of the long-lasting love affair between private insurers and complex combinations of co-pays, cost-sharing, deductibles, exclusion clauses, and eligibility criteria, whose goal is not to control the cost of medical care in order to provide more and better of it to more people, but to control the costs of running insurers' profit-maximizing business, while leaving enough spare change to shower high-level executives with generous salaries and compensation packages.

What is worse, ABX1 1 creates new eligibility categories -- the poor, the not-so-poor, the non-poor, and several levels within each category -- and imposes "fines" for misbehavior (e.g. failing to purchase health insurance) that will have to be enforced, all of which will increase administrative costs -- and waste. And in its attempt to regulate industry, whether or not it succeeds, the legislation creates yet another layer of expensive bureaucracy that will divest resources from actual medical care.

Last, ABX1 1 will not control costs because it prevents Californians from using a major cost-containment mechanism: the purchasing power of large pools, which allows single payer systems like Canadian Medicare, the Veteran's Administration, or even American Medicare (when it is not forced to outsource benefits to the private sector) to negotiate for best prices of medical goods and services through combinations of global budgets, fee schedules or drug formularies. This failure to control costs will prevent ABX1 1 from meeting the other half of its promise: providing health care security to Californians. It cannot provide "health care security" because it does not guarantee a comprehensive package of medical services at prices that are affordable for prospective patients. And in truth, it provides nothing: it merely mandates individuals to buy a policy in the market, whether or not the policies they can afford truly meet their medical needs. And we should note that the promised subsidies to individuals in certain income brackets, likely to increase as more people become impoverished by raising medical costs they cannot afford, thus becoming "eligible" for subsidies, are not gratis: they are borne collectively by all taxpayers.

If we are to go by the experience of other states, the prospects of ABX1 1, at least for those who would like to have the health care security and cost control of medical care that the legislation promises, are grim: a similar, individual mandate in Massachusetts is already running $147 million over the $472 million budgeted for fiscal year 2007, collections of fines from employers who fail to provide coverage are 80% below the original projections, and barely 7% of the uninsured who are not poor enough to receive subsidies have enrolled in any plan at all. Yet we should refrain from throwing the first stone to those who fail to comply with the law: the cheapest plan that meets the mandate's requirement for a couple in their fifties costs $8,200 per year, with $2,000 deductible per person, so "choosing" to not enroll in any plan, even at risk of being fined, is not unreasonable [8]. Nor is it unreasonable to request, as many have done, a "compassionate exemption", which by April of 2006 was already being granted to approximately 20% of those who failed to comply with the mandate (about 60,000 individuals) [9].

All of the above gives us reason to believe that an individual mandate such as the one proposed by ABX1 1 will no more protect individuals from financial ruin due to medical expenses than bare bones drivers' insurance protects anybody from the the costs of a car accident. We do not count on those policies to get our cars back in shape, but we need them to comply with the law and protect ourselves against the claims of others. So for now, no reason to raise our glasses. And yet, some Californians are surely celebrating: among them are high level executives and shareholders in the private health insurance sector, which, if ABX1 1 becomes law, will count on a captive pool of clients for years to come. Indeed, Blue Shield California and colleagues must be following closely the smashing success of the Massachusetts plan. They must be particularly excited about the surplus of $1 million a day that Blue Cross Massachusetts is collecting. Or about the $16.4 million retirement bonus recently awarded its chairman, even as he continues to draw a $3 million dollar salary [8].

Which is why we do not need to think too hard to understand why this marriage of Republicans and Democrats must already be celebrated in so many places. We can only speculate, however, why health care reporters insist on calling ABX1 1 and similarly ill-conceived legislation "near-universal" or "universal" health coverage. Or why they are dismissing single payer, the only viable option for controlling costs and securing health care [10], as having "limited political support" [11], as editors in the New York Times recently did, despite evidence to the contrary among the public [12] and even among physicians [13]. Or why the same editors refer to single payer as "no panacea" as "indicated" by the "problems" of Medicare, clearly confusing the symptom -- Medicare's financial struggles -- with the disease -- the irrationalities forced upon Medicare by business-friendly legislation, which include, yet are not limited to, the generous subsidies Medicare has to pay to private insurers to "encourage" them to "compete", at the same time that this legislation forbids Medicare itself to bargain for best prices of drugs for seniors [14].

But maybe we are missing something?

Claudia Chaufan received her medical degree from the University in Buenos Aires and her PhD from the University of California at Santa Cruz, where she currently teaches sociology of health and medicine and health policy. She is the Vice President of California Physicians Alliance, the Californa Chapter of Physicians for a National Health Program, and an active member of the national group.

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14. Baker, D., Waste in the Medicare Drug Benefit: Why the Doughnut Hole is Unnecessary. 2006, Center for Economic and Policy Research: Washington, DC. p. 1-10.