^{Posted on January 15, 2008}

Schwarzenegger-Nunez Health Proposal for California Flawed

WHY YOU SHOULD VOTE NO ON ABX1 1

AB 1X 1 is a $14 billion health care expansion that is flawed and ill timed.

The state faces a $14 billion dollar budget deficit and ABX1 1 has an estimated price tag of an additional $14 billion dollars. It would be imprudent for the state to implement this plan prior to addressing the budget crisis.

AB X1 1 will expand health care to some, just as many children are being denied health care due to reductions in federal and state programs.

A better approach is to address children’s health care and the budgetary shortfall at this time and craft a workable comprehensive health care proposal at a later time.

The bill forces individuals to purchase health care without stating the benefit level or the cost of the benefits.

AB X1 1 contains an individual mandate with subsidies available to a very limited group of individuals. Employees who are offered health care, no matter how minimal or unaffordable, are denied all subsidies and access to the pool.

There are no caps on what the insurance products can cost and there is no specificity about the quality of the products or the minimum benefit level required. Passage of this bill will force consumers to buy insurance they may not be able to afford. Accordingly, working families could be forced to buy worthless yet still unaffordable insurance.

The individual mandate is not accompanied with adequate affordability protections.

Individuals with family income over 400% of the Federal Poverty Level (that’s about $80,000 for a family of four), have no cap on premiums or out of pocket expenditures. Individuals with family income between 250% and 400% of the FPL (about $50,000 to $80,000 for a family of four) are eligible for a tax credit to off-set premium expenditures above 5.5% of family income. This off-set does not provide any assistance for deductibles, co-pays, pharmaceuticals and other out of pocket expenses. Three quarters of bankruptcy is due to these health costs, not premiums. People don’t fail to buy health insurance because they want to play Russian Roulette, but rather because they can not afford to do so.

Instituting an individual mandate in this economic climate without adequate affordability protections will only add to financial devastation for many working families. Projections are for a minimum policy costing $200/month with $2500 deductible per person. Under this plan individuals can be out of pocket almost $5000 every year before receiving any insured health care. As a result, they will delay necessary preventive to delay care.

We don’t know what the real price tag will be for individuals.

We don’t know what products will be on the market and what they will cost, because there is no cap on costs and because costs continue to rise exponentially. We are forcing individuals in California to purchase products which may be financially unfeasible and may provide benefits that are inadequate.

Most individuals don’t have the ability to opt-out if obligation is un-affordable.

Only individuals under 250% of FPL have the ability to opt-out. Everyone else is obligated under the mandate. While the bill does authorize establishment of an additional “hardship” exemption, eligibility and procedural steps for qualifying under the exemption is as of yet undetermined.

An employer can fulfill his obligation under the bill and still fail to provide assistance to the majority of employees.

Because an employer’s obligation is in the aggregate there is no obligation on the employer to contribute towards each individual employee. Employers may fulfill their obligations under this bill by paying for their managers or high wage employees while providing no healthcare coverage for their lower wage workers. These employees can receive little or no employer assistance, but are still obligated under the mandate even though they are the least able to afford it!

This bill codifies the practice of high profit employers funneling their low wage earners into public assistance.

If the employer does not “offer”, the individual can go into the pool. Accordingly, a large employer can meet its obligation by putting money towards the health care premiums of high wage employees and not put any money towards the health care premiums of low wage employees. Those employees can then go into the pool (with NO MONEY going into the pool from that employer) and get health care. If the individual meets specified economic criteria that individual may be able to get federal or state assistance in purchasing health care, otherwise that individual is completely on his own.

The employer fee can’t be increased without a 2/3 vote or ballot initiative, yet an individual’s obligation can be increased without limit with only 60 days notice.

Every future increase in health care premiums will be borne by individuals.

There are penalties for individuals who fail to comply with the individual mandate but there are no penalties for employers who skirt their obligations.

Individuals who fail to purchase insurance will be turned over to the Franchise Tax Board. Currently, the FTB has the authority to put liens on people’s homes or garnish wages when monies are owed the state.

There are no such penalty provisions included in the measure for employers who fail to comply with their obligations or for employers who willfully misclassify individuals as independent contractors rather than employees so as to avoid their obligations.

Definition of “Offer” leaves many without any assistance.

An employer has “offered” health care even if he’s only put one dollar towards an employee’s health care. This “health care” could be a gym club membership or a health savings account. Where an employer has made an “offer” an employee is ineligible for pool admittance. Accordingly, under the provisions of the bill a worker could be obligated to pay the entire cost of premium/deductible/co-pay’s etc… on the open market.

There are no real cost containment provisions.

The only significant cost containment provision requires insurers to expend no more than 15% of premiums on administrative costs. Nothing prevents insurers from increasing costs in any amount they desire to insure profits.

There are no other reasonable cost containment provisions such as limitations on annual increases. This means we will continue to face large premium increases.

There are significant process issues and funding questions with ABX1 1 that should not exist in a bill of this magnitude.

There has been little public vetting of the actual bill, amendments and ballot initiative language. It is unclear why there is a rush on this bill given the ballot initiative in on the November ballot. The proponents are reasonably concerned about their financial investment in that process; but is that a good enough reason not to thoroughly vet the bill?

There are many significant unanswered questions, such as severability between the bill and the ballot initiative; on and off triggers and their impact and practicality for a program of this magnitude and effects on the general fund, and whether the “pool” has a predictable chance to be adequately funded.

This plan will reduce County Health Systems to the point that existing trauma and burn centers could be eliminated with no guarantees that the private sector will supply these services to communities as these are not mandated hospital services under current law nor under the bill.

For all the above reasons CNA, CSEA, The Teamsters, Machinists, United Food and Commercial Workers (UFCW), and the Engineer’s and Scientists of California urge a “NO” vote when this bill comes before you in committee.

Sincerely,

Donna Gerber, Director
California Nurses Association

Dave Low, Assistant Director of Government Relations
California School Employees Association

Barry Broad, Partner
Broad & Gusman, LLP

cc: Senate Pro Tem Don Perata
Speaker Fabian Nunez