Health care reform is high on the political agenda in Sacramento. The passage of a universal health coverage bill in Massachusetts in 2006 and Californians’ continuing concerns about the number of uninsured and rising health care costs all contributed to making this the time to tackle health care. In January 2007, Governor Schwarzenegger proposed a comprehensive health care reform plan, and in February 2007 Democratic and Republican legislators introduced a number of bills that aim to reform the health care system. With no agreement reached by the end of the regular 2007 legislative session, the Governor called a special session devoted to debating health care in fall 2007.

Q2: What do the Governor and legislators propose to reform health care?

• The Governor’s proposal creates a mandate that all Californians carry a minimum level of health insurance. Employers must spend a minimum on employees’ health care or pay a fee to the state. The proposal would expand eligibility for public programs and subsidize coverage for low-income Californians. The Governor provided legislative language for his proposal, ABX1 2, in the special session on November 8, 2007.
• AB 8 (Núñez), the leading legislative proposal during the 2007 regular session, required employers to spend a minimum on employee health care or pay a fee. Workers whose firms pay the fee must enroll in a new coverage purchasing program. The bill expanded eligibility for public programs. It also would have reformed the private insurance market by creating simplified medical underwriting, including a standardized individual application form, and by requiring health plans to offer three uniform benefit packages to facilitate comparison shopping. The legislature passed AB 8 in September 2007, but it was vetoed by the Governor in October 2007. 
• In November, Assembly Speaker Núñez and Senate President Pro Tem Perata introduced ABX1 1, compromise legislation for consideration in the special session, which combines some key elements of AB 8, such as provisions for affordability and key elements from the Governors proposal, including the individual mandate. For a comparison of the three proposals, see the chart below.
  

Q3: How do these proposals compare to SB 2 (Prop. 72), the California Health Insurance Act of 2003, that was rejected by the voters?

In November 2004, the California Health Insurance Act of 2003 (SB 2) was passed by the state legislature but was later struck down when voters rejected Proposition 72. The legislation would have created a state health insurance coverage program for eligible workers at medium and large firms. Employers would have been required to show evidence of coverage or pay a fee to enroll employees and uncovered dependents into a program to be created by the California Managed Risk Medical Insurance Board (MRMIB).

AB 8, ABX1 1, and the Governor’s proposal (ABX1 2) are similar to SB 2 in their reliance on employers as a finance mechanism. However, while SB 2 required employers to provide health insurance, the current proposals instead require employers to spend money on health services for employees (a broader option). The three proposals also apply to a larger number of employers and contain additional elements, such as the expansion of public programs that SB 2 did not contain. The Governor’s proposal and ABX1 1 require individuals to carry a minimum level of insurance. Experts estimate that the Governor’s proposal and AB 8 would cover 4.1 million and 3.4 million uninsured, respectively, while SB 2 would have expanded coverage to just 1.4 million Californians. In addition, the Governor’s proposal, ABX1 1, and AB 8 propose reforms to the individual insurance market; the Governor’s proposal would require guarantee issue to all Californians regardless of health status and AB 8 and ABX1 1 would simplify and standardize underwriting.

Q4: Who would be covered by these proposals?

•  The Governor’s proposal (ABX1 2) would cover 4.1 million more Californians—an estimated three-quarters of those uninsured (as estimated in May 2007). The Governor’s proposal would require every Californian who files a state income tax return to demonstrate a minimum level of health coverage. More Californians would have coverage through a new pool. More low-income Californians would also have coverage through Medi-Cal and Healthy Families.

• Initial estimates are not yet available for ABX1 1.

• AB 8 (Núñez) would have covered approximately 3.4 million more Californians—an estimated two-thirds of the uninsured (as estimated in May 2007). More Californians would have had coverage through the new purchasing pool. More low-income Californians would have had coverage through Medi-Cal and Healthy Families.

• SB 840 (Kuehl) would cover every Californian (including all the uninsured) by creating a state-administered system to replace private insurers.

Q5: What is required of Californians and California employers?

• Under the Governor's proposal (ABX1 2), every Californian would be required to have a minimum level of coverage. Employers would be required to offer coverage or pay a fee, based on a sliding scale of up to 4% of payroll.

• Under the “compromise legislation” ABX1 1, Californians would be required to have coverage, with certain exceptions for affordability and hardship, and employers would have to “pay or play” based on a sliding scale of 2 to 6.5% of payroll.

• Under AB 8, employers would have been required to spend a minimum amount on employee health services or pay a fee. There was no exemption based on the size of the company. Workers whose employers pay the fee instead of spending on health services would have been required to seek coverage through a new state purchasing pool.

• Under companion legislation to SB 840, Californians would support the new system via an increase their taxes. Employers would pay more in payroll taxes to the state. It is unclear what, if any, changes to existing employer/employee health care arrangements would accompany implementation of SB 840. 

Q6: Which health benefits would be covered under these proposals?

Many details of these proposals have yet to be determined.  Under ABX1 1, ABX1 2, and AB 8, the benefits one receives would depend largely on the source of health coverage (for example, through an employer, the pool, or a public program).

• Under the Governor’s proposal (ABX1 2), employees who receive health coverage through work would probably see no change to the status quo, at least in the short term. Employees of firms that pay the fee would receive coverage through the new purchasing pool and would have a choice of plans that provide Knox Keene benefits plus prescription drug coverage. (Knox Keene includes physician services, hospital inpatient and outpatient, diagnostic lab and radiology services, preventive health services, home health services and emergency health care including ambulance, out of area coverage, and hospice care.) All individuals are required to have a minimum level of coverage. Children in households with incomes up to 300% of FPL would be eligible for Healthy Families, and adults with incomes up to 100% of FPL would be eligible for Medi-Cal.

• Under AB 8 (Núñez), employees who received health coverage from their employers would have seen no change to the status quo. Employees of employers who paid the fee would have received coverage through the new pool and would have had a choice of plans that provided Knox Keene benefits plus prescription drug coverage. Individuals seeking coverage on their own (in the “individual market”) would have chosen from five benefit plans. Children and parents in families earning up to 300% of FPL would have been eligible for Healthy Families coverage.

• ABX1 1 is very similar to AB8.
  

• SB 840 (Kuehl) would provide comprehensive coverage to all Californians with the most robust benefits, including benefits specified under Knox Keene, prescription drugs, and mental health, dental and vision coverage.

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Q7: What would these proposals cost? Who pays?

• The Governor’s proposal (ABX1 2) would cost approximately $14 billion and would be funded with employer fees, new fees on hospitals, new federal money for public programs (Medi-Cal and Healthy Families), and possibly new revenue from leasing the state lottery. (These funding mechanisms would be subject to voter approval, likely for the November, 2008 election.)

• ABX1 1 would also cost approximately $14 billion and would be funded via employer fees, hospital fees, and a tobacco tax increase (both subject to voter approval).

• AB 8 would have cost approximately $8.3 billion and would have been funded with employer fees and increased federal money for public programs.

• SB 840 would cost the state approximately $6 million to transition the existing system to a new single-payer system. A Lewin Group study commissioned by Senator Kuehl estimates that, once established, the system provide significant cost savings, realized by reducing administrative costs and bulk purchasing of prescription drugs and durable medical equipment.

Q8: How likely is it we will see reform this year? What issues remain to be resolved?

A period of intense negotiation and compromise has already begun in a special legislative session, as the Governor would like to see key aspects of his proposal become law. Should a compromise be reached, it is possible that certain aspects of the law could be held up by legal challenges.

Major issues that remain to be resolved include: How do we ensure Californians receive high quality health care? Who pays for health care and coverage? Will new taxes be required to finance coverage expansion? How do we define “affordability” for individuals, employers, and the state? How will health care costs be contained for today and tomorrow?

Q9: How do these proposals address underlying health care cost trends?

Health care costs continue to rise, with health care spending representing more than 10% of California’s economy. Health care costs are rising faster than inflation and the costs of services, technology, and prescription drugs all continue to increase as well. The central goal of the proposals under debate is to expand coverage but each proposal acknowledges the need to address rising costs.

All three proposals include elements that cap health plan profits and emphasize preventive care as a means to control costs. The Governor's proposal, ABX1 1, and AB 8 envision an increased reliance on health care IT, pay-for-performance incentives, and disease management to help control costs. SB 840 relies on global budgeting.

While these various components may help control some specific costs, it is unclear that any of the proposals will have a significant impact on the overall upward trend. 

Q10: How do these proposals compare to the reform passed in Massachusetts?

The Governor’s proposal and AB 8 are similar to health reform passed in Massachusetts in many ways. The Massachusetts Health Care Reform Act (Chapter 58 of the Commonwealth Acts of 2006) requires all residents who are 18 years of age or older to have health insurance. (A board will determine whether coverage is “unaffordable” for some residents, then they will be exempt.) The Act establishes a state purchasing pool, known as the "Connector," to provide coverage options for people without access to employer-provided coverage and employers with 50 or fewer workers. The Act requires employers with more than 10 employees to make a "fair and reasonable" contribution towards employee health coverage or pay an assessment to the state of up to $295 per worker annually. The state also expanded eligibility for children in the state's Medicaid program. The Act merges the individual and small group insurance markets and applies modified community-rating requirements for the combined market.

As it embarks on health care reform, California faces a different, and potentially greater, set of challenges than Massachusetts. A much higher proportion of the population is uninsured or poor in California than in Massachusetts. Thus, a much larger share of California’s population would need financial assistance to afford coverage.

Furthermore, a greater share of California’s workers are employed by firms with mostly low-wage workers, where coverage rates are typically low, suggesting that expansions that rely on employer-sponsored coverage would be more precarious in California than Massachusetts.

Finally, whereas prior to reform Massachusetts spent between $1,300 and $1,800 per uninsured person per year on uncompensated care that could be redirected to subsidies for health insurance, California spends only about $300. Broad coverage expansion in California would require significantly more in new financing than it did in Massachusetts.

Q11: What is going on to reform health care in the United States and how will this affect California?

The states are often considered to be “laboratories” for the federal government, as they lead the way experimenting with innovative reforms. Washington policymakers grapple with the same issues as California, including rising health care costs and a growing number of uninsured in America, but there has been little debate about a comprehensive national reform plan. Several of the 2008 presidential candidates have begun to propose reforms designed to insure more Americans, and especially more children.

Q12: What is the California HealthCare Foundation doing to support health care reform this year?

CHCF has taken a two-fold approach.  First, CHCF is funding experts to provide technical assistance to those developing coverage expansion proposals.  This includes modeling how proposals will impact cost and coverage and analysis to help understand how the proposal features will interact with health care finance and delivery in California.

Second, CHCF is informing the broader health reform debate and fostering discussion.  This includes tracking proposals, highlighting trade-offs and impacts, and illustrating how features of California’s health care landscape may influence the viability and effectiveness of the various plans. If and when financing for health reform is placed on the ballot, CHCF will continue these efforts at HealthVote.org.

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