Free(ing) Health Insurance in California?
State senator Sam Aanestad is still rolling out good health-care legislation in the Golden State. A few months ago, he introduced a bill that would improve California’s high-risk pool for health insurance, by allowing its beneficiaries to buy low-premium, consumer-driven policies, and allow different premiums for smokers and the obese (which would inject more personal responsibility into health care).
The other day, he introduced SB 92, which would allow Californians in households with incomes below 350% of the federal poverty level to buy health insurance from another state. This would allow Californians on a budget to buy insurance policies without California’s coverage mandates, which some might not value. California ranks very poorly with respect to the burden of state mandatory coverage in the Index of Health Ownership. This is not because of the raw number of mandates, but because it legislates the most expensive ones: in vitro fertilization, mental health parity, etc. (My review of the literature on states’ benefit mandates suggests that while they are not a barrier to coverage of high-income households, low-income ones might benefit from escaping them.)
The bill would also introduce Health Opportunity Accounts (HOAs) in to Medi-Cal. HOAs protect both taxpayers and Medicaid beneficiaries by allowing the patients themselves to control more health-care spending. HOAs are sort of like Health Savings Accounts (HSAs) for Medicaid. They were created when President Bush signed the Deficit Reduction Act of 2007, and their adoption by California Medi-Cal is long overdue. (See also our 2006 book for more ideas on how to improve Medicaid’s incentives.)
A third important component of the bill is revitalizing association health plans in California. Basically, it allows any association of more than one hundred members to purchase in the small-group market. I’m not quite sure that sen. Aanestad has this one right. California’s small-group market (including associations) was disrupted by a “reform” in 1993, which imposed modified community-rating and guaranteed issue in this previously underwritten market. Since then, insurance coverage in small groups has shrunk and the individual market has taken up the slack (as discussed in my analysis of governor Schwarzenegger’s failed 2007 “reform”.)
The 1993 reform “froze” in place the associations then in force (with at least one thousand members), forbidding new ones from offering health insurance. However, because the incumbent associations were subject to the 1993 small-group “reform” (actually “destruction”), their members were free to continue association coverage or buy individual coverage, which continues to be underwritten. Obviously, the association plans went into a death spiral as the healthy members quit and bought individual policies. (Discussed here at p. 26.)
It would be better to restore underwriting in the small-group market than just to open up greater opportunities to form associations in the currently deformed small-group market. It looks like the bill contains measures to limit this selection bias (similar to those in the employer-based small-group market), but I’m not sure how successful they will be.
Nevertheless, it’s good to see a fine piece of legislation get on the agenda in Sacramento.