By Elizabeth G. Hill
Legislative Analyst
We then estimated the fiscal impact of HCR (health care reform) using two different assumptions of premiums: $250 per month per person (which is what the proponents have assumed for their estimates) and $300 per month per person because, as we explain later, there are reasons to believe that a $250 premium level may be difficult to achieve. Based on our estimates, we conclude that under the $250 premium scenario, there are sufficient revenues to support the program in the first year of operation (2010-11). However, by the fifth year of the program (2014-15), annual costs exceed revenues by $300 million.
Under the $300 premium assumption, costs exceed revenues by $122 million in the first year of operation and this shortfall increases to $1.5 billion by the fifth year of the program.
… according to the 2007 California Employer Health Benefits Survey, the average monthly premium for individuals with employer coverage was $374. In order to provide premium levels of $250 pmpm, the state will need to either negotiate a much lower rate than the average employer, or set the minimum benefit level substantially below the average employer-provided benefit level.
http://www.lao.ca.gov/2008/hlth/health_reform/health_reform_012208.pdf
Comment:
By Don McCanne, MD
Although this analysis was done for the compromise reform legislation currently under consideration in California (ABX1 1), the general principles apply to all comprehensive proposals that would mandate individuals to purchase private insurance plans.
Let’s look at the real numbers first. The average premium paid in California in 2007 for individuals with employer coverage was about $4500 ($374/month). Keep in mind that this is an average, so premiums were higher for roughly half of the individuals (not adjusted for skew). Those with higher premiums were likely receiving benefits that were more generous, yet still below the level expected for a single payer program. More importantly, also keep in mind that these are premiums for the comparatively healthy workforce without including higher risk individuals. So even $4500 would be a conservative estimate for the level of premiums required for universal coverage.
Those negotiating the policies behind ABX1 1 recognized the difficulty of financing private plans at premiums in that range. So they accepted the fantasy concept that the private insurers could provide us with reasonably comprehensive products at affordable premiums. They selected a premium of $3000 ($250/month), and decided that they would figure out later what they could buy with that once the program is enacted. It appears that they would have to give up one-third of the health care benefits which today’s insured workers are receiving. That’s not acceptable. We’ll use the $4500 estimate, which is still conservative.
Most reform proposals would provide either public programs (Medicaid, SCHIP) or insurance subsidies for individuals with incomes up to 250% of the federal poverty level (FPL), and sometimes 300% for families. No proposal suggests subsidies for those over 400% FPL. Let’s use 400% as the level at which a person would be expected to fund his/her own coverage under an individual mandate to purchase coverage. Using the 2008 federal poverty guidelines, 400% FPL for an individual is an income of $41,600. A premium of $4500 is 10.8% of income, considered by health policy analysts to be a “high burden” health expense. Add to this out-of-pocket expenses including deductibles, coinsurance, and services and products not covered by the plan, then you have worse-than-high-burden expenses.
And for families? The average employer-sponsored family coverage is now over $12,000, and 400% FPL for a family of four is $84,000. Thus the premium alone, without out-of-pocket costs, is 14.1% of income. And don’t even think about anyone in the family suffering serious illness or injury.
Why do these fools keep insisting that private health plans must be the foundation of any comprehensive reform proposal? They don’t work! Get over it!