ABX1-1 Exemption: A Road to New York?

Earlier this month, America’s Health Insurance Plan’s (AHIP) published it’s annual Health Insurance: Overview and Economic Impact in the States. It provides a snapshot of the economic impact health insurance has on state economies along with some interesting statistics. More importantly for those involved in California’s health care reform debate, it offers a warning about the need to get reforms right.

First, some general statistics. The average individual insurance policy in the country costs the average single American $2,613 and the average American family $5,799. Californians hover within two percent of the national average — a little lower for single coverage; a little higher for family policies. Note: the AHIP numbers reported for California strike me as high. The average monthly premium I’ve seen for single individual coverage hovers around $130, substantially below AHIP’s findings. Granted, my data comes mostly from online sales where purchasers tend to skew younger than the general population, and, consequently, pay lower premiums.

When it comes to small group coverage, Californians pay about five percent less than the national average. Nationally, single coverage in this market segment is, on average, $3,732 and family coverage averages $9,768. In California the premiums average $3,552 for singles and $9,768. So, pre-health care reform, California’s premiums are pretty typical. So far, so good.

While comparison to the national average is interesting, what the report clearly indicates is that health care reform, done badly, costs consumers money. Lots of money.

 In New York, for example, where there’s a mandate to sell coverage, but no mandate to buy it, single coverage in the individual market costs $4,734 (85 percent more than in California) and families pay $12,254 (over twice as much). In New Jersey, which has also sacrificed affordability in the name of health care reform, single coverage costs $5,326 (twice as much as Californians pay) and $10,398 (77 percent more).

In California we’re considering a path to higher premiums no less dramatic than our east coast cousins. However, whereas they were explicit about the path they took, in California we’re contemplating a more indirect route to higher premiums. In New York and New Jersey, they consciously chose to create an unbalanced market dynamic, one that encourages folks to wait until they’re in need of health care before buying insurance. This is comparable to allowing drivers to buy auto insurance from the AAA as the tow-truck hauls your car away to the shop).

Assembly Bill X1-1 (Nunez) gets California to a similar result, but with more subtlety. The bill includes both, a mandate to sell and a mandate to buy individual coverage. However, it also includes an exception to the buy-side of the equation which makes the mandate nearly irrelevant. ABX1-1 exempts anyone from the obligation to have coverage when the premiums and out-of-pocket costs (deductibles, etc.) exceed 6.5 percent of a family’s gross income. ABX1-1 mitigates the impact of this exemption slightly by providing subsidies to many low- and moderate-income families, but there’s clearly a segment of the population that will be covered by this provision. The question is, how large is that segment? If it’s too numerous, the result will look a lot like Gotham.

Because ABX1-1 fails to define the minimum coverage residents are expected to have, there’s no way of estimating familys’ out-of-pocket exposure. But let’s be conservative and assume $3,000 for an individual and $6,000 for a family (most discussions assume it will be closer to $5,000 and $10,000).  Using the AHIP’s study average premiums, single Californians earning less than $85,615 would be exempted. Using my $1,800 annual premium estimate sets the exemption at $70,150. Either approach amounts to a lot of single Californians.  The average AHIP average for family premium, means those in households earning $182,830 would have the option of waiting until medical care was needed before obtaining coverage.

Now, these are averages and questionable ones at that. But even so, they serve as warning flags. In crafting an affordability exemption, California lawmakers need to consider what it will do to the balance needed to achieve a healthy insurance system. One solution: limit the exemption to the cost of coverage. After all, someone taking the exemption has unlimited exposure to medical costs; with even catastrophic coverage their exposure is capped. Failure to consider the need for balance will result in what New Yorkers bear: a formidable health care reform surcharge.

New York is a nice place to visit, but I wouldn’t want to buy health insurance there. Neither would a lot of other voters. California lawmakers should take note.