Democrats Health Care Reform Compromise

The Sacramento Bee reported today on a health care reform compromise offer put forward by Assembly Speaker Fabian Nunez and Senate President Pro Temp Don Perata. The article, written by Aurelio Rojas quotes Nunez as claiming “We’re a hop,skip or a jump from a deal we hope the governor can embrace.” And he may be right.

The biggest news in the proposal is the Legislative Leaders’ willingness to accept a requirement that all Californians buy health insurance coverage — with an asterisk (described below). Where Governor Arnold Schwarzenegger is proposing to expand existing state health care programs to residents earning up to 250 percent of the Federal Poverty Level (roughly $52,000 for a family of four), Democrats are pushing for expansion to 300 percent (about $62,000 annually).  Where the Governor offers tax credits to those earning between 250 percent and 350 percent of the FPL (about $72,000 for that family of four), Speaker Nunez wants tax credits for those earning up to 450 percent of FPL (up to about $93,000).

As for the asterisk, the Democrat’s proposal would exempt from the requirement to have insurance any family that would have to pay more than 6.5 percent of its income on premiums. Since both the Governor and the Speaker are willing to leave defining a minimum benefit package to a later date it’s unknown what out-of-pocket requirements such a family would face and thus what percentage of income their total health care spending might be.

This closes the gap with the Governor’s subsidy proposal that the parties should be able to reach an agreement. Legislative Leaders also agreed to a sliding scale for fees on employers to help pay for the subsidies. Whereas the Governor capped his payroll tax at four percent, the Speaker and Senator are proposing an upper level of 6.5 percent, down from the 7.5 percent in the Democratic-sponsored legislation passed earlier in the year and vetoed by the Governor, Assembly Bill 8. Again, this narrows the gap and increases the likelihood of a compromise.

As Mr. Rojas reports, there’s more to the Democrat’s proposal. It is scheduled to be heard by the Assembly Health Committee on November 14th. By then not only will more details be available, but we’ll know the response from various interest groups such as the unions and their allies, business groups, insurers, agents and the like.

What I find interesting is the Governor’s response. Aaron McLear, a spokesman for the governor told Rojas, “This is fairly positive movement. We look forward to seeing the details fo the proposal, but we understand there are still issues to be resolved.” That’s not the statement of an Administration who knew this was coming, which is surprising. If this proposal was the result of ongoing negotiations one might have expected the Governor’s and Speaker’s staffs had worked through some of these issues and to have reached some kind of an accommodation. That doesn’t seem to be the case. Instead, Speaker Nunez seems to be taking a page out of Governor Schwarzenegger’s playbook by making his negotiation positions public before bringing them to the table. What this tells me is that the hop, skip or jump separating the two parties may not be short ones.

The Speaker’s move clearly increases the possibility of an eventual compromise and for that he is to be commended. Whether it moves the debate toward an acceptable compromise remains to be seen. There’s still all those pesky details where the devils dwell to work through. And, as always, it will be interesting to see how the Governor responds once he’s seen those details. 

Chances for Meaningful Health Care Reform Dim as Positions Harden

Unions and others have decided it’s their way or the highway when it comes to health care reform. According to the Los Angeles Times, these interest groups are mounting a full-on campaign to defeat Governor Arnold Schwarzenegger’s health care reform package. Their campaign will include prayer vigils, television ads and demonstrations at the Governor’s public appearances. Joining the California Federation of Labor will be organizations like Health Access, Consumers Union and It’s Our Healthcare! Their main argument is that the Administration’s plan gouges the middle-class by requiring every resident to obtain health care coverage, but failing to provide sufficient subsidies to enough residents. For example, while the Governor would offer tax credits to households with annual income of 350 percent of the Federal Poverty Level (about $72,000); the coalition wants this eligibility level to at least 400 percent of the FPL (a bit more than $82,600) — which is a bit lower than the $103,000 target union officials mentioned last week. They also maintain California’s businesses pay too little of the funding toward the state’s health care system under the Governor’s plan.

So the gloves are now off and rationale debate is about to flee the scene (demonstrations and prayer vigils rarely lend themselves to civil, reasoned discussions). Passing health care reform during the current special legislative session was a tough assignment to begin with. Given Labor’s influence with the Democratic majority, this turn of events virtually eliminates any chance of responsible health care reform any time soon.

Reform is not impossible, however. Governor Schwarzenegger can be one of the most skillful politicians Sacramento has seen in decades (he can also be one of the most clumsy politicians Sacramento has seen in decades, but during the health care reform debate his most artful political persona has been on display). Speaker Fabian Nunez and Speaker Pro Tem Don Perata are no political slouches either. Plus, they would like to see health care reform enacted to help justify the changes to term limits they are seeking on the February 2008 ballot.

Even the Labor coalition has incentives to reach a compromise. They are looking at putting a health care reform initiative on the ballot in 2008 (presumably it would look a lot like Assembly Bill 8, which the Legislature passed and the Governor vetoed). The Governor is threatening to sponsor a competing initiative of his own. Meanwhile business groups and advocates of a government-run single payer system are also considering initiatives. When multiple ballot measures on one topic are put before the voters, historically it’s been easier to defeat all of them than to get any one of them passed (although there are exceptions). So if Labor and their allies aren’t careful they could wind up with no health care reform passing at all and starting over from square one in 2009. That would be squandering not only two years, but all the momentum behind the current reform efforts. And it would be bad news for all those who effective reform could help much sooner if a responsible compromise could be reached.

I was talking to someone today (who prefers to remain anonymous) who pointed out another dynamic in this situation that could make Labor’s position uncomfortable. The unions are supporting employer-centric reforms like AB 8. Governor Schwarzenegger supports an individual-centric approach. Senators Hillary Clinton and Barack Obama, Governor Bill Richardson are among the Democratic presidential candidates whose health care reform proposals mirror, to some degree, Governor Schwarzenegger’s approach. So all the rhetoric this coalition is aiming at Republican Governor Schwarzenegger may apply just as strongly to Democratic presidential candidate <fill in the blank> come 2008. And the unions will be strong supporters of that nominee. 

Politics is politics. Attacking an opponent while praising an ally who has the same position is not uncommon. For all but professional contortionists, however, it’s not a lot of fun either. But that will be then and this is now. For now, positions are hardening and the hope for meaningful health care reform any time soon is growing faint.

It’s Tough Being Post-Partisan. Just Ask Governor Schwarzenegger.

There are three political parties in Sacramento: Democrats, Republicans and the Post-Partisans. The Democratic Party holds large majorities in both houses of the legislature. The Republican Party has enough votes in both houses to block anything requiring a two-thirds majority vote. The Post-Partisan Party is far smaller than either. In fact, it has only one member: Arnold Schwarzenegger. Of course, the fact that Mr. Schwarzenegger is also Governor Schwarzenegger gives the PPP a fair bit of clout. In the highly partisan environment that surrounds the state capital, however, it’s tough being a party of one.

The Governor put forward his health care reform plan earlier this week. There were some significant changes from what he proposed in January. The Governor and his staff were clearly listening to a lot of interested parties. Whatever one might think of the specifics, the Administration deserves credit for trying to find a compromise which all political parties could, and arguably should, support — at least in principal.

(Two things: Yes, I know the Governor is really a Republican, but bear with me for now. And personally, I have several serious problems with the Governor’s proposal, which I’ve described elsewhere. Now, back to our regularly scheduled post).

Yet he’s having a tough time finding anyonein the State Capital who agrees with him. Consider: the Governor’s proposal actually achieves universal coverage, which Democrats strongly support. It doesn’t achieve this goal by creating a government-run health care system, but at the end of the day, everyone would have health care coverage. The Governor even expanded subsidies to folks the Democratic health care reform legislation, Assembly Bil 8 (which the Governor officially vetoed yesterday), left behind. One might think the Democrats would applaud the Governor for this. They might applaud his call for expanding  state health care programs to cover more low-income residents, for calling for insurance reforms similar to what was in AB 8, and for subsidizing premiums for a large part of the middle class in the state. One might expect this, but one would be disappointed.

The Democrats and their allies in Labor are hammering the plan for failing to subsidize residents with households of $100,000 (for a family of four).  Having teased the Governor in the past for failing to put his reform plan in legislative form, they now complain it took so long. Democrats, hurried passage of their own bill through the Legislature on the last day of the regular session are now saying that health care reform is too complicated to rush. “Taking a few extra weeks is the responsible thing to do,” says Assemblyman Hector De La Torre according to the Sacramento Bee.  Assemblyman De La Torre, who chairs the Assembly Rules Committee, is right. Yet that wasn’t what we were hearing a month ago.

Meanwhile the Governor has embraced some of the ideas put forward by Republicans, especially the idea of encouraging use of community-based health clinics. He is also standing firm against a 7.5 percent payroll fee on business, instead suggesting a four percent tax on business.  Yet the rush of Republican lawmakers seeking to carry the Governor’s proposal is, well, there is no rush. Not one GOP lawmaker wants to be associated with the proposal.

So the Governor is learning just how difficult it can be to be a party of one. He’s getting knocks from the left and the right. He has no allies on this issue, at least among Legislators. There’s no party loyalty he can fall back on as he doesn’t share party affiliation with anyone else in Sacramento. In the immortal words of Three Dog Night (actually Harry Nilsson), “one is the loneliest number.”

The upshot is that the chances for health care reform this year are small and shrinking. The Associated Press reports Speaker Fabian Nunez as saying he still has hope of reaching a compromise on health care reform with the Governor. Then the Speaker goes on to say, “Are we far apart? …  Yeah. I think we’re a bit apart.” Meanwhile the Sacramento Bee reports Speaker Nunez as declairing, “… where we end up on health care will look a lot like AB 8 – particularly on affordability, fair participation from employers and keeping the costs of presciption drugs down.” I don’t want to read too much into a couple of simple statements. However, given the fact that the Speaker’s allies in Labor and the Legislature are ripping the Governor’s program, the hardening of his own public position, and the change in tenor from Mr. Nunez’s previous statements, it may be that “a bit apart” is a gap too wide to bridge.

While regrettable, this isn’t a bad thing, so long as the effort to craft health care reform legislation continues. After all, the important thing is to get health care reform right. If it can’t be done before the Legislature convenes in January, as Assemblyman De La Torre suggests, so be it. However, it would be a shame for the special session to turn into a forum for partisan bickering instead of a time when all three parties can seek out common ground and attempt to develop a compromise which improves on what each is currently proposing.

Either that or Governor Schwarzenegger really needs to start recruiting more members into the PPP.

Reaction to Governor Schwarzenegger New Health Care Reform Plan

Governor Arnold Schwarzenegger held a press conference today (October 9th) to announce changes to the health care reform plan he originally introduced in January. (Here’s a link to the press release and a comparison of the new and original plans).  The new proposal is laid out in an update to the legislative language first made public on September 28th.  Whereas the Governor’s staff made clear then that this earlier version was to enable input from interested parties only, the new version is now the Governor’s official proposal.

I’ll be writing later about the details of the new health care reform proposal soon. What’s clear at first glance, however, is that requiring all residents to obtain health care coverage remains central to the Governor’s reform plan. Further, the legislation is likely to have a limited impact on the group health insurance, but would make substantial changes to the individual market segment.

This version provides more details on how the plan might be funded, too. For example, the Governor is backing away from seeking a two percent tax on the gross revenue of physicians. And he caps the payroll fee on employers at four percent (Democrats in the Legislature had proposed 7.5 percent) with the percentage reduced to zero for firms with payrolls of less than $100,000. The Governor proposes to make up for these foregone revenue sources by leasing the lottery to a private firm (the percentage of lottery revenue directed to education would apparently not be impacted by this arrangement).

While future posts will focus on the public policy aspects of what the Administration has now placed on the table, for now I thought it might be interesting to see what the initial reaction to the press conference has been.

The Associated Press initially posted a brief story, reprinted here as it ran in the San Jose Mercury News:
SACRAMENTO—Gov. Arnold Schwarzenegger has announced a health care reform bill that he wants lawmakers to consider as they meet in special session.

Schwarzenegger laid out his health reform ideas in January, but Democrats ignored his plan. Instead, they passed a health reform bill the governor says he will veto.

Schwarzenegger hopes his latest effort will lead to a deal with Democratic leaders. But organized labor has been negative about the governor’s approach and may pressure Democrats to vote no.

Well, you have to admit, that’s to the point. Of interest is that the AP leads with a reminder that the Governor was unable to get any Democratic support for his “post-partisan” plan. What’s unstated is that he was unable to get Republican support either. However, as noted here months ago, this is Governor Arnold Schwarzenegger we’re talking about. He didn’t need a bill before. And my guess is he’ll get one now.

A few hours later, AP reporter Laura Kurtzman wrote a longer piece with a lead that focused on the Governor letting doctors off the hook for helping to finance reform and the proposal to lease the lottery. After highlighting several of the changes in the Governor’s health care reform approach since January, Ms. Kurtzman notes organized labor’s concern over the challenge of making required health insurance premiums affordable.  She reports on organized labor’s preference for premium for families of up to 500 percent of the Federal Poverty Level — over $100,000 for a family of four (compared to the Governor’s proposal to provide such assistance to households up to 350 percent of FPL — about $72,000).

In it’s story, the Sacramento Bee emphasized the Governor Schwarzenegger’s proposal to lease the lottery to a private firm in lieu of taxing doctors. Again, the emphasis is on the Governor’s failure to build a bi-partisan coalition for his plan.

Tom Chorneau, writing for the San Francisco Chronicle, also emphasized the concerns of Democrats and Labor with an individual mandate. He quotes Speaker Fabian Nunez as saying, “I have been strongly committed to ensuring affordability, and I will be examining the governor’s bill in that light, along with how it addresses prescription drugs for Californians and fair participation by employers.”

So, what to make of all this?

Remembering that we’re still dealing with just tea leaves here, the critical issue is beginning to emerge. The Governor will not back down from requiring all residents to obtain coverage. He’ll acknowledge this means health insurance must be affordable. He’ll maintain that expanding eligibility for Healthy Families and premium subsidies for households with incomes of up to 350 percent of the Federal Poverty Level, combined with a mandate that carriers spend 85 percent of their premium on health benefits, meets this requirement. The Democratic Leadership and their allies will claim it’s not enough. They’ll want to increase both the amount of the subsidy and expand who is eligible for it. This will require more revenue which they’ll want to extract by increasing the maximum health care coverage payroll tax on businesses from the Governor’s four percent to closer to eight percent or more. This, in turn will be problematic for the Governor.

Does this mean health care reform is dead for 2007? Nope. It’s always been an iffy proposition, certainly no more than a 50/50 chance. But keep in mind, Governor Schwarzenegger is an adroit politician. When some Democrats thought they had boxed him into a position in which he would have to sign AB 8, he nimbly escaped without breaking a sweat. He accomplished this in part by taking negotiations public; which has now done again.  The burden is now on the Democratic Leadership to put something as detailed on the table. They may fall back on Assembly Bill 8, but that’s so September. My guess is they’ll decide to put on the table a package which offers some concessions toward the Governor’s plan, but with subsidies which greatly increase the cost. I also wouldn’t be surprised if Speaker Nunez introduces both, the Leadership’s and the Administration’s health care reform proposals in bill form. And then we’ll see if a compromise this year is really possible.

Getting Closer to a Health Care Reform Bill … Maybe

Hopefully you’ve forgotten my prediction that we’d see Governor Arnold Schwarzenegger’s health care reform plan in legislative form on September 21st or so.  Well, the “or so” part was technically accurate. It’s still not here. However,  recently a draft bill has been circulating in Sacramento which seems to reflect some elements of the compromise reached by the Governor and Legislative Leaders. There’s also a great deal in the draft which is clearly just placeholder language — something to be filled in later. So when I say “draft” I mean “draft.”

Whether what’s in this version is close to what eventually gets introduced is unknown. Talk is there’s still some serious differences between the Democratic Legislative Leadership and the Republican Governor. In the end these may turn out to be insurmountable and no health care reform comes out of Sacramento.

Yet the odds seem to favor some sort of comprehensive package will get worked out. The circulating of a draft is a sign that movement toward a compromise is ongoing. Both sides have constituencies they need to bring along and an unofficial draft can help with that process. Showing around a “for comment” draft is a good way to flush out concerns from both allies and foes. It also psychologically moves the starting point of the discussion to the new proposals.

In a later post I’ll address some of the substantive issues in the draft. A quick glance indicates that nearly all of the concerns agents had with Assembly Bill 8 (Nunez) remain on the table. It’s important to keep things in perspective. We’ve all been concerned for some time and, while unpleasant, that’s healthy. 

When crunch time comes agents and their organizations will have specific language to promote. But our most important activities will be to educate lawmakers about the real value we deliver to our clients in specific and to the system in general. (Thanks to all of you who posted comments on the previous post describing examples of this). Agents also need to emphasize that responsible health care reform and a continued role for agents are not mutually exclusive concepts.  Hopefully this reality is already understood by the Governor and the Legislature. As the compromise language takes hold we’ll know for sure.

The Curtain Goes Down on Act I. Now Comes Act II.

As predicted, the Legislature passed Assembly Bill 8 (Nunez). The Senate vote was 22-to-17 vote and in the Assembly it moved forward on a 45-31 vote. (Significantly, there will apparently be no vote this year on Senate Bill 840 (Keuhl), the single payer proposal). Governor Arnold Schwarzenegger immediately announced he would veto the bill and pledged to call a special session to iron out an acceptable health care reform package (his full statement is below).

None of this is surprising. Nor should it be taken as a failure of the Administration or Legislative Leaders — although that’s how many reporters will no doubt describe it. Lawmakers and their staffs worked hard to reach a compromise before the regular legislative session adjourns this week, but time, the complexity of the issue, and the press of other issues made that impossible. What’s impressive is how close they came. Which sets the stage for a productive special session.

Not that anyone’s asked but my wish list for the special session:

  • Detailed language on what each side (the Governor and the Legislative Leaders) are proposing.
  • Time for interested parties to digest this information
  • Meaningful public dialogue on the proposals with all parties keeping an open mind on how to achiee their common goals.

In short, while some backroom negotiating is inevitable, there’s been too much of it concerning AB 8. It’s time for the process to open up. What the Governor and the Legislative Leadership need to do is be very clear on their health care reform goals while not getting too locked into how those aims are achieved (the Governor makes a good start in this direction in his statement). By sincerely listening to alternative approaches, it may be possible to reach a workable and meaningful compromise. It’s happened before. Let’s hope it can happen again.

Here’s the Governor’s statement on health care reform in full:

Gov. Schwarzenegger Issues Statement Regarding Health Care Legislation

Gov. Arnold Schwarzenegger today issued the following statement regarding Assembly Bill 8, by Assembly Speaker Fabian Núñez and Senate President Pro Tem Don Perata:

“I applaud all the hard work that has gone into efforts to reform California’s health care system, but I cannot sign AB 8 because it would only put more pressure on an already broken health care system.

“First and foremost, AB 8 does not cover everyone. Any reform that leaves millions without health insurance and fails to address our dangerously overcrowded emergency rooms simply maintains a broken system. I have said from the beginning of this debate that coverage for all Californians is critical to reducing health care costs for everyone.

“AB 8 does not protect consumers because insurers would still be allowed to deny coverage, leaving Californians vulnerable to loss or denial of coverage when they need it most.

“I also believe that AB 8 is financially unsustainable. I have always said that I would not sign a health care bill that puts the vast majority of the financial burden for reform on any one segment of our economy. AB 8 unfortunately does that by requiring businesses to pay at least 7.5 percent of their payroll into a state fund or on health care services for employees.

“I believe we can find agreement on a financially sustainable reform plan that shares responsibility, covers all Californians and keeps our emergency rooms open and operating. The historic agreement reached this past week on the use of hospital contributions for coverage demonstrates that a more balanced approach is achievable.

“We have made tremendous progress on this issue during the past session and have found considerable common ground.

“That is why I intend to call a special session of the Legislature so that we can finish the job of truly reforming our health care system. I know that legislative leaders are willing to get the job done.

“We must keep working until we achieve the kind of historic solution that all of us and the people of California want.”

A Special Session AND An Initiative. Oh Joy!

I’ve been predicting that Governor Arnold Schwarzenegger would call a special session to push through a health care reform package for quite some time now. As the Legislature faces adjournment in less than a week, it looks like it’s now become all but a certainty. But it seems the special session is only a prelude. According to an article by Mike Zapler in the San Jose Mercury, the Governor will use the a special session to pass a framework for reform, but make much of it contingent on funding to be enacted by an initiative.  The Mercury reports an aide to the Governor predicting that “Schwarzenegger would assemble the ‘strongest, most robust health care coalition ever put together’ to push for the initiative.”

The aide is probably right. The Governor will be able to muster support among hospitals, insurers, consumer groups, and unions to create a unique and potent coalition. There’d still be opposition, including from some from hospitals, insurers, consumer groups and unions. But the mere fact that these stakeholders would be split on the issue is a huge win for the Governor.

How the split within these interest groups works itself out will depend in large part on how well the framework is designed and what funding mechanisms are included in the initiative. For example, the Democratic majority’s legislation, Assembly Bill 8 (Nunez) gives unprecedented power to the Managed Risk Medical Insurance Board to raise fees on every business in California without considering the impact of the fees on the state’s resources or economy.  If the Governor endorses this approach the framwork will be perceived as hopelessly flawed by a substantial portion of the business community which would otherwise have supported the Governor’s ballot measure.

The nature of the taxes and fees the Governor proposes will also impact the outcome. Broader taxes will be required to raise the billions of dollars required to achieve anything close to universal coverage. Some in the business community support a one-percent increase in the sales tax to raise the necessary funding. Others will argue this is a particularly regressive form of taxation which punishes low income families — albeit this population will no doubt benefit the most from the overall package.

In looking for more narrowly-targeted  taxes, the Adminstration may want to look at the list of potential financing mechanisms proposed by the California Association of Health Underwriters in its Healthy Solutions health care reform plan. CAHU recommends taxing activity which directly impacts health care costs. This includes common targets like smoking and alchohol, but CAHU goes further. It recommends imposing fees on handguns and ammuniation and on unhealthy foods. These would no doubt be controversial, but there’s no denying they target significant drivers of increasing medical expenses. (Full disclosure: I helped draft Healthy Solutions and pushed to have these targeted taxes included).

 What all this means is, the coming week will be devoted mostly to political theater. Act One will be symbolic passage of Democratic reform proposals followed quickly by vetos. Act Two will be the special session. If robust public debate flourishes at this point the result could be a framework for reform which is reasonable and effective. Act Three would be the funding initiative, most likely to be part of the November 2008 ballot.  What’s interesting is, while the script is finally becoming clear, no one is really certain yet if the play is a comedy or a tragedy.

Recent Amendments to AB 8

Assembly 8 (Nunez) is being amended to reflect the state of current negotiations continue between the Governor’s and Legislative Leadership’s staffs. The California Progress Report has an excellent summary of the bill written by Health Access Executive Director Anthony Wright.

Two of the most signficant changes to note concern affordability of coverage and expansion of small group health insurance reforms. Previously AB 8 required all employees of companies choosing to participate in the state-run California Cooperative Health Insurance Purchasing Program (Cal-CHIPP) to purchase coverage through the pool unless they were insured under another plan. The recent changes now enable an employee to decline coverage if the worker’s share of the premium would exceeded five percent of the worker’s income. This change was high on the agenda of unions and some consumer groups. AB 8 also provides that employees insured in the state pool who earn less than 300% of the Federal Poverty Level (appromiately $60,000 for a family of four) could not be required to pay more than five percent of their income in premiums.

The other signficant change expands the current small group health insurance rules to employers with 100 full-time employees, down from 250 employees in earlier drafts of AB 8.  This addresses the fear of some that, by heavily regulating groups of greater than 100 employees it would encourage those with lower-claims to self-insure. (Self-insurance becomes more viable with the size of a business and is more appealing to companies with low claim rates).  This in turn would leave higher-cost groups in the insured pool, driving up premiums. The changes to AB 8 should reduce this concern, although not entirely eliminate it.

Does any of this matter? With just a few days left for a vote on AB 8 it is growing increasingly unlikely that a compromise will be reached in time. In fact, there is a rumor circulating in Sacramento that Democrats will bring AB 8 (and perhaps Senate Bill SB 840 (Keuhl), the single-payer bill, to a vote knowing the Governor will veto it — regardless of how close negotiators are to a deal. Since neither bill is likely to receive a Republican vote this would allow Democrats to strengthen their claim to be the champions of health care reform as an election year approaches.

I’m of the belief that the Governor would use his veto message as an opportunity to call a special session focused on health care reform. This would be done either in coordination with the Leadership (to put pressure on recalcitrant Republican Legislators) or to maintain his dominant position in the process. For a clue to his motivation, keep an eye on whether the Leadership amends AB 8 again before the symbolic vote. If there are significant changes, it’s a sign the Governor is on board with the dance. If they vote on the bill as is, it’s more likely the parties are seeking a negotiating advantage at the other’s expense. The result, of course, is the same. The good news, however, is that a special session would give those excluded from the current closed-door negotiations a chance to thoroughly review, and hopefully amend, AB 8.

Health Care Reform Compromise: Unsolicited Advice Part II

Not only is this advice offered in this post unsolicited, it’s self-serving. While this blog is meant to be of interest to everyone interested in health care reform, its primary audience is health insurance agents. So what I’m about to suggest is clearly in their interest. And, as an insurance agent, in mine. Because it’s self-serving doesn’t mean it’s not good advice, it just means, it’s, well, self-serving. But hey, enough about me. <g>

One virtual certainty is that if a compromise emerges from the current negotiations between the staffs of the Governor and the Legislative Leadership it will include a cap on the percentage of premium carriers can spend on administrative costs and profits. The only thing still uncertain is what will be considered medical related expenses and what will be treated as administrative costs. The health plans are busily pushing to have such consumer-friendly items as disease management, wellness programs and the like treated as medical related. Hopefully they’re finding a receptive audience. These activities are a great benefit to consumers and help to lower overall health care spending. It would be a terrible consequence of a legislative compromise if they were to become too burdensome for health plans to continue with them.

The primary health care reform bill in Sacramento, Assembly Bill 8 (Nunez), explicitly defines distribution costs as administrative. This could mean that all agent commissions will be treated as applying toward the 15 percent cap on non-medical spending percentage. This would be bad news for agents as, especially in the individual and small group markets, their commission as a percentage of premium is not insignificant (neither is the services they provide, but we’ll get to that). Some carriers have gone so far as to suggest that if AB 8 passes with the administrative cost cap, agents would not be paid any commission for selling individual policies.

However, agents are paid a commission not just for selling a case, but for servicing it. Agents act as consumers’ advocates and counselors — at least the good ones do. Yes, they help consumers select the carrier and benefits package that best fits their unique needs and circumstances.  They help with the application process, often conducting numerous employee meetings even for smaller groups. And they help consumers navigate the underwriting process when that’s required. At renewal time, agents help consumers reevaluate their plan, compare it to others on the market and either re-up with their current coverage or enroll in a new plan. All of these are clearly sales related and should be treated as administrative expenses.

Agents also help their clients work through billing problems. It may be a snafu in accounting or the failure of the plan to acknowledge the arrival or departure of an employee from the group. Agents help families prepare when a child is no longer elgible to be insured as their dependent. When an insured is ready for Medicare an agent will help with that transition, too. These “customer service” type activities are also administrative in nature.

One of the most important service agents provide is helping their clients get the benefits they’ve paid for. When a claim is denied or the client feels they are getting the runaround from the carrier, agents step in and try to resolve the issue. This consumer claims advocacy role is critical. Clients are at a disadvantage to the carriers when claims problems arise. They’re dealing with the illness or accident that caused the problem in the first place. The terminology is new to them as are the standard operating procedures at the carrier and in the industry. They have jobs and family responsibilities, whereas the folks in carrier’s claims departments have little else to do eight hours a day other than deal with claims.

Often agents get involved in the claims process before a medical expense even occurs. They help their clients understand what treatments or medications are covered and which are not. They may assist with the pre-approval processtes (especially if the treatment is initially denied approval). In short, a significant portion of an agents value to their clients is help with claims. And these activities should not be counted as administrative, as they are part and parcel of consumers receiving the benefits they are entitled to — in other words, they are claims related.

So commissions should not be viewed as solely sales compensation. It’s also compensation for performing service, including claims related services. AB 8 should recognize this. The simplest method would be to include language that allows carriers to treat a percentage of agent commissions as claims related. What percentage?

Here’s a formula (for those too bored to follow it through, the result is “at least 35 percent of commissions should be treated as payment for client claims advocacy).

In the individual and small group market segment, commissions are not paid only at the time of sale (as it is for, say, a real estate agent). It’s paid out over time, usually on a monthly basis. And health insurance agent commissions continue to be paid out so long as the case remains in force.

The initial sale of an individual or small group medical plan takes, on average, two-to-three months in the individual and small group market segments. Renewals may require less time, but not always.  This means roughly 16-to-25 percent of agent compensation is sales related. Let’s use the higher number: 25 percent.

Talk to 10 agents about how much of their time is spent on “administrative-related” customer service and how much on “claims-related” customer service and you’ll get 10 answers — maybe 15. So let’s assume a 50/50 split. This means 37.5 percent of agents’ compensation is claims related, but let’s round down to 35 percent. 

So there you have it: if an administrative cap is going to be part of the compromise, well, so be it. I’ve written extensively about the unintended conseuquences such a cap will have, specifically, increasing the cost of coverage. If legislators are not intending to put the thousands (tens of thousands, actually) of agents out-of-business, then they should draft AB 8 to recognize the claims-related services provided by those agents. This means inserting language allowing carriers to allocate up to 35 percent of agent commissions to customer claims advocacy activities.

Of course, it could be negotiators and lawmakers want to eliminate agents from the system. In which case they could just say so. Or they could fail to recognize agents’ claim-related services. After all, actions do speak louder than words.

Health Care Reform Compromise: Unsolicited Advice Part I

As noted in my previous post, there’s rumor of a compromise on health care reform swirling around Sacramento. One element of the purported package is to require carriers to accept all applicants regardless of their health condition (something called “guarantee issue”). Assembly Speaker Fabian Nunez and Senate Pro Tem President Don Perata are willing to enact guarantee issue without a corresponding mandate that all Californians buy coverage (a “buyer’s mandate”). This position is shocking in light of the experience of other states that have done something similar. Those states have all experienced substantially higher insurance premiums and an erosion of competition in the marketplace (for example, see this earlier post on the topic).

Meanwhile, the Governor’s staff claims they will agree to legislation only if it includes an “enforceable” buyer’s mandate. Of course, what’s enforceable is open to debate. And while the staff is extremely bright, the fact is that what looks good on paper often disappoints in reality. (For example, only about 75 percent of drivers comply with the “enforceable” mandate to have auto insurance or post a bond.) Nonetheless, the Governor is likely to hold out for guarantee issue with a program aimed at achieving a buyer’s mandate.

No one asked for my opinion, but here’s how to get guarantee issue right: prove the buyer’s mandate is working before implementing guarantee issue.

We already have a program in place to insure the “uninsurable.” It’s called the Major Risk Medical Insurance Plan (“MRMIP”). At times it’s been plagued by long waiting lists. And coverage through MRMIP isn’t cheap. So create subsidies for low- and middle-income Californians. Then implement a buyer’s mandate. If an individual is turned down for coverage, the subsidy can be applied to the MRMIP coverage. At the same time, expand the number of Californians eligible for existing state programs like MediCaid and Healthy Families. And spend the time and creativity necessary to create an effective outreach program for those programs (today as many as one million Californians eligible for the programs fail to enroll). 

These efforts, along with a package of incentives and penalties to encourage enrollment in health insurance, should dramatically increase the number of insured in the state. Once the state can document 90 percent compliance with the buyer’s mandate then carriers should be required to guarantee issue coverage. This means the need for the MRMIP program will go away, freeing up more money for subsidies or other important health programs.

Even after this 90 percent threshold is reached, there will be some folks who fail to meet the requirement to purchase coverage (by defintion, 10 percent, initially). If these individuals are permitted to buy coverage on their way to the doctor’s office or hospital, without a penalty, the result will be higher premiums for those who have played by the rules. So carriers should be permitted to apply pre-existing condition exclusions and premium adjustments for a limited time. The amount of time these penalties, and the amount of the premium adjustment, should be proportional to how long the individual has gone without coverage. If these individuals qualify for a state subsidy they should still receive it.

The guarantee issue and the buyer’s mandate provisions could be approved by the Legislature by a majority vote. The funding for premium subsidies and expansion of MRMIP would be part of the funding intiative. The implementation of the guarantee issue and buyer’s mandate provisions would be contingent on passage of the initiative. In this way, the resources and the legal framework must both be in place before the state can honestly claim to be on the road to true universal coverage.

This proposed compromise isn’t new. It’s actually a part of the California Association of Health Underwriter’s Healthy Solutions health care reform proposal and I first suggested it in a post back in March.

Like all compromises, this version of guarantee issue won’t please everyone. It will be called a cop-out by opponents who think carriers are being let off too easy. However, failing to demonstrate an enforceable buyer’s mandate will only lead to disasters of New York and New Jersey proportions. Other critics will claim the 90 percent threshold is unreachable. Yet nearly 80 percent of Californians are already insured by public or private programs. An effective outreach program could bring a million more people into public programs. Premium subsidies will help millions more obtain coverage. The fact is, the 90 percent target is well within our reach.

This compromise offers lawmakers to go beyond promising universal coverage. It allows them to actually achieve it. To me, that’s a compromise worth making.