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Governor's Health Plan Hides the True Cost of a Mandatory Purchase Requirement, Testimony Shows

SACRAMENTO, Calif., Oct. 31 /PRNewswire-USNewswire/ -- California Health and Human Services Agency Secretary Kim Belshe indicated in legislative committee today that the financial estimate of the Governor's plan to require all Californians to buy private insurance policies does not consider the impact of double digit insurance company premium increases. The proposal does not add up to affordability, said the Foundation for Taxpayer and Consumer Rights.

In response to questions from Assemblyman Dave Jones (D-Sacramento), Belshe argued that costs would somehow be contained, yet the $14 billion estimate of the plan's cost appears to be based on annual medical inflation--doctor and hospital rates--which range from 4% to 6%. This does not take into account that insurance premiums have increased two to five times faster than medical inflation. Dramatic insurer premium increases of the last several years are due to huge profit increases, vast cash reserves and administrative waste, said FTCR.

"Californians deserve an honest debate of how much health care will cost under the governor's plan to require them to buy private insurance policies," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). "The bottom line is that governor's plan does not add up. Health care will never be affordable for patients, the system, or the state's taxpayers when insurers are allowed to charge whatever they choose."

Massachusetts passed a similar law requiring residents to buy private health insurance last year. That program, which goes into effect in January, has already experienced cost increases far beyond what was promised by policymakers when the bill was passed.

In response, Massachusetts Senate President Therese Murray (D-Plymouth) has proposed a plan to require health insurance to justify rate increases in excess of 7%. She also said that the state's insurers should spend down their $2 billion in excess reserves to keep premiums affordable.

In comparison, just three top California health insurers -- Blue Cross, Blue Shield, and Kaiser -- have $14.4 billion in reserves in excess of state-required amounts.

Jones (D-Sacramento) authored legislation this year that would require health insurances companies to justify rate increases as auto insurers have been required to do since 1988 under Proposition 103. Jone's bill, AB 1554, passed the Assembly but failed to pass the state Senate Health Committee. The bill was granted reconsideration and is awaiting a new hearing. Gov. Schwarzenegger has refused to include such a requirement in his health care bill.

"An individual mandate, especially one without containment of health insurance premiums and overall rates, is a recipe for cost explosions that will sink affordability both for the state and for individuals who are saddled with a mandate," said Flanagan.

FTCR said Schwarzenegger's aim of expanding health coverage is laudable, but the plan is deeply flawed: It does not define what a "baseline" health plan must cover, or limit the amount of deductibles, copays and other out of pocket costs to the people forced to buy insurance.

FTCR is California's leading public interest watchdog. For more information, visit us on the web at

SOURCE Foundation for Taxpayer and Consumer Rights
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