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Lesson From the States: Lack of Cost Controls Derailed California Health Reform, Led to Budget Overruns and Unaffordable Policies in Massachusetts
Date:4/28/2009

WASHINGTON, April 28 /PRNewswire-USNewswire/ -- Health care reform failed in California last year, and Massachusetts faces budget overruns and out-of-pocket cost increases for patients under its health care law, because cost control was not part of state reform proposals, said Consumer Watchdog today in advance of a U.S. Senate Committee hearing on how state efforts should inform the national debate.

"Real reform is not about who pays for health care, but how much insurance companies, drug manufacturers, hospitals and doctors are allowed to charge," said Jamie Court, President of Consumer Watchdog. "Unlike states, the federal government has the ability to offer a true public plan to compete with and drive down the wasteful overhead of private insurers."

A California health reform effort by Governor Arnold Schwarzenegger focused on making taxpayers, employers and individuals pay for private insurance policies while ignoring out-of-control premiums and other charges by medical providers. Massachusetts' health care law punted the cost control question entirely and is substantially more expensive than expected, with budget overruns and premium increases in the program's first two years alone. In California, the Schwarzenegger plan failed to make it out of a single committee in the Senate after the state's independent legislative analyst said it was too costly and did not contain appropriate cost controls.

Consumer Watchdog said regulation of premiums and benefits are essential for real cost controls, but the only discussion of saving money in the national debate is around prevention, which takes decades to save dollars, and on covering everyone, which in and of itself won't save big money.

"Pushing for expanded health coverage while ignoring soaring health care costs killed health reform in California and threatens the sustainability of Massachusetts' plan," said Carmen Balber, Washington Director for Consumer Watchdog. "National health reform must not go down the same path."

California proposed no effective cost controls on private markets in its unsuccessful 2007 plan:

  • The legislative plan offered no public-plan competition to California's uncompetitive private market, and no guarantee that essential services would be covered.
  • There was no insurance rate regulation, despite the success of such regulation in the state's property and casualty insurance industry.
  • There was no incentive for private insurers to cooperate on reduction of health delivery costs.
  • The measure even created perverse incentives for insurers to allow doctors and hospitals to charge more, by capping overhead at 15% of premium revenue while forgoing further regulation or cost controls.
  • Middle-income families would have been forced to buy private polices regardless of their affordability or level of benefits.

"Costs in the private insurance market will derail health reform if Congress requires that individuals purchase private insurance, or if it refuses to offer an affordable public option that's available to all," said Balber.

Massachusetts' health care law overran its projected budget, patients saw one-year premium increases of 9.4%, and almost half of the remaining uninsured were excused from purchasing insurance entirely in 2008 because no plan was affordable. Massachusetts patients can be required to spend 10% of their income on health insurance premiums, and much more when co-pays and deductibles are factored in. According to a recent poll by the Harvard School of Public Health, only 37% of those impacted by the individual mandate in Massachusetts support it.


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SOURCE Consumer Watchdog
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