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Oct 06, 2003

CONTACT: Jerry Flanagan - 415-633-1320

Consumer Advocate Challenges Opponents to Support Health Care Mandate and A Plan to Control Costs

Citing high costs, opponents of a new law that requires employers to provide health care benefits to workers announced plans to file a referendum with the Secretary of State designed to block the law.

Instead of blocking the legislation, the Foundation for Taxpayer and Consumer Rights (FTCR) called on business owners to support a 3-point cost control plan, which includes: 1) health insurer rate regulation similar to existing requirements put in place under Proposition 103 for auto insurers; 2) hospital and physician rate caps; and, 3) bulk purchasing.

"Now that there is a mandate to provide health benefits, The Chamber of Commerce and state employers should commit to making the system affordable by controlling unfair and excessive costs," said Jerry Flanagan of FTCR. "California has enjoyed a 15-year success story with controlling auto insurance rates under Proposition 103 by regulating premium increases. The same rules must be now applied to health care. With the help of state employers we can rescue California from the health care crisis."

Richard Costigan, a V.P. of the California Chamber of Commerce, told the San Francisco Chronicle that opponents would file the paperwork immediately.

Under the "pay or play" plan, SB 2, signed into law on Sunday, employers with 20 or more employees must either provide health care benefits directly to workers or pay a fee for the worker to receive care from a state run health insurance purchasing pool. The bill's implementation date has been delayed until 2006 for large employers and 2007 for medium sized employers. Employers with 20-49 employees will not be required to participate unless a 20% tax credit is adopted first.

Hawaii has had a positive experience with a similar "pay or play" system. When costs became too great in the late 1990's, that state took effective action by allowing the Insurance Commissioner to deny unfair and excessive rate increases. According to FTCR:

* After 3 consecutive years of 10-28% premium increases, the Chamber of Commerce of Hawaii asked the state legislature and the governor to provide independent oversight of rates in 2002.
* During that same year, health care premiums had increased 250 times faster than medical inflation.
* The Hawaii legislature approved, and the Governor signed, legislation allowing a regulator to deny unfair premium increases.

According to a new survey by The Institute for Labor & Employment (ILE) at the University of California, 64% of state businesses support a requirement that employers either provide health care for workers or pay a fee into a state fund to cover the uninsured.

FTCR's 3-point cost control plan:

1. HMO and health insurer premium regulation.

HMOs and health insurers should be required to have premium increases approved, as auto insurers have since 1988 under the California voter approved Proposition 103. That landmark auto insurance reform initiative established a 'prior approval' system for many lines of insurance. During the decade after Proposition 103 was adopted, auto insurance rates in California went down by 4.0% while insurance products remain broadly available and competitive, and the uninsured motorist population declined by 38%. Nationally, rates rose 25% during this period. California consumers saved over $23 billion since 1988 under the prior approval system.

2. Price controls on doctors and hospitals.

Hospital and physician rates should be regulated like hospital rates have been in Maryland since 1971. The Maryland law created the Health Services Cost review Commission (HSCRC) as an independent agency with seven members appointed by the governor. Since 1977, Maryland hospitals' average cost per admission has declined from 25 percent above the national average to 8 percent below the national average. Such a model could serve as a basis for all-payer rate setting for California's health care system.

3. Bulk purchasing and universal access.

A new state health care plan overseen by the 2-million member California Public Employees Retirement System would be more efficient than the current system if it is designed to bypass insurers and organizes hospital and physician networks directly as well as buy prescription drugs at bulk discounts. Universal access to care will save California taxpayers millions of dollars, because health care will be provided preventatively rather than later in an Emergency Room when the patient's condition is critical and care is much more expensive. By insuring everyone, the cost of care will come down for all consumers because risk is spread more widely. The new state purchasing pool should provide care for all who do not have access to benefit plans provided by employers. Competition between the State and private plans will help to stabilize premium costs.

Inefficient HMOs and health insurers spend 12-33 cents out of every premium dollar they collect on administration, salaries, and advertising, and are recording record profits. In 2002, the cost of health insurance for a family of four increased 250% more than the rate of medical inflation. Including administrative costs and bloated profit margins of hospitals and physician groups, experts estimate that one-half of every health care dollar is spent on overhead. As a result, since 2000 a consumer's share of premiums for family coverage has increased from $1,619 to $2,412 -- a nearly 50% increase. A new report released this week by the U.S. Census Bureau shows that uninsured rates are increasing fastest among the nation's middle class as a result of cost increases.

The Foundation for Taxpayer and Consumer Rights is a national non-profit and non-partisan consumer advocacy organization. For more information visit us on the web at and

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