Californians are about to experience the biggest change in the health care system since the 1960s
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If this year's election was a referendum on President Barack Obama's first term, then it was also a test of the voters' support for his biggest
legislative achievement: federal health care reform. And while polls
continue to show widespread public skepticism about the Affordable Care Act, Obama's re-election means the law is probably here to stay.
That prospect should cheer Californians, who support the federal health care reform in greater numbers than voters in most other states. Not coincidentally, California has also done more to implement the law than other states, where officials were holding back to see if the reforms would survive challenges in the courts and the political process.
The law is expected to expand coverage to more than 4 million Californians who are going without insurance today. Half of those people will get coverage through Medi-Cal, the federal-state insurance program for the poor. The other half will buy it, with subsidies, through the new online insurance exchange to be known as California Covered.
The law also has implications for people who already have insurance.
To date, hundreds of thousands of Californians have taken advantage of a provision requiring insurance companies to allow families to keep adult children on their plans until they are 26.
Others have benefited from rules phasing out annual and lifetime limits on the benefits an insured person can receive through their plan. Families with children who have pre-existing conditions have found that companies must accept their applications regardless of their child's health status.
And adults with health problems have found refuge in a state-run high-risk pool that is a transition to 2014, when health plans will have to accept all comers, not just children.
While it will be nearly a decade after its passage before all the elements of the Affordable Care Act are in place, Jan. 1, 2014, will be the key date in its implementation. That's when the law's least popular provision – a requirement that nearly everyone find coverage or else pay a fine – takes effect, along with the biggest changes in how insurance companies operate and the new taxes designed to raise the money needed to finance the cost of providing coverage to people who cannot afford it.
The Legislature has already adopted a law spelling out the minimum benefits that plans participating in the health exchange will have to cover. And the exchange board has hired an information technology firm to build the system and the online interface where Californians who are eligible for the federal subsidies will be able to shop for coverage among competing plans.
Unlike some other states, where the exchange will simply act as a broker bringing insurance companies and sellers together, California's exchange will be an active participant, negotiating on behalf of millions of potential customers. It will then present a choice of plans – labeled bronze, silver, gold and platinum – for consumers to choose from.
Once this system goes live, it is supposed to automatically calculate the subsidies for which a person or family qualifies. That's probably a good thing, because the rules are a bit complicated.
The subsidies, provided in the form of tax credits, will come in two parts, covering premiums and out-of-pocket expenses.
Families with incomes to 133 percent of the federal poverty level, or $30,000 for a family of four, will pay no more than 2 percent of their income for their policy. Families with incomes up to 400 percent of poverty, or about $92,000 for a family of four, will pay no more than 9.5 percent of their income for insurance. Families earning more than that will not be eligible for subsidies.
A second set of subsidies will cap the amount that consumers will have to pay out of pocket for deductibles and copayments.
According to a calculator developed by the Kaiser Family Foundation, a family of four in California earning $60,000 a year will pay about $5,000 for their coverage using the subsidies, compared with nearly $15,000 for the same coverage without the federal tax credits. Their out-of-pocket costs (not including the premiums) will be capped at $6,250.
The other major expansion of coverage will be in the Medi-Cal program.
Currently, most childless people are not eligible for Medi-Cal. But they will be after 2014, and those with incomes up to 133 percent of the poverty level will be enrolled in the program. That's expected to add another 2 million people to the Medi-Cal caseload, which already covers about 8 million Californians, or more than one in every five residents. Most of the cost of covering those newly eligible for Medi-Cal will be borne by the federal government.
Of course, adding millions of uninsured people to the rolls will not come cheaply. The law includes several new federal taxes to help pay for the expansion of public programs and for the new subsidies for private insurance.
The biggest of these taxes are a new 0.9 percent tax on wage income above $200,000 for single people and $250,000 for couples, and a 3.8 percent tax on investment income for those same people, beyond the current capital gains tax.
Other new levies include a 10 percent tax on tanning booth services, a 2.3 percent tax on the makers of medical devices, and, in 2018, a 40 percent tax on businesses providing the most expensive health plans (valued at more than $10,200 per year for individual coverage).
And of course, individuals who fail to obtain insurance and employers who choose not to provide it will also face new costs – whether you call them taxes, fees or fines.
By 2016, these charges for individuals and families will rise to about $700 per person or $2,100 per family, or 2.5 percent of income, whichever is larger. Companies with more than 50 workers will pay $2,000 per full-time employee in excess of 30 employees if they don't provide insurance and at least one of their workers gets subsidized coverage through the exchange.
The newly insured will also create new burdens for the health care system.
California already has a shortage of primary care doctors, and adding 4 million people to the ranks of the insured will likely make that problem worse. That could lead to longer wait times for appointments but could also revolutionize health care by forcing changes in the way services are provided, with nurses, nurse practitioners and physicians' assistants playing a greater role.
Finally there is the question of whether the Democrats in the Legislature – who will soon wield two-thirds majorities in both the Assembly and Senate – will want to add benefits to the new program that the federal government won't be paying for.
Those Democrats for years have argued for a single-payer system like the one in Canada, but they could never get past Republican opposition to the new taxes needed to finance such a plan. Now that they will have the supermajority required to adopt new taxes, Democrats could fashion such a plan if they wanted to.
That's unlikely, but the Legislature could add some benefits to the minimum package adopted this year and pass taxes or fees to augment the federal subsidies that will be available. Or lawmakers could collect more revenue and use it to reduce the cost of coverage for middle-income Californians.
So far there are no signs that such changes are on the horizon. But even without them, Californians are about to experience the biggest change in the health care system since the 1960s, when the federal government created Medicare and Medicaid.
In the long run, the Affordable Care Act, by expanding access to coverage and turning the private insurance industry into the equivalent of highly regulated utilities, might even do more to change health care than those two landmark laws.
Daniel Weintraub has covered California public policy for more than 25 years. He is the editor of the California Health Report at www.healthycal.org.
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