August 29, 2011
To bring health insurance to more Americans, the federal healthcare reform law calls for billions of dollars in subsidies for lower-income households. The law gives states an option, though, that could cut costs while also making the coverage more affordable. Called a Basic Health Program, it would serve as a transitional step between Medicaid and the private insurance plans. A bill by state Sen. Ed Hernandez (D-West Covina) to create such an option in California is pending. Lawmakers should approve it.
The program would give low-income families an alternative to the insurance exchange that California is creating for consumers not covered by employer-sponsored plans or MediCal. Although Washington will subsidize policies sold at the exchange to those earning up to four times the federal poverty level, they may still cost too much for some of the working poor. For example, a single mother making $600 a week in Los Angeles may be hard-pressed to afford the $90 in monthly premiums and co-payments that the exchange’s entry-level plans are expected to cost.
The Basic Health Program created by Hernandez’s bill (SB 703) would bring monthly costs down to about $30 for those earning less than twice the federal poverty level. At the same time, the coverage provided by the bill, which relies solely on federal funds, would cost taxpayers less than the subsidized private insurance plans at the exchange. That’s because the Basic Health Program would pay doctors and hospitals less for their services than private insurers do. Those payments would still be higher than the notoriously low ones offered by MediCal, which should prompt more doctors and hospitals to participate and provide better access to care than MediCal.
Some state officials have suggested that the new program could undermine the exchange by reducing the total amount of premiums it collects and, potentially, leave it with older and costlier customers. But with an estimated 1.8 million people still under its purview, the exchange’s risks and costs would be spread across one of the largest groups of customers in the country. Two new studies also suggest that the Basic Health Program wouldn’t leave the exchange with a group that’s costlier to insure. But if lawmakers want more certainty, they can require insurers to combine both groups into a single risk pool when calculating premiums.
When poor people without insurance require medical care, they tend to receive it in the least efficient and most expensive ways, with the costs borne by everyone else. That’s one of the reasons it’s important to extend coverage to as many people as possible. The Basic Health Program and the state’s new insurance exchange share that goal, but the former would put insurance within reach of more of the working poor. That makes it an important part of the evolving healthcare system, and a good deal for taxpayers.