Study Projects Cost of Massachusetts-Style Insurance Plan in California

Program has promising elements. but would require billions in new spending

Providing health-insurance coverage for nearly all Californians would cost significantly more than a similar plan recently signed into law in Massachusetts, according to a study released today by the California HealthCare Foundation (CHCF).

The analysis by the Institute for Health Policy Solutions found a Massachusetts-style program would require as much as $9.4 billion in additional funding – or $1,450 per uninsured Californian – because of socioeconomic and insurance coverage differences between the two states. The authors will present their findings at a briefing for the California Legislature on Thursday, April 27, at 2:30 p.m. in Room 3191 of the State Capitol.

The study is part of a larger foundation project, begun in 2005, to explore policy options for expanding coverage for the estimated 6.5 million uninsured in the state. Those options include mandating that all Californians obtain coverage, requiring that employers and workers contribute through payroll taxes toward coverage, and other proposals that impose new requirements on individuals or employers. A broader analysis will be released this summer.

The Massachusetts Model

Earlier this month, Massachusetts Gov. Mitt Romney signed a bill (H 4850) to create near-universal coverage by requiring all state residents to obtain health insurance. The program has generated national attention and sparked debate about whether a similar approach would work elsewhere, including California.

A key feature of the Massachusetts plan is that it opts for a mandatory, rather than voluntary, approach. In doing so, Massachusetts became the first state to require that individuals carry health coverage or face financial penalties.

California’s most recent effort to expand coverage occurred in 2003, when then-Gov. Gray Davis signed into law the California Health Insurance Act of 2003 (also known as SB 2), which would have required California employers to pay into a fund to provide coverage for their workers unless the employer provided coverage directly. The law was struck down when voters rejected Proposition 72 in 2004.

“State and local efforts to expand coverage for the uninsured reflect a growing frustration with the federal government’s inaction,” said Mark D. Smith, M.D., M.B.A., president and chief executive officer of the California HealthCare Foundation.

According to Dr. Smith, the Massachusetts plan has several positive elements, including its recognition that any successful plan to cover the uninsured will require some form of employer and/or individual mandates.

Cost Implications for California

The study found that, under a Massachusetts-style plan, spending on premiums and out-of-pocket expenses for Californians under age 65 would rise by $10.6 billion, or 9.9 percent per year, to just over $117 billion.

Contributions from employers would increase by $5.1 billion, or 8.8 percent annually, from $58.6 billion to $63.8 billion, assuming no changes in employers’ contribution policies. The rise in employer spending is due to a projected increase in enrollment by workers and their dependents who previously declined employer coverage.

“This analysis reinforces that a well-crafted mandatory approach is far more cost-effective for the state in achieving coverage of the uninsured than a voluntary approach,” said Rick Curtis, president of the Institute for Health Policy Solutions. “But given California’s much larger low- and modest-income population, it’s going to cost a lot more to cover them.”

Key Differences Between the States

Some experts have criticized the Massachusetts plan as based on unrealistic cost estimates. The study notes several key differences between California and Massachusetts that may contribute to the higher cost estimates in California, including:

  • The percentage of the population without health insurance is much higher in California (20.7 percent) than Massachusetts (13.1 percent).
  • The non-elderly population with employer health coverage in California is 13.8 percent lower than Massachusetts, in part because more Californians are employed by firms with a majority of low-wage workers. Coverage rates among such firms are much lower than in other firms.
  • In California, 42.8 percent of the population has low or modest incomes compared to 28.7 percent in Massachusetts.
  • Massachusetts already spends considerably more public money than California does on uncompensated care for the uninsured—between four and six times more per uninsured person. Massachusetts expects that re-directing these funds will pay for most of their coverage subsidies.

“With health coverage, it always comes back to money,” said Dr. Smith. “Where will the funds come from? And will it be affordable for those people it intends to serve?”

The complete study is available through the link below.

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About the California Health Care Foundation

The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the way the health care delivery system provides care to the people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford.