On Monday, the California Assembly passed a bill that mandates health insurance for all California’s citizens. The government will provide subsidies households with incomes below 250 percent of the federal poverty level. Those earning between 250 percent and 400 percent of the federal poverty level [FPL] would be able to deduct premium costs that exceed 5.5 percent of their incomes. Health insurance will still be privately run, but the government will pay a larger portion of the premiums.
One odd twist of the legislation is that “some Californians would be granted exemptions if their income is too low to afford premiums but too high to qualify for heavy government subsidies.” Which type of people would fall into this group? The poorest poor have Medicaid. People between with income between 0-250% of the FPL are receiving large subsidies from the government.
One of the major arguments in favor of universal health care is that it creates a more equal society, giving the poor a helping hand. Yet if the working poor are exempted from buying health insurance, why is California spending all this money for health insurance when the working poor don’t have insurance.
Of course, providing these subsidies will be expensive. According to the L.A. Times, California is “about to enter a ‘fiscal state of emergency’ because of a $14-billion budget shortfall.” Who is going to pay for the subsidies?
- Smokers: The California government will raise the tax on cigarette smoking significantly.
- Business: Business will have to provide health insurance. If they do not, they will be hit with a tax fine.
Do I think the California plan is a step in the right direction? Maybe one step forward and one step back. Providing means-tested subsidies to help the poor afford health insurance is a step in the right direction for those who prefer a more egalitarian society. Further, although the state is financing much of the insurance premiums, it is leaving insurance to the private market. However, in the presence of a private insurance market, I believe that a minimum standard of health insurance should be established by either the government or decided on by insurance groups. This is not because I think regulation is good in general, but because 1) the insurance contract customers sign is incomprehensible and customers do not know the benefits they are receiving and 2) insurance companies often deny claims that they should pay. Setting a minimum standard with regulation could help to clear up some of this ambiguity while allowing insurance companies to offer more generous, more expensive plans if they choose.
What I do not approve of in the California plan is that health insurance is mandated. Poor families may better be able to use cash to buy food and pay for rent rather than health insurance subsidies. Healthy individuals are forced to buy a product they don’t need. Further, do not be fooled by the Governator’s statements that ‘this plan will pay for itself’; this piece of legislation will be very expensive and increase the utilization of medical care in the U.S.
Here are some news stories covering the issue:
And here is the actual text of the bill.