Calif. Commissioner Releases Report on State Healthcare Crisis

August 4, 2005

Warning that California’s health care system is in a “death spiral,” Insurance Commissioner John Garamendi unveiled a comprehensive report outlining his plan to begin reforming the system and bring universal access to health care.

The report, “Priced Out,” details serious problems facing Californians as rising costs burden the entire health system and fray the safety net. Its findings will be used to provide the framework for the concerted effort by Commissioner Garamendi to begin reform of the system and to lay the groundwork for universal access to health care.

During a news conference at Joe’s Pharmacy in San Francisco’s Richmond district, the Commissioner announced that he will hold a hearing in San Francisco this September to address the issues of large deductibles, health savings accounts, and what he calls “skeletal” policies. These policies offer a reduced level of coverage for people priced out of the system, but often at a cost to their long-term health and the overall stability of the health care system.

“There is no more glaring example today of what ails our society than the broken and deteriorating health care system,” Commissioner Garamendi said. “It is being choked by rising costs that have little relation to the ability of employers and patients to pay. This system is well on its way to collapse, and we are all bearing the brunt of its failure.”

Garamendi was joined at the pharmacy by Tony Bastian, owner of the business, whose health care premium for his family and one employee costs $1,100 per month.

Beth Capell, the legislative advocate for “Health Access,” California’s consumer coalition on health care, also attended, as did three consumers who are “priced out” of the health insurance market.

Barbara Brinkerhoff, a 54-year-old San Francisco consumer, shared her nightmare of $36,000 in unpaid bills for surgeries and medicine that she now faces after two years of being unemployed, prior to finding work this April. “My medical bills are so horrendous I don’t know how I’m going to be able to pay them off without possibly filing for bankruptcy,” she said.

The report’s information will help shape the reform effort. Much of the report was generated from a series of high-level health care forums with industry and medical experts from around the state and nation. They included labor and consumer groups, legislators, principals from major health care trade associations, CEOs of health plans, and representatives from pharmaceutical companies.

The report shows that 6.6 million Californians currently have no health insurance at all; premiums for private coverage have soared 60% in the past four years; and families and individuals with coverage are struggling as employers are forced to transfer more of the cost of insurance to their employees.

It also shows that the distribution of the health care dollar is a significant factor in the dysfunction of the system. Nationally, administrative costs account for 31 cents of every dollar spent on health care.

“It is unconscionable that administrative costs are sapping this system of nearly one-third of every dollar, severely limiting resources that could go to patient care,” the Commissioner said. “Some 2,500 people in this state die each year because they have no health insurance, while the crushing financial burden on employers is dampening our economy. We simply must act now.”

He noted that federal and state budget crises leave virtually no new public money to address these problems. “Unless we right this ship,” he said, “we will see a future in which insurers offer inadequate policies that cover fewer services to an ever-shrinking pool of people who can afford them.”

The report contains not only an extensive analysis of the system and its problems, but a series of specific recommendations and action points designed to change fundamentally how health care is delivered. It advocates the creation of a universal health care system, a health program that covers everyone regardless of income, zip code or racial and ethnic characteristics.

In September, the Commissioner will convene a public hearing in San Francisco to address the proliferation of reduced benefit, or “skeletal” health policies. While such policies do provide a measure of coverage for some who would otherwise go without, they do not provide the basic, comprehensive medical care that is essential to building a sustainable health care system.

A second hearing in Los Angeles, later in the year, will focus on how much of each premium dollar goes to providing care for individuals. “It is clear from my report that health insurance companies keep too much of the premium dollar, fattening their executives’ wallets and Wall Street purses at the expense of patients and doctors,” said Commissioner Garamendi.

“The structure of compensation for health insurance companies, as well as for the executives who run them, is a major factor in the dysfunction of this current system. We must find a way to determine how much compensation is appropriate and rationally required to provide essential services,” the Commissioner said.

Through education, legislation and regulation, the Commissioner’s effort to reform the system will take focused steps to address immediate concerns, while building toward the long term goal of universal access to care. It will do so through a framework of the following guiding principles:

Achieve universal access to health care;
Establish a set of comprehensive benefits to be embraced by all health plans;
Guarantee fair health care pricing for all;
Deliver health care equitably regardless of income, zip code and race;
Reduce administrative costs to expand health care coverage;
Improve quality throughout the system to control costs;
Ensure investment in information technology to encourage quality improvement and control costs;
Value and protect the safety net of public hospitals and clinics and strengthen the traditional public health system;
Demand California’s “fair share” in federal funding for public health care delivery programs;
Use interim reforms to further the long-term goal of universal access to health care.

A copy of the Commissioner’s report, “Priced Out,” is available on the California Department of Insurance Web site at www.insurance.ca.gov.

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