The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

AB 8 and Unintended Consequences: Prelude

Posted by Alan on August 6, 2007


AB 8 is chock is comprehensive reform poorly crafted. Most of it is well intentioned, but it seems cobbled together. Perhaps it’s because the bill tries too hard to strike a balance between competing political agendas. The result is something unhelpful to consumers, dangerous to the state’s economy and toxic to folks like insurance agents.

This outcome is obviously not the author’s goals. I think they’re trying to do the right thing, but they’re torn between trying to appease political constituencies and interested parties, especially unions and Governor Schwarzenegger. Throw in the hodgepodge of reform proposals that have floated around Sacramento for awhile and you’ve got a rather unweildy bill. Worse, you have a bill with many (hopefully) unintended consequences — all of them harmful.

Unintended consequences is like gravity: it is ever present and unavoidable. The law of unintended consequences is fairly straitforward. Every piece of legislation enacted into law impacts society in unanticipated ways. Sometimes the surprises are helpful, but the ones that get the attention are those that do harm.

AB 8 is no exception. Because it’s addressing a complicated issue and is being rushed through the legislative process, it is likely to serve as a magnet for unintended consequences. Here’s five of the more likely ones:

  1. a state-run purchasing pool which will tend to attract high risk individuals and repel those with lower risks. The result: the need for ever higher payroll taxes — or fees if you prefer — and a host of unhappy voters.
  2. a cap on administrative costs which will force premiums higher, not lower, making coverage less affordable and increasing the number of uninsured.
  3. a tax/fee on payroll which is likely to increase rapidly and consistently which will make attracting, retaining and growing businesses in the state harder, weakening the economy and driving high paying jobs to other states.
  4. a system which diminishes consumers’ access to independent advocates and counselors, reducing consumers’ ability to get full value for their health insurance premiums and potentially forcing thousands of insurance agents to find other ways to meet the rent.
  5. fewer carriers participating in the California health insurance marketplace, depriving consumers of choice and  innovation in their coverage.

I’ll be discussing each of these in more detail in upcoming posts. (If you have any to add to the list, please write a comment. It’ll be interesting to see how big a list we can get.) Again, Speaker Fabien Nunez and President Pro Tem Don Perata are pushing AB 8 for the right reasons. They want to fix real problems (and, perhaps a few less-than-real ones) and improve the quality of life for Californians. Unfortunately, they are trying to enact their bill before the Legislature adjourns next month. Unfortunate, because this bill is too important, and it’s consequences too dire, not to be thoroughly vetted and refined.

2 Responses to “AB 8 and Unintended Consequences: Prelude”

  1. akatz said

    Mark. Thanks for the comments.

    You’re right. AB 1672 created a state-run purchasing pool called the Health Insurance Plan of California (HIPC). It was run by the same agency AB 8 would have run the new pool. The HIPC never really gained traction. It made it more difficult to work with agents, it incurred administrative expenses non-government health plans didn’t, and, as a public agency which had to comply with open meeting and similar rules, the managers of the pool couldn’t respond to changes in the market as quickly as their competitors. The HIPC was eventually turned over to the Pacific Buying Group on Health which renamed it PacAdvantage. PacAdvantage went out of business several months ago. Not a very comforting track record for the AB 8 advocates, but they seem to think things will be different this time.

    You’re also right that the true costs of health care issue seems to be off the table, to the detriment of all.

  2. If I recall the state run purchasing pool was what the first iteration of Pac-Advantage was supposed to be or at least mimic. I have told numerous people that health insurance doesn’t necessarily respond to the rule of large numbers but rather young numbers. All this goes back to your earlier posting of tackling costs not premium. The true cost discussion has been completely expunged from the discussion.

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