Insurance Chief Criticizes Health Savings Accounts

California’s insurance commissioner plans to issue a report today criticizing health savings accounts and other “consumer-driven” insurance plans as part of the problem of spiraling costs -- not the solution.

Saying the state’s healthcare system is headed for a “complete breakdown,” John Garamendi sharply attacked new insurance plans -- including some backed by the White House -- that offer reduced benefits to save money. These plans shift risk to consumers without solving the underlying problems, he said.

Garamendi, a Democrat who has said he would run for lieutenant governor in 2006, backs universal coverage as a key component to any solution. This would ensure every state resident has at least basic health coverage, either public or private.

One expert, however, noted this goal was far easier to advocate than to implement.

“There’s no question that universal coverage is one of the solutions we need,” said Peter Lee, president of the San Francisco-based Pacific Business Group on Health, a buyer of health insurance for a group of businesses. “The question is how to get there.... This is where universal care efforts, for 25 years, have always run ashore.”

Garamendi said the report by his staff, which examines the rising costs of healthcare in California and the growing numbers of uninsured, sets the stage for possible legislation to establish minimum coverage requirements for all health plans.

Once cost problems in the system are addressed, legislators will be better able to look at how to finance a universal coverage plan for California, he said.

Garamendi, who regulates all insurers operating in California, expects to hold several hearings, beginning next month in San Francisco, to examine new kinds of health plans with cheaper premiums and fewer benefits. He said the state must ensure that residents had access to insurance that was both affordable and effective to prevent the burden from falling on taxpayers.

From 2000 to 2004, healthcare insurance premiums increased 61% in California, far outstripping the growth of inflation, Garamendi’s report concluded. Premium increases in California have outpaced those in the rest of the country for each of the last three years.

“The extraordinary run-up in costs is pricing out an increasingly large part of the population who can’t get insurance,” Garamendi said. “We think there should be a basic healthcare program that everyone can participate in.”

Garamendi was especially critical of consumer-driven policies such as health savings accounts, which his report called “symptoms of a worsening situation, not solutions.”

They “put the entire health system at risk” by drawing healthy workers out of traditional HMOs or PPOs and making the plans more expensive in the long run, the 74-page report said. That, in turn, could lead to more uninsured and more people driven out of costly employer-sponsored plans and into the public health system.

White House spokesman Trent Duffy rejected the criticism.

Consumers are very interested in these new options, Duffy said, and early enrollment data show no evidence the plans are hurting traditional plans. President Bush is “very focused on innovative solutions” to solve the healthcare crisis, Duffy said.

Among plans Garamendi singled out for criticism was Blue Cross of California’s Tonik insurance plan. Marketed to 18-to-24-year-olds, it resembles a traditional PPO but excludes maternity care. People who choose such plans to save money may end up on Medi-Cal or other state programs if they become pregnant and then cannot switch to another private plan, Garamendi said.

Blue Cross officials said Tonik was aimed at young adults who otherwise might carry no health insurance. Many parents are buying the insurance, which costs $64 to $80 a month, for their young adult children.

“It’s selling very well -- there is a tremendous response to it,” spokesman Michael Chee said. “It’s extremely comprehensive, with dental, prescription drugs and vision. “We’ve seen nothing to indicate that people are migrating to state-sponsored plans.”

Some policy experts support customer-driven health plans as a way to encourage patients, who bear more of the expense, to shop carefully for healthcare. Garamendi’s report calls this “flawed logic,” arguing that enrollees instead forgo preventive care, increasing costs in the long run.

Garamendi also contends that legislation recently passed by the House of Representatives that would allow association-sponsored health plans is dangerous for consumers. Advocates say the bill would allow small businesses to pool their resources on a national scale to enroll employees in health plans comparable to those of big companies, but the report argues that such plans would “operate across state borders, free from any state’s oversight.”

Instead, like many Democratic elected officials, Garamendi favors some form of universal coverage. He also backs rules that would require businesses with state contracts to provide workers comprehensive health benefit packages.