The “Middle Class Cliff of Doom,” an apt phrase coined by a Fair Oaks family, reveals a problem that needs to be fixed in the health care overhaul: big geographic disparities.
If you live in Southern California and don’t get insurance through an employer, you can get a good deal on the state exchange, Covered California, across the income spectrum because there’s competition and choice among insurers and hospitals. In Northern California, not so much.
Here’s one shocker: The cost of a stay in a Northern California Kaiser hospital, on average, is about $1,000 more per day than in a Southern California Kaiser hospital, according to data from the California Office of Statewide Health Planning and Development. Sutter in Northern California also is known for high prices. The Northern California hospital market has less competition than in Southern California.
Not surprisingly, then, an unsubsidized premium for a Silver plan on the exchange, the most common choice, would cost a family of four in Los Angeles $669 a month. A Silver plan in Fair Oaks, a Sacramento suburb, would cost that same family $861. See the Kaiser Family Foundation Calculator to find out costs for your location and income. There also is variation between insurance companies, so families should shop around.
A March 8 story by The Bee’s Christopher Cadelago and Philip Reese highlights our Northern California problem.
What matters is the share of income a family would pay for health coverage. The Affordable Care Act aimed at having families pay no more than 9.5 percent of income on quality health coverage – and mostly a whole lot less.
With no subsidy, the Fair Oaks family would have to earn $109,000 or more for an $861 monthly premium to be within the 9.5 percent threshold of affordability.
Or it would have to earn $94,200 or less to get federal subsidies that would keep the cost within the 9.5 percent threshold of affordability.
But fall in between? Then the family takes a big leap over the “Cliff of Doom,” paying 10 percent to 11 percent of income for an $861 monthly premium.
In Los Angeles, however, the family wouldn’t go over the cliff because premiums are cheaper.
This is a fairness issue that lawmakers should address.
Some have said that California should take state action to subsidize the upper-middle-income families that fall into the hole. The question, however, then becomes: Should all Californians subsidize higher Northern California premiums?
Or should California take action to reduce the cost of premiums?
California could regulate health insurance rates, as many states do and as it already does for auto and homeowners’ insurance. A bill requiring health insurers to justify rates and give state officials authority to deny unreasonable increases made it through the Assembly in 2011 but died in the Senate. An initiative has qualified for the November ballot, but it would be better to have a bill go through the legislative process.
Another would be to regulate hospital rates, as Maryland does. With strong support of the hospital industry, the Maryland Legislature passed hospital rate regulation in 1971, and this has kept Maryland hospital markup rates – the difference between actual costs and charges – the lowest in the nation.
For now, federal subsidies keep premiums affordable for nearly all individuals and most families who don’t get insurance through an employer. But the real success will come when we get the cost of premiums down over time, so fewer and fewer families need subsidies.