CFCE Blog

Major issues with AB 1X


By Loren Kaye
Posted 11/16/2007

The health care reform legislation approved by the Assembly Health Committee this week has at least five profoundly disturbing flaws that doom the proposal to failure.

  1. The bill creates a new entitlement program with no means for controlling cost or utilization.  An individual is eligible for a subsidy if he or she is a legal resident of California between 19 and 64, has family income below  300% of the federal poverty rate, is ineligible for Medi-Cal, and does not have employer-sponsored health coverage.  Even though the program must maintain a balance of expenditures and revenues, the bill specifically prohibits the Board from denying enrollment to any eligible person in order to ensure fiscal solvency of the fund.  This creates a Medi-Cal type scenario, where the only way to adjust spending is to cut health plan/provider rates or cut benefits. 
  2. The entitlement is still profoundly underfunded.  After taking into account the employer and employee premiums and given a (conservative) family premium of $640 monthly, the state subsidies for families under 300% FPL would range from 40% to 90% of the monthly premium.
  3. Nunez says “tobacco taxes would be a more stable source of funding.”  More stable than some, but definitely declining. Tobacco tax revenues have a long-term downward trend – by design.  A conservative calculation:  Nunez claims the $2 tax will raise $1.8 billion (after backfilling lost Props 10 and 99 revenues).  If you assume that money is spent entirely on health care in 2008-09, then in five years (2013-14): (a) revenues will have dropped to $1.4 billion, and (b) spending driven by health care premium inflation will have grown to $2.4 billion. In just five years, then, the gap between spending and revenues – for this entitlement program – will be $1 billion, in effect reducing the purchasing power of the tobacco tax increase by half.
  4. Tax subsidies for the wealthy.  A family of four making nearly $93,000 would qualify for a tax credit, if its health care out-of-pocket costs exceeded $500 a month. 
  5. The new, expensive entitlement for the Cal-CHIPP pool and expanded Medi-Cal are not contingent on the passage of new revenues at the ballot.  If this bill passes and is signed, the new entitlements, as well as the coverage mandates, guarantee issue of insurance, and all the rest take effect, no matter if there is money to finance it.  This is an extraordinary - and irresponsible - disconnect between policy and budget.


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