No More Covered Covered California Deductible: What Did it Take to Get Here?
Updated: Jul 27
The Covered California board has voted on the side of consumers to make coverage more affordable in 2024. A plan passed on July 20, 2023 which will make a financial difference to about 900,000 participants by eliminating their deductibles on mid-tier plans for the coming year. This was announced around the same time that Covered California also announced its biggest increase in premiums since 2018. (See next week's piece on this.)
The vote brought a conclusion to a hard- fought, lengthy budget battle between Governor Newsom, legislators, and healthcare consumer advocates. Newsom's latest budget proposal was unveiled in May of 2023 and would have transferred away $334 million that was set aside in the Health Care Affordability Reserve Fund to help with these costs. The $334 million was only deposited into the newly created fund in 2021. The "borrowing" of funds was Newsom's idea to address part of the projected $31.5 billion state deficit this year. Newsom has been repeatedly criticized for moving money intended for health care subsidies into the state's general fund.
Scott Graves, director of research at the California Budget and Policy Center, tells Cal Matters the proposal is mystifying. “Why is the governor borrowing from a special fund that was set up specifically to help make health coverage through Covered California more affordable, right? This is money for which every penny in the account could right now be used to bring down the cost of healthcare for Californians, but instead the governor is choosing to sweep that money out of the account.”
On his first day in office, Newsom reinstated the tax penalty and announced he would use it to bring health care costs down. The 2019-2020 budget included more than $1.4 billion over a three year period to reduce costs for Covered California enrollees. So far, the state has only kept that promise once, in 2020, spending approximately $355 million to enhance Covered California subsidies for middle-income residents. Where has the rest of the money gone?
When the federal government increased health care subsidies in 2021 as part of the COVID-19 relief, the State of California stopped filtering penalty money towards the promised cost reduction. Kaiser Health News reported in November of 2022 that the state has generated roughly $1.3 billion in penalty money thus far. Regulation has dictated the money go into a general fund and from there could be moved into a reserve fund. The remaining $1 billion originally budgeted for subsidies in 2021 and 2022 -- nearly the same amount generated by the penalty -- has never been spent to bring down health care costs. Instead, it has stayed in the general fund.
The deal reached last week ensures that penalty money goes directly into the Health Care Affordability Reserve Fund instead of the General Fund going forward. The penalty generates on average $300 million annually.
The final budget agreement does allow for a $600 million loan to the General Fund to help with the state deficit from the Health Care Affordability Reserve Fund, but it commits $82.5 million to lowering health insurance costs over the next year and $165 million annually. The $600 million will have to be repaid during the 2025-2026 fiscal year.
In 2022 Newsom stopped this proposal in its tracks, but this year, the allocation of these funds will help to help eliminate deductibles for some enrollees with mid-tier coverage. Under the plan, deductibles will be eliminated for individuals earning as much as $33,975 annually and families earning up to $69,375 annually. Previously, people with those plans paid deductibles of up to $5,400. It will significantly reduce out-of-pocket copays for doctor visits and prescription drugs.
How will this all pan out for Covered Californians? I guess we will have to wait until they release new rates in October and hope for the best.
Thank you for reading!
Sources: California Budget & Policy Center, Cal Matters, Covered California, Legislative Analyst's Office, Case Text