Garamendi Renews Call for Universal Care

By LAURENCE DARMIENTO

Staff Reporter

Developing a proposal for universal health coverage will be one of the priorities for incoming Insurance Commissioner John Garamendi when he takes office next month.

He also promises to investigate practices in the troubled homeowners market, which he said have unfairly targeted property owners, as well as to try to stabilize the still beleaguered workers’ compensation market.

In making the call for universal insurance, Garamendi joins a debate spurred by skyrocketing health care costs that threatens to cut off health insurance while leaving the difficult issue of how to pay for it unresolved amid an unprecedented state budget crisis.

“We will work to create a proposal for a universal health care system in which all Californians are covered with an adequate policy, and in a way that costs are contained and services of the highest quality are delivered,” he said. “There are numerous models that are out there.”

Garamendi laid out his priorities in a wide-ranging interview with the Business Journal, and appeared to plan for an activist administration that could have him locking horns with the insurance industry.

The plan for universal coverage faces an uphill battle with business, which might be required to shell out more for insurance at a time when a $35 billion state budget deficit is likely to result in extra fees and possibly taxes.

In promising a close look at homeowners’ insurance, Garamendi is targeting a market that has seen rising rates and the tightening of

underwriting standards in response to what insurance officials say is a hysteria over mold. In response, homeowners claim they are unfairly losing coverage.

Universal health coverage

Garamendi called for universal health care when he was the state’s first elected insurance commissioner from 1991 to 1995. As a candidate for governor eight years ago, he developed a plan that would integrate traditional health insurance with health coverage in workers’ comp and auto policies.

As insurance commissioner, Garamendi regulates traditional indemnity plans and some preferred provider organizations. The state Department of Managed Health Care regulates health maintenance organizations that provide most coverage in the state.

Garamendi’s plan, which he dubbed 24-hour care, never got off the ground after Kathleen Brown defeated him in the Democratic primary, while a nationwide health reform effort led by Hillary Clinton was defeated by the insurance industry.

But since then savings generated by managed care have tailed off and costs over the past two years have begun to accelerate, leading to new calls for a reform of the system. Assemblywoman Sheila Kuehl, D-Santa Monica, and Sen. Jackie Speier, D-Hillsborough plan to introduce universal coverage bills in the Legislature in 2003.

Among the proposals are so-called “pay or play” plans that require businesses that are not offering employees coverage to pay into a state program that would cover the uninsured.

Also being discussed are more radical “single payer” proposals that would junk the current system and replace it with a Canadian-style system in which all residents contribute to a state-run fund that pays for all care. Oregon voters turned down such a system by overwhelming numbers in the November election.

Universal coverage advocates argue that employers who currently offer health insurance are subsidizing those who do not through higher costs that filter down to them. They also maintain that the current system, with overlapping public and private programs, is highly inefficient, with enough money already spent on healthcare to pay for universal coverage.

Anthony Wright, executive director of Health Access, a consumer organization that seeks to expand access to health care, said he welcomed Garamendi’s interest. “These types of reforms could provide some savings to the health care system or even the state budget,” he said.

However, Bill Wehrle, chief lobbyist for the California Association of Health Plans, the state health insurer trade group, argued that universal coverage could mean higher costs.

“You can always achieve efficiencies by consolidating to a point, but in any system there is still a lot of administration that needs to be done,” Wehrle said. “If we want to have better health care coverage than we have now we have to get honest about the costs.”

Garamendi said the current system is heavy on administrative overhead and that a simplified universal coverage system could save big bucks. “Why don’t we save all this money that goes into administrative expenses and spend it on health care,” he said.

The incoming commissioner said he again favors a plan that “covers an individual 24 hours a day, regardless of what they are doing.”

Homeowners market

In eyeing homeowners insurance, Garamendi is taking on property and casualty insurers still reeling from the effects of the tech bust and Sept. 11, the costliest single disaster in industry history.

Most directly, mold has become the industry’s No. 1 issue, with insurers claiming hysteria over the issue has led to sky-high claims. State Farm, for example, is no longer underwriting new homeowners insurance in California and has toughened standards for existing policyholders. Homeowners now complain that if they even inquire about a water claim they can find themselves unable to get coverage.

Garamendi said he would crack down on industry practices that have led homeowners to unfairly lose coverage as well as investigate how much of a problem mold is for the industry by gathering data about claims and funding a stalled state investigation into the issue.

“The first task here is to get information,” he said. “If you go out on the street there are a dozen reasons why it is a problem but nearly every one of those is not based on any empirical study.”

Among the practices he plans to ban is using homeowners inquiries about water or mold damage, as opposed to formal claims, in underwriting decisions. “It’s wrong and it will stop,” he said.

Such inquiries are sent to a huge database called the Comprehensive Loss Underwriting Exchange, or CLUE, that insurers access in evaluating whether to offer homeowner insurance.

Doug Heller, a consumer advocate with The Foundation for Taxpayer & Consumer Rights, hailed Garamendi’s comments.

“The insurers have not backed up that mold is a serious issue,” he said. “Companies have become very aggressive in changing their coverage and really squeezing consumers out of legitimate coverage.”

Meanwhile, questions remain about the viability of the workers’ compensation market, with the State Compensation Insurance Fund, the non-profit insurer of last resort, retaining about half the market.

Garamendi said a prime goal for him would be to attract new companies to increase competition and bring down prices. “Every insurance company that I talk to has the potential to be big players in California, but they don’t want to have to pick up state fund’s piece if state fund is in trouble,” he said.

Questions have arisen over the fund’s stability since earlier this year when it declined to be rated by the A.M. Best Co., the insurance rating agency. That followed a downgrade of the company’s status from B+ (very good) to B-(fair.)

Jim Zelinski, a state fund spokesman, said the fund pulled out of the rating system because it did not believe that A.M. Best completely understood it was a non-profit state backed insurer. He said the fund was willing to work with Garamendi to establish its strength, although it believes it has done so already.