Golden Choice: California’s Public Option

By Richard M. Scheffler, Stephen M. Shortell, and Daniel R. Arnold | Published April 21, 2022 | Link to Full Report

California’s challenge and opportunity is to provide accessible, affordable, equitable, and
continuously improving quality of care to its entire population. Governor Newsom has expanded
Medi-Cal to cover undocumented adult immigrants, which when combined with the Biden
administration’s premium subsidy increases, will result in near universal coverage for all in
California. Nonetheless, the affordability of such coverage remains a major challenge for the
state. A recent CHCF / NORC survey of Californians reported that just over half (52%) of
respondents said they skipped or postponed care due to costs. Additionally, more than 1 in 3
(36%) reported having medical debt, with 1 in 5 (19%) of those with medical debt owing $5,000
or more. Just over half (52%) of people with lower incomes surveyed reported having medical
debt, compared to 30% for those with higher incomes. Furthermore, Latino/x (52%) and Black
(48%) Californians were more likely to have medical debt than White (28%) and Asian (27%)
Californians. Between 2008 and 2018, Californians’ health care spending experienced a 68%
increase, compared to only a 16% increase in median household income. The growth in health
insurance premiums has far exceeded that of wages over the last two decades.

Building on the success of Covered California (the state’s innovative health insurance
exchange) and the presence of organized/integrated medical groups and independent practice
associations (IPAs) with experience in providing care under risk-adjusted per member per
month payments, the state has the potential to develop a public option that increases
competition in the health insurance market, which would lower price and can improve quality. A
public option plan (POP) is a state plan to offer health insurance for the purpose of increasing
competition, consumer choice, and affordability of coverage. Improvements in affordability
would be particularly important for low-income and minority populations, as their wages are
lower. We test the viability of our POP on Covered California and CalPERS. Furthermore, we
show how the L.A. Care county-based plan was successful in attaining enrollment while
lowering premium growth for all plans in the LA Regions of Covered California. At this time, we
are not recommending that a POP be offered on Covered California or by CalPERS. This
decision will need to be made by them, legislators, or the governor. Nonetheless, our analysis
shows that our POP would have lower premiums than many of the plans currently on the
Covered California.

This study was funded by the Commonwealth Fund (Grant No. 20223713).