California determined to save Obamacare program. Some residents and employers just want a better deal on insurance.

Feb. 03--The Affordable Care Act served to shrink the nation's uninsured population by 20 million, removing barriers for the poor and people previously denied coverage due to their medical history and supporting women who had been turned away or charged higher insurance rates based on their health.

Leaders in California are determined to keep the program going after a recent federal decision to eliminate the tax penalty for having no insurance and after persistent opposition from conservatives to the health reform law.

An untold number of adults -- typically the young and healthy -- will drop coverage in 2019, leaving a less healthy risk pool for insurers in the state health exchanges created by the ACA, such as Covered California.

The Congressional Budget Office predicts the number of uninsured will swell by 4 million nationwide when the tax penalty comes to an end in 2019, resulting in 10 percent annual premium increases. In addition, severe cuts to the federal funding for marketing health plans to consumers could further erode state insurance marketplaces.

As long as federal subsidies stay intact, the higher premiums won't impact the 9 million people with federally subsidized premiums in the United States, but 6 million others are not eligible for assistance to shelter them from rate increases that could cause them to drop insurance. According to a recent study by Covered California, many of them are middle-class people, with a median income of $75,000 a year, who have struggled with insurance costs since Obamacare enrollment began in fall 2013.

California lawmakers could propose ways to support Covered California and continue with affordable rates for individuals whose annual incomes are between $16,664 and $48,240 and families of four earning from $33,948 to $98,400 a year. More than 1.5 million California residents are covered by the 11 insurers in the exchange and more than 90 percent of customers in Stanislaus County have federally subsidized rates.

Proposals may include a state mandate in California requiring individuals and families to have insurance coverage. Other potential legislation could try to assist the 6.8 percent of California residents who are still not insured.

President Donald Trump wants to see other lower-cost options offered to consumers who don't have health benefits from an employer, including association and short-term plans, which don't comply with the ACA's standards.

In his State of the Union address Tuesday, Trump also promised to tackle excessive prescription drug costs in the coming year.

Those short-term insurance policies, which cover people for three to six months or even a year, have been maligned for not covering preexisting health conditions and not paying large medical bills that customers assumed were covered. An online service listed price quotes for short-term insurance of $114 to $425 a month for a middle-aged man in Modesto, covering from $22,500 to $50,000 for hospital stays and from $100 to $600 for physician visits.

Bruce Pardini, a 58-year-old Modesto resident who struggles to buy insurance, said the choices are slim as insurance rates keep rising. Pardini and his wife pay $1,100 a month this year for basic coverage with a high deductible and can't get premium assistance through Covered California because their annual income is just above the $65,000 eligibility maximum for a two-member household.

Pardini, who is not happy with the ACA, said he would consider good options that cost less, but there is no guarantee the state insurance commissioner will allow additional plans to be offered in California.

Rising cost of benefits

While about 15 million people are in the individual insurance market, more than 150 million Americans are protected by health insurance through an employer at extreme cost.

The average cost for family coverage for an employee was almost $19,000 last year; workers on average paid $5,714 (or $476 a month) for their coverage, according to an annual Kaiser Family Foundation survey. Half of the businesses with fewer than 50 workers managed to provide health benefits, the survey found. Almost 60 percent of companies that size were offering health benefits in 2012.

At the same time, insurance companies are reporting impressive earnings. As an example, Aetna recorded net income of $1.9 billion in 2017 and adjusted earnings of $3.3 billion for the year.

Kaiser Permanente, an Oakland-based nonprofit that's an insurer and health care provider, turned heads with its financial performance last year, reporting a $1 billion operating gain in the first quarter followed by a second quarter with $1 billion in net income.

Wendell Potter, an insurance industry whistle blower, said premium costs are so high because insurance carriers don't have the ability or desire to control health care costs.

"It is just a system that is not sustainable," said Potter, a former communications director for a major insurer. "It has been sustained for a long time, because the American public has been gullible and American businesses have been gullible."

In the early 2000s, the insurance industry began a strategy of shifting more costs of health care to customers, who now pay greater out-of-pocket expenses for care as their premiums increase.

Annual health insurance premiums for employers averaged $8,000 for family coverage in 2002 before climbing 50 percent over the next five years. Premiums rose 30 percent between 2007 and 2012 (when the average was $15,745). Rates have increased slowly to current levels in the last six years.

Potter said the financial performance of major insurers has not been hurt by the Affordable Care Act, which created federally run and state-run exchanges for offering insurance plans on the independent market.

"Their profits have risen and they have done quite well since the ACA was passed," Potter said. "The individual market is relatively small. A lot of big insurance companies decided they don't want to play a role in that market or they got out because they were losing money. It's never been a market they cared about."

Medical, drug costs

Mary Ellen Grant, a spokeswoman for the California Association of Health Plans, an insurance industry group, said health insurance premiums are a direct reflection of the broad array of medical costs -- hospital visits, lab tests, x-rays, medical services and supplies. When the cost of medical services goes up, the price of insurance increases, she said.

Grant said insurance company profits are not so high as the margins in certain health industry sectors, such as drug manufacturing. "Health plans are required by law to spend 80 to 85 cents of every health care dollar on medical care," she said.

The association hopes that Senate Bill 17, a drug price transparency measure, will put downward pressure on drug costs in California, Grant added.

Today, some consumers in California find they can only afford catastrophic coverage or high-deductible health insurance plans that offer less protection against medical bills.

A health insurance survey by the New York-based Commonwealth Fund found that almost 30 percent of adults younger than 65, or 41 million Americans, were "underinsured" in 2016. That is, their insurance exposed them to out-of-pocket costs that were 10 percent or more of household income or their health plan's deductible was 5 percent or more of income.

"If incomes are not growing very much, then what you are paying for health care as a share of income is rising," said Sara Collins, vice president of the health care coverage and access program at the Commonwealth Fund. "Consumers are increasingly pinched by those costs, particularly if their incomes are moderate."

Some large companies are trying to bypass insurers by directly purchasing care from health care providers and hospitals for their employees.

In 2016, Boeing struck a deal with MemorialCare Health System of Southern California in hopes of cutting costs and improving outcomes for its employees in the region. The deal expanded the company's direct-purchase arrangements in other regions where Boeing has large numbers of employees. The physician groups and hospitals share in the financial responsiblity and contain spending by providing coordinated care to patients.

JPMorgan, Amazon and business magnate Warren Buffet announced this week they will create a company to provide for their employees' health care needs. In news reports, experts speculated the company could directly contract with health care providers and hospitals. The company also could come up with strategies for buying prescription drug medications or create online opportunities for consumers to purchase health care.

Stephen Mort, co-owner of Don's Mobile Glass in Modesto, said the constant increases in insurance costs tests the company's longtime tradition of providing health benefits for employees. Mort has looked into a less costly self-insured program for the business' 160 employees but the company isn't large enough to make it work, he said.

Mort said the benefits include a middle-of-the-road Kaiser health plan, as well as dental benefits. Rather than give up a large portion of their paychecks for family coverage, most employees only choose medical coverage for themselves and provide for their kids' checkups in other ways.

"You do the best you can for your employees," Mort said. "(The insurance rates) keep climbing at probably 8 percent a year and we are not able to raise our prices. I don't know what the solution is."

Ken Carlson: 209-578-2321, @KenCarlson16

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