California workers face a growing health care affordability crisis. The cost of insurance for families has risen more than two and a half times faster than wages, putting health care out of reach for a growing number of people. This gap is even greater for the state’s Black and Latino populations.
Part of the solution is within reach: the state should introduce a public option to compete with private insurance plans and reduce premiums. California is particularly well positioned to pioneer this approach and has tangible evidence of its effectiveness.
President Biden proposed a public option health insurance plan to increase competition and reduce costs, but gridlock in Washington and lack of support from Congress shifted the development of a public option to the states, the “democracy laboratories.” Washington has implemented onewith little success to date to obtain registrations or reduce premiums.
We propose a public option for California which we call Golden Choice, which would take a different approach. It relies on the ability of the state’s integrated medical groups to provide quality care at a lower cost by receiving monthly income per enrollee, a payment system known as capitation. This figure would be adjusted based on age, gender, health status and related characteristics that may influence each patient’s need for care. This model incentivizes the health system to keep participants healthy and manage disease through strong primary care and close coordination with specialists.
Our research indicates that health insurance premiums based on this model of care would be lowest in 14 of California’s 19 insurance market regions. People who drop out of what is now their most affordable option would save $1,389 a year on premiums through the state’s public option plan. Our work also looked at how the public option would fare if offered by the California Public Employees’ Retirement System, and we found that the premium would be lower than 9 of the 10 HMO plans currently offered to members.
California already has some experience with a public option: LA Care in Los Angeles County. This departmental public plan has been listed on the state insurance exchange since 2014. Our research team found that LA Care’s low premiums have had a competitive effect in the market, which drives down prices. Premiums for other plans declined and LA Care enrollment increased to more than 125,000 last year. The estimated savings from this public option was $345 million starting in 2022. This drop in premiums did not occur in the rest of the state, where there is no similar plan. (LA Care has been accused of processing delays, but it says the problems reflect a systemic problem with payment rates.)
In 2024, Inland Empire Health Plan, another county-based plan, is expected to enter the Riverside/San Bernardino area with the lowest premium.
County plans are a valuable force in the marketplace, but the Newsom administration has an opportunity to make insurance more affordable on a much larger scale throughout California. This is an achievable goal.
A statewide public option would require little or no new funding from the state. The Department of Managed Health Care already regulates capitated medical groups. We recommend that the state create an Office of Public Options so that California’s 18 million commercially insured and uninsured people can share the benefits of a public option – particularly lower premiums. The office would organize, implement, and promote a statewide public option.
The Newsom administration has the evidence it needs to move forward. Such a move would be consistent with what the governor has done to address the rising cost of prescription drugs by ensuring that the state partners with the private sector to develop market-competitive drugs.
Health care affordability continues to be a nightmare for many Californians, fueling a crisis of medical debt It hurts disproportionately low-income workers and minorities. By introducing a state public plan, California would set an example for other states and the federal government to develop their own plans that could, in turn, lower premiums nationwide.
Richard Scheffler is a distinguished professor at the Graduate School of Public Health and the Goldman School of Public Policy at UC Berkeley. It was appointed by the governor to serve on the Healthy California for All commission. Stephen Shortell is a distinguished professor at the School of Public Health and the Haas School of Business at UC Berkeley and dean emeritus of the School of Public Health.