SACRAMENTO, Calif. \u2014 Weeks after Democratic lawmakers forced Gov. Gavin Newsom<\/a> to make good on a four-year-old pledge to use tax penalty proceeds from fining the uninsured to increase health insurance subsidies for low- and middle-income Californians, Covered California officials announced they will funnel that money into reducing out-of-pocket spending for many enrollees struggling with the cost of care.<\/p>\n

The state\u2019s health insurance exchange will zero out some patients\u2019 hospital deductibles<\/a>, up to $5,400; lower the copay of primary care visits from $50 to $35; and reduce the cost for generic drugs from $19 to $15. Some enrollees will also see their annual out-of-pocket spending capped at $6,100, down from $7,500.<\/p>\n

Covered California CEO Jessica Altman argues these are tangible reductions \u2014 savings on deductibles and copays on top of subsidies to lower monthly premiums \u2014 that will affect hundreds of thousands of people and entice them to use their coverage.<\/p>\n

\u201cDeductibles uniquely detract people from seeking care, so that\u2019s a significant focus,\u201d Altman told KFF Health News. \u201cCalifornia is really grappling with affordability and thinking about, \u2018What does affordability really mean?\u2019 Many people simply do not have $5,000 sitting in their bank account in case they need it for health care.\u201d<\/p>\n

Additional reductions in patients\u2019 out-of-pocket costs \u2014 on top of existing federal health insurance subsidies<\/a> to reduce monthly premiums \u2014 will take effect in January for people renewing or purchasing coverage during Covered California\u2019s next enrollment period, which begins in the fall. The state could go further in helping reduce patients\u2019 costs in subsequent years with future budget increases, Altman said.<\/p>\n

Still, those savings may be offset by higher costs elsewhere. Covered California announced July 25 that inflation and other factors are driving up annual premium rates on participating health plans by an average of nearly 10% next year<\/a>, the largest average increase since 2018.<\/p>\n

California started fining those without health coverage in the tax year 2020, establishing its own \u201c individual mandate<\/a>.\u201d In that first year, the state raised $403 million in penalty revenue, according to the state Franchise Tax Board. It has continued to levy fines, paid for largely by low- or middle-income earners, the very people the new subsidies are intended to help.<\/p>\n

Legislative leaders had pushed Newsom, a fellow Democrat, to funnel the tax revenue into lowering health care costs for low- and middle-income people purchasing coverage via Covered California \u2014 many of whom reported skipping or delaying care due to high out-of-pocket costs.<\/p>\n

The governor for years resisted pleas to put penalty money into Covered California subsidies, arguing that the state couldn\u2019t afford it and needed the money given looming economic downturns and the potential loss of federal premium subsidies \u2014 which could be threatened by a change in federal leadership.<\/p>\n

But under ongoing pressure, Newsom relented in June and agreed to begin spending some of the money to boost state subsidies. According to the state Department of Finance, California is expected to plow $83 million next year and $165 million annually in subsequent years to expand financial assistance \u2014 roughly half the revenue it raises annually \u2014 into reducing Covered California patients\u2019 costs. The remainder of the money will be set aside in a special health care fund that could be tapped later.<\/p>\n

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The budget deal also allows the Newsom administration to borrow up to $600 million in penalty revenue for the state general fund, which it must pay back. Penalty revenues are projected to bring in $362 million this year with an additional $366 million projected next year, according to Finance Department spokesperson H.D. Palmer.<\/p>\n
Covered California board members approved the new plan design last week. They say the cost-sharing subsidies will lower out-of-pocket spending for nearly 700,000 people out of roughly 1.6 million enrolled in Covered California.<\/p>\n
The boost in funding, which represents the state\u2019s most significant effort to slash patients\u2019 costs in Covered California, will largely benefit lower-income Californians who earn below 250% of the federal poverty level, which is $33,975 for an individual and $69,375 for a family of four<\/a> for 2023, according to the exchange.<\/p>\n
\u201cBringing down deductibles goes a long way to help middle-class California families struggling with increasing costs of living,\u201d said Senate President Pro Tempore Toni Atkins, who rallied fellow Democrats to block a plan by Newsom and his administration to keep the revenue for the state general fund, which can be used for any purpose.<\/p>\n
Atkins added, \u201cWe will continue our work to lower the costs even more in the years to come.\u201d<\/p>\n
Newsom spokesperson Brandon Richards defended the governor\u2019s health care record, saying Newsom is committed to ensuring Californians can access health care. In addition to boosting assistance in Covered California, Richards said, the governor has expanded public health insurance coverage to immigrants lacking legal status and is increasing how much doctors, hospitals, and other providers get paid to see Medicaid patients<\/a>.<\/p>\n
Originally required by the federal Affordable Care Act, the so-called individual mandate to hold health coverage or pay a tax penalty was gutted by Republicans in 2017<\/a>, eliminating the fine nationally. Newsom reinstated it for California when he took office in 2019 \u2014 a key component of his ambitious health care platform.<\/p>\n
California is one of at least five states, along with Massachusetts, New Jersey, Rhode Island, and Vermont, as well as the District of Columbia that have their own health coverage mandate, though not all levy a tax penalty for remaining uninsured. Among them, California is most aggressively trying to lower health care costs and achieve universal coverage, said Larry Levitt, executive vice president for health policy at KFF.<\/p>\n
\u201cEven though they may disagree on the big picture of health care reform and single-payer, California Democrats have managed to come together and unify around these incremental steps to improve the current system,\u201d Levitt said. \u201cStep by step, they have put in place the pieces to get as close to universal coverage as they possibly can.\u201d<\/p>\n
Democratic leaders in the state have faced political blowback for not using the penalty revenue for health care, details first reported by KFF Health News<\/a>, even though Newsom and other Democrats vowed to spend the money to make health care more affordable in Covered California.<\/p>\n
Advocates say the deal represents a win for low- and middle-income people.<\/p>\n
\u201cWe\u2019re excited that this money is protected for health care, and ultimately is set aside for future affordability assistance,\u201d said Diana Douglas, chief lobbyist with the consumer advocacy group Health Access California.<\/p>\n
Advocates want the state to tap those health care dollars to get more people covered, such as lowering health care costs for immigrants living in the state without legal permission.<\/p>\n
A bill this year by Assembly member Joaquin Arambula, a Fresno Democrat, would require Covered California to establish a separate health insurance marketplace so that immigrants who lack legal status and earn too much to qualify for Medi-Cal, California\u2019s version of Medicaid, can purchase comprehensive coverage that is nearly identical to plans sold on Covered California. Currently, immigrants without legal residency are not allowed on the exchange. Other states, such as Washington and Colorado, have set up similar online marketplaces.<\/p>\n
\u201cWe\u2019re working hard to create a system that has equal benefits and affordability assistance for everyone,\u201d Arambula said.<\/p>\n
This article was produced by <\/em>KFF Health News<\/em><\/a>, which publishes <\/em>California Healthline<\/em><\/a>, an editorially independent service of the <\/em>California Health Care Foundation<\/em><\/a>.<\/em>\u00a0<\/p>\n
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