Fixing/Improving the US (or California’s) Heath System
Cover everyone with affordable and effective care
As a nation we have had a hybrid system of health coverage. Public coverage for the poor, elderly, and disabled. Private employment-based coverage for the workers and their families. There were huge gaping holes in that model that the Affordable Care Act (ACA) tried to fill and fix in 2010.
1) Many employers did not offer coverage, particularly the smaller and lower wage businesses.
2) Medicaid in most states did not cover the working poor.
3) Many insurers would not cover individuals with a range of pre-existing medical conditions.
4) The numbers of uninsured were growing, and the numbers of insured were shrinking, as was the extent of their coverage,
5) There were a growing flex workforce or gig workers without access to affordable coverage, and
6) Insurers and employers were increasing copays and deductibles beyond the ability of workers to access covered services and putting sick patients deeply into debt and medical bankruptcies.
The Supreme Court, many deep red states, and Republicans in Congress and the White House have sought to dismantle and destroy, rather build upon and improve the ACA. These are a range of ideas on how to improve the American hybrid system short of adopting a Canadian style single payer or a British style fully socialist system, which, while much better systems, would require a very expensive and thus politically challenging transition.
· Replace the individual mandate with a health coverage tax
The ACA was premised on an individual mandate that required everyone to enroll in health coverage or pay a small fee; this pay or play concept was paired with affordable and available coverage for everyone. This was an idea originally pioneered by the Heritage Foundation as an alternative to the Clinton Health Plan in the 90’s which had been structured around an employer mandate. https://www.heritage.org/social-security/report/assuring-affordable-health-care-all-americans
The Supreme Court in upholding it, said it was really a tax, not a mandate. https://supreme.justia.com/cases/federal/us/567/519/ The individual mandate was the most singularly unpopular component of the ACA, and it was repealed during the first Trump Administration. https://www.commonwealthfund.org/sites/default/files/2018-07/Eibner_individual_mandate_repeal.pdf Some states still have them. https://unifyhrcorporatesite.azurewebsites.net/state-mandates/ You unfortunately pay this particular tax/mandate, but you get nothing for it.
I think we should acknowledge it, reinstate it and make it a health coverage premium tax; “you pay your health insurance tax, and you get your health coverage”, just like Social Security works. If we are indeed collecting taxes from the uninsured to pay for health coverage of the uninsured, we would need to collect more than the nominal $695 a year prescribed by the ACA. We should consider graduated health insurance tax rates of 0% for incomes below poverty, 2% on incomes between the federal poverty line and 200% of poverty, etc. to pay towards the actual costs of coverage.
· Seamless transitions
We have multiple complex forms of coverage, but no adequate connective tissue between them. As just one example, one of the big challenges for people with federal Medicare and state Medicaid coverage (they are known as the Medi-Medis) is that the two public programs are quite different, managed and run by different levels of government and different health plans. An individual’s health care and providers may be divided between a fee for service system with significant copays and deductibles operated by the federal government and a managed care system with no out of pocket and much stronger incentives to avoid acute hospital care operated by a managed care health plan.
Each of the many national, state, county and commercial health programs was created and has evolved and operates quite differently, at times act with counter purposes that make it difficult for providers and patients alike. The ACA added several important new forms of affordable coverage, but other than the support for electronic health records and some pilot programs, it did not adequately provide for the ready connectivity and compatibility between the different forms of public and private coverage.
As people change jobs or status at work, as their incomes change, as their program eligibility changes, they should simply transition seamlessly to new coverage. What do I mean? Here are some examples. When someone is laid off, their coverage should seamlessly transition to Covered California or to MediCal depending on their income eligibility level. When they turn 65 or become disabled, their coverage should seamlessly and promptly transition to Medicare. When they get a job offering health coverage, it should seamlessly transition from MediCal or Covered California or their old job to their new employment-based coverage. This would eliminate the phenomenon of frictional uninsurance during coverage transitions. https://www.aeaweb.org/articles?id=10.1257/aer.20190823
There are solvable difficulties, such as selecting a new plan, a new level of coverage, new levels of premiums, and a new provider and provider network, that would need resolution. After we streamline transitions we should ask, how much do we really need dated features such as COBRA or CalCOBRA coverage anymore or in what form? How much if any disruption in patients’ lives and providers’ continuity of care should transitions entail and how do we mitigate?
· Immigrants
Our nation is populated with immigrants coming from all over the world at different times. Some of their ancestors came on the Mayflower seeking freedom from religious persecution; others fled for their lives from Germany or Russia or Guatemala or Iran; others arrived from our neighbor Mexico which in the 19th Century governed much of the current USA west of the Mississippi, or from our once would be colonial territory, the Philippines, or from India or South Korea; some from small islands such as Ireland or Haiti or Cuba, others from the strife torn Afghanistan, Sudan or Eritrea. https://www.pewresearch.org/short-reads/2025/08/21/key-findings-about-us-immigrants/
The federal government, and some states place exclusions on immigrant eligibility for publicly funded health coverage – 5 years for new legal immigrants. https://www.commonwealthfund.org/publications/explainer/2025/oct/what-recent-policy-changes-mean-immigrant-health-coverage Some of these restrictions are time restrictions such as five years living here. Others are status linked, such as admission for legal, permanent residency (a green card). States like California and Massachusetts have sought to maximize coverage of the different categories of immigrants, while states like Texas and Florida have taken the opposite tack.
There are many levels of immigration status, and the Trump Administration and the GOP Congress have further restricted which ones qualify for a federal match, and it has expanded those from categories which do not. Think about health coverage for the Dreamers or those with Temporary Protected Status due to disasters like a devastating earthquake in their own country, or those in limbo seeking asylum or refuge from deadly Civil Wars or religiously motivated massacres. https://www.commonwealthfund.org/publications/explainer/2025/oct/what-recent-policy-changes-mean-immigrant-health-coverage
In the past, there have been no restrictions on any immigrant’s ability to have coverage through the workplace (if offered) or by purchasing unsubsidized individual coverage. The Trump Administration and Congress have recently specified that undocumented workers are not required to be covered under the ACA’s employer mandate – i.e. it’s now optional with their employer. https://www.commonwealthfund.org/publications/explainer/2025/oct/what-recent-policy-changes-mean-immigrant-health-coverage
It makes absolutely no sense at all to exclude hard working, tax paying immigrants from health coverage, such that they get sicker, and their conditions cost much more to treat. Do you really want the people who grow your food, slaughter the cows, pick the fruits and vegetables, pack it, prepare it and serve it to not have health coverage? Do you really want the people who take care of all the physical needs of your parents or grandparents to not have health coverage? How about those who helped build your house, nanny your children, landscape your yard, pick up the trash, or are simply your neighbors or fellow church members? We need immigrants to supplement our aging workforce and declining birth rates, let’s value them rather than oppress them.
On the other hand, we need to acknowledge that it can be a politically tough sell to American voters to open eligibility to a tax-funded entitlement program to individuals who have just arrived (new entrants) and have not yet contributed towards the common good through their work and their own taxes. It is important for American citizen voters to understand and fully recognize that undocumented immigrants pay quite substantial taxes to the federal, state and local governments. https://itep.org/undocumented-immigrants-taxes-2024/ The undocumented immigrants pay significantly more in taxes than they receive in benefits. https://forumtogether.org/wp-content/uploads/2018/08/Immigrants-and-Public-Benefits-FINALupdated.pdf
California under Governor Newson has made progress in covering the low income uninsured undocumented through Medi-Cal with state only funding. https://www.ppic.org/wp-content/uploads/health-coverage-and-care-for-undocumented-immigrants-in-california-june-2021.pdf A few other states have done so, with their state only dollars. https://www.healthinsurance.org/faqs/can-undocumented-immigrants-get-medicaid/ Most do not, as yet.
It makes good political and economic sense to build and finance health coverage for new immigrants through their own employment and through workforce organizing efforts such as Justice for Janitors, construction, and farm worker unions. See https://caimmigrant.org/wp-content/uploads/2023/03/legalaidatwork.org-Employment-Rights-of-Undocumented-Workers.pdf for a discussion of rights on the job for the undocumented.
· The Deep South and the working poor
The working poor were and are uninsured for two reasons: 1) their employer did not offer them coverage or did not offer coverage to particular classes of employees, and 2) they did not qualify for Medicaid. Medicaid at its inception was a welfare linked program, i.e. you had to qualify for one of the four welfare cash assistance categories and be poor – aged, blind, disabled or a parent with dependent children. In other words, intact families did not qualify, working parents did not qualify, and poor workers with no minor children living in the home did not qualify. Only welfare or welfare linked families qualified. States could set their income eligibility standards just as low as they wished, and some did so – i.e. 10-25% of the Federal Poverty Level in states like Texas and Florida.
The Medicaid program has steadily evolved to cover more of the poor – many different Medicaid eligibility options were created by Congressional action which some states took enthusiastically while others did not. The ACA offered a 90/10 federal Medicaid match to cover the working poor -- i.e. poor citizens who did not qualify for or receive welfare. It simplified the program dramatically – if your income was under 138% of the Federal Poverty Level, you were eligible; all the time-consuming application processes to show your welfare linkage and your assets were eliminated. It required all states to cover them. The Supreme Court said Congress and the Obama Administration could not compel states to adopt the Medicaid expansion for the working poor; it was an option for the states, a very attractive financial option, nevertheless. NFIB v. Sebelius https://supreme.justia.com/cases/federal/us/567/519/
The heart of the old Confederacy has a high percentage of poor and very high percentages of uninsured, has high percentages of citizens with serious health issues; there is nowhere that this expansion was more sorely needed. However, it is governed by powerful Republican politicians who have resolutely opposed expanding Medicaid to the working poor, especially because it is linked to President Obama whom they politically despised. Southern and Appalachian states like Louisiana, Arkansas, Kentucky, West Virginia and North Carolina have accepted the match, covered their citizens, kept their rural hospitals open and improved health outcomes. Citizens have developed, passed and sustained ballot initiatives requiring their states to adopt the Medicaid expansion in deep red states in this region like Missouri and Oklahoma. https://www.kff.org/medicaid/status-of-state-medicaid-expansion-decisions/
Medicaid expansion legislation in states like Kansas and Mississippi was blocked by hardline, right-wing Republicans despite growing support among state Republican voters, business leaders and medical professionals for Medicaid expansion. https://www.npr.org/sections/health-shots/2024/05/16/1251691921/medicaid-expansion-mississippi-alabama-south and https://www.khi.org/articles/medicaid-expansion-in-kansas-impacts-of-federal-policy-options-under-consideration-and-updated-estimates/
There are three potential routes to expanding Medicaid to the working poor in the Deep South. 1) Use the ballot initiative process if there is a viable one in your state. But see the barriers in Texas for example. https://texasstandard.org/stories/why-texas-does-not-have-citizen-led-ballot-referendums/ or the ones put in place in Florida’s legislature. https://floridaphoenix.com/2026/04/30/federal-judge-upholds-floridas-citizen-initiative-restrictions/ 2) Replace the most vulnerable leading politicians opposing expansion with more rational and compassionate political leaders. https://pmc.ncbi.nlm.nih.gov/articles/PMC8356545/ Southern voters given a real choice at the ballot box might prefer effective, pragmatic governance for the common good, to the extreme right currently controlling their state legislatures and gubernatorial offices. 3) Change federal law to allow the uninsured working poor in the 10 hold out states to enroll in either the federal Exchanges or in Medicare (neither offers as affordable coverage as Medicaid would be for the poor). https://ccf.georgetown.edu/2024/06/12/the-unlikely-new-defenders-of-at-least-part-of-the-affordable-care-act-opponents-of-medicaid-expansion/
· Expanding and or reconfiguring the employer mandate
Most Americans are covered through employment. That coverage is subsidized by federal and state pretax purchasing advantages that effectively subsidize about 1/3 of the costs of coverage. Counterintuitively, these tax advantages are much higher for higher wage workers such as computer programmers or attorneys than they are for lower wage workers like farm workers or unskilled laborers. Likewise, the employees’ share of premiums (averaging about 20%, but highly variable among employers) is structured by carriers and employers in ways that fall most heavily on those least able to afford them, particularly for family coverage. Family coverage averages about $27,000 a year; try to imagine the impacts on low and moderate family budgets of these costs. https://www.kff.org/health-costs/annual-family-premiums-for-employer-coverage-rise-6-in-2025-nearing-27000-with-workers-paying-6850-toward-premiums-out-of-their-paychecks/
The ACA improved coverage for small businesses and the self-employed through the Exchanges. https://www.cbpp.org/blog/aca-drove-record-coverage-gains-for-small-business-and-self-employed-workers It ended and disrupted insurance industry practices of denying coverage to those individuals and businesses they deemed uninsurable – this was known as pre-existing condition exclusions. https://www.brookings.edu/articles/obamacare-the-business-worlds-biggest-disruptor/ And it capped the amounts of consumer exposure to out-of-pocket expenditures, albeit at still abhorrently expensive levels.
The ACA included an employer mandate that requires employers with 50 or more full-time employees to offer coverage for the ten essential health benefits to their employees and their families. That mandate could be expanded to smaller employers of 25 to 50 employees or conceivably down to 10 employees. It could be combined with expanded tax advantages for coverage of low wage workforces or for small businesses that offer family coverage. It could require employers to contribute pro rata towards Exchange coverage for their part-time workers, seasonal workers, and other flex and gig workforces. That needs to be done by Congress, and it is not easy to do so in the face of employer opposition.
The existing mandate requires that employers pay at least 60% of the cost of a bronze essential benefits plan that in turn would pay 60% of expected medical claims. In other words, the employer must pay 36% of expected medical costs and premiums, leaving employees potentially responsible for up to 64% of their health costs if they get seriously ill or injured. This needs to be changed as it leaves America’s employees with far too much financial exposure when they get sick. Congress should upgrade an employer’s responsibilities to pay 80% of a gold plan (pays 80% of expected medical costs). This would switch the employer’s share to 64% and the employees’ maximum exposure to 36% of potentially incurred medical costs. Many employer plans already meet this threshold. Hawaii’s plan is far better yet, and it’s the right model for all of us to consider; its mandate applies all the way down to one employee and limits the “employee only” share of coverage costs to 1.5% of employees’ wages; this helps lower wage workers better afford their premiums. https://labor.hawaii.gov/dcd/frequently-asked-questions/phc/ Germany (also built on private employer insurance) has had comparable requirements for low wage workforces. https://www.commonwealthfund.org/international-health-policy-center/countries/germany This needs to be thoughtfully done as we cannot impair job creation by imposing too many costs on employers. Trump is already doing that in ham-handed fashion with his everchanging tariff duties.
· Whole family coverage
The whole family ought to be enrolled in the same health plan with common access to their network of physicians and other providers. Under the current system, one spouse can have coverage through their employer’s plan; the other spouse can have coverage through their employer’s plan, and their children could have coverage through Medicaid or through the Exchanges. In other words, families can have three different health plans with different provider networks and paperwork. This can be a paperwork and bureaucratic nightmare for the family when there are serious family illnesses, and it makes it difficult for the family’s doctor(s) to provide coordinated care for the entire family.
Could we simplify? Yes! The family should be able to choose a common plan for all its family members. The other plans should issue a voucher to the family’s preferred health plan. The family’s preferred plan must accept the voucher from the other plans, and the family’s chosen providers should be required to accept the plan payments, even though different.
· Paperwork barriers
The ACA vastly simplified eligibility for Medicaid expansion coverage – a family’s income must fall below 138% of the Federal Poverty Level, plus there is no asset test; it is easy to administer and to comply with; it minimizes fraud and paperwork errors. https://aspe.hhs.gov/sites/default/files/documents/b1bfa16b20ae9b89d525bc35de7c1643/detailed-guidelines-2026.pdf
The Trump Administration is needlessly complicating the Medicaid eligibility process once again, with more frequent eligibility redeterminations and requiring proof of work searches. This turns the health care program back into a paper chase that deters rather than assists program eligibility. https://hsph.harvard.edu/news/new-medicaid-work-rules-could-lead-to-greater-than-expected-coverage-losses-administrative-hurdles/
This is based on a fundamental misunderstanding and a crass political calculation; Medicaid is expensive for the federal and state governments; it was cut to pay for tax cuts to the wealthiest Americans. It is not a cash assistance program; the Medicaid recipient gets no cash from the program. The doctors, hospitals, pharmacies and nursing homes do get cash, but not the Medicaid recipients themselves; they get health care. The Medicaid program enables work; it helps sick people get better and be able to return to work. It helps women have healthy babies. It helps the disabled to function in their daily lives. It helps people with serious mental illness or substance abuse get treatment so they can function better both at home with their families and in the workplace. It helps patients with broken bones or severe illness to heal, and it restores their mobility and ability to work. It takes care of the frail elderly in nursing homes and pays for in home care for your very elderly grandparents.
Obama had the right idea. Make the program simple and easy to understand and administer, reduce administrative eligibility barriers. Monitor program compliance electronically through routine data matches so that no fraud can be committed.
Assure Affordability of care and coverage
· The Exchanges were designed to make both premiums and care affordable to subscribers. The premium subsidies (refundable tax credits) were improved dramatically under Biden, and enrollment in Exchanges soared to 24 million. https://abcnews.com/US/affordable-care-act-enrollments-surge-bidens-term-nears/story?id=117451514 The Trump Administration allowed these enhanced subsidies to expire, and enrollment has fallen off significantly, except in New Mexico which fully replaced the federal funding cuts, and program enrollment there grew by another 14%. https://stateline.org/2026/07/28/obamacare-enrollment-declines-in-49-states/ In states like Ohio, Oklahoma and Arizona, enrollment fell by 30% or more due to the Trump Administration’s actions. Either individual states or Congress need to act to replace the premium assistance that Trump and the GOP Congress decimated. See https://www.kff.org/affordable-care-act/aca-marketplace-premium-payments-would-more-than-double-on-average-next-year-if-enhanced-premium-tax-credits-expire/ Insurers have been responding to Trump’s policies by proposing to increase premiums by 14% due to the loss of enrollment of the healthiest lives; this hurts everyone involved in the program.
The Exchanges give subscribers a choice of levels of coverage and of different commercial plans. Individuals can choose from among platinum, gold, silver or bronze levels of coverage which range in coverage from 90% to 60% of expected medical expenses. The levels of premium assistance are tied to the second lowest cost silver plan (70% of expected medical expenses), such that those who want and need gold or platinum levels because of their medical conditions must pay much more for their coverage. Silver and bronze plans are the most commonly picked tiers of coverage – by 85-90% of enrollees. https://www.ncbi.nlm.nih.gov/books/NBK610894/ This gives those subscribers not eligible for the cost sharing subsidies too little coverage and leaves them too much financially exposed when serious illness strikes. I would encourage policymakers and advocates to link the premium assistance to the second lowest cost gold coverage, which picks up 80% of expected medical expenses. Coverage for the unsubsidized in the Exchanges ought to be about equivalent to the levels of Medicare coverage or to the most common employer plans. See https://www.retiremed.com/library/articles/comparing-employer-coverage-medicare-whats-better-option and https://www.gao.gov/products/gao-25-106798
Controlling the growth in health spending
The US spends far more per capita on health coverage than any other developed nation. https://www.kff.org/health-costs/health-policy-101-health-care-costs-and-affordability/?entry=table-of-contents-what-factors-contribute-to-u-s-health-care-spending And we get far worse health results – higher infant and maternal mortality and substantially lower life expectancy. https://www.healthsystemtracker.org/chart-collection/quality-u-s-healthcare-system-compare-countries/
Overall cost of our health care is “use” times “price”. In the US we use less health care than most other developed countries, and we pay higher prices. In other words, our hospitals, doctors, prescription drugs and all the other components cost a lot more in the US, and they are less effective in improving the population’s health (this does not apply to any g9ven individual, you likely had a safe birth, your fracture healed well, and your spine or knee replacement surgery had good results, but our overall results are quite poor). https://www.healthsystemtracker.org/chart-collection/quality-u-s-healthcare-system-compare-countries/ The unit prices are highest in the commercial insurance market, lower in Medicare and lower still in Medicaid. https://www.healthsystemtracker.org/chart-collection/quality-u-s-healthcare-system-compare-countries/
We use insurers and the federal and state governments to pay for health care. We have lots and lots of different insurers and multiple government programs. This produces excessive and needlessly expensive administrative costs – another bug of the US system. https://jamanetwork.com/journals/jama/fullarticle/2785479 These can be reduced dramatically even while maintaining a multi-payer system like the US currently has. https://www.americanprogress.org/article/excess-administrative-costs-burden-u-s-health-care-system/ The authors suggest that either global budgeting or all payer rate setting for hospitals would allow for large reductions in wasteful administrative costs in hospitals, insurers and doctor’s offices. https://www.americanprogress.org/article/excess-administrative-costs-burden-u-s-health-care-system/
We have tried various approaches to controlling the rise in health costs from rate regulation, to market competition, from high consumer out of pocket and Health Savings Accounts, to the proliferation of managed care. Each works for a certain time, but providers eventually figure out the new system and how to counteract its impacts on their incomes, and health spending resumes its rise, well in excess of other components of the economy and far exceeding other nations.
Vermont, Rhode Island, Massachusetts, New York and Maryland were among the handful of states that have regulated hospital rates. https://chir.georgetown.edu/a-menu-for-health-care-affordability-how-states-are-delivering-savings-through-hospital-price-regulation/ Maryland has moved to all payor, global budgeting so that both price and use across all payors are part of the hospital rate setting equation. https://hscrc.maryland.gov/Pages/ahead-model.aspx Massachusetts moved to global budgets, but with weak accountability for those whose spending increases exceeded the state benchmarks. https://www.milbank.org/publications/the-massachusetts-health-care-cost-growth-benchmark-and-accountability-mechanisms-implications-for-state-policymakers/ New York used rate setting to save distressed hospitals, provide access to the uninsured in addition to its paramount goal of controlling the rates of hospital spending growth. https://pmc.ncbi.nlm.nih.gov/articles/PMC4193515/
The provider lobbies of hospitals, doctors and pharmaceuticals are very powerful, and the opposition is typically weaker and disorganized. In theory, business, labor and consumer groups should be aligned and ought to be able to counteract the lobbying powers of the providers and insurers. In practice this does not happen.
In California, state legislators tried for years to enact hospital rate setting but could not overcome the powerful hospital lobby. So instead, they enacted a series of reforms to promote price competition. MediCal (Medicaid) rates for hospitals were negotiated competitively. County operated, managed care plans were introduced into counties like Santa Barbara and then San Mateo, then to many others. Eventually the entire MediCal population was enrolled in managed care; some were competitive commercial plans and public plans; the others were single source. Quality performance measures were better in the public plans than the commercial plans, and better in the non-profits than the for-profit plans. https://www.dhcs.ca.gov/wp-content/uploads/2025/10/QPHM-MCAS-Factsheet-MY-2023-1024.pdf
Commercial health plans for employers and individuals were also allowed to negotiate rates with providers. Indemnity health plans with broad access to hospitals and doctors disappeared, nearly overnight; they were replaced instead by a choice between HMOs and PPO’s or no choice at all. Some plans had a broad network of providers and others had narrow tightly managed networks. See the current performance satisfaction by plan and type of plan at https://reportcards.cdii.ca.gov/rc/HMO_PPOCombined.aspx; the Kaiser Permanente HMO ranks highest, and Aetna’s PPO ranks poorest.
Certificate of need controls over hospital expansions and acquisition of expensive medical equipment were eliminated in California. https://nashp.org/state-tracker/50-state-scan-of-state-certificate-of-need-programs/ and https://pmc.ncbi.nlm.nih.gov/articles/PMC11088301/ Hospitals, especially in rural areas and inner cities, closed or were acquired by for profit hospital chains and transformed to the most profitable uses; hospital emergency rooms and trauma centers were closed; indigent patients were dumped by hospital emergency rooms and doctors.
Insurers found it more profitable to exclude patients who might be expensive to treat under the auspices of “pre-existing condition” exclusions than to better manage their costs of care and secure treatments leading to great patient outcomes. As one physician leader described it, “we were fighting socialism and we got blindsided by capitalism.” https://www.healthaffairs.org/doi/10.1377/hlthaff.6.4.59
Virtually all employees were now enrolled in HMO’s or PPO’s with more limited choices of providers. Several large health insurers changed from non-profit to for profit. A range of horrible abuses of patients and providers, scams and profiteering by for profit entities and entrepreneurs ensued, and they were not the only ones. https://via.library.depaul.edu/cgi/viewcontent.cgi?article=1293&context=jhcl
The smallest businesses and individuals have had the least purchasing power. Thus, they paid higher premiums, and had highest percentages of their premium devoted to administrative costs, overhead, marketing and insurer profits. https://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/chapter3.7.1.shtml Plus, they were subjected to denials of coverage if any one of their employees had or later developed a pre-existing medical condition. It was easier for some insurers to concentrate on the large employer markets, and they did cherry pick their customer base.
The commercial insurers were far weaker than either Medicare or Medicaid in negotiating/dictating prices with the provider networks. https://www.rand.org/pubs/research_reports/RRA1144-1.html and https://www.rand.org/pubs/research_reports/RRA1144-2-v2.html Therefore, they were charged far higher prices by providers (described by hospitals as payments for public payors’ uncompensated care). https://www.medicarerights.org/medicare-watch/2022/05/19/new-study-finds-that-private-plans-pay-hospitals-more-than-medicare-for-inpatient-and-outpatient-services
Insurers have resorted to ever higher patient out of pocket (copays, deductibles and co-insurance) responsibilities to keep monthly premiums affordable for their paying customers. https://www.wsj.com/health/healthcare/u-s-workers-are-paying-more-for-healthcare-and-next-year-will-be-worse-0924d0dd This puts enormous and unaffordable financial burdens on subscribers who became seriously ill, thus piling up mountains of “medical debt” on patients who could little afford them anyway but also occurring at a time of enormous stress from their serious illness. In addition, providers have sought to game the system of insurance by charging extra patient fees; thus the rise of “concierge care”, “surprise billing”, “cash only” care, “Crowd Health”, “membership dues” and other techniques for providers to bypass the health insurance reimbursement system and collect extra money from their patients. https://www.aafp.org/fpm/2004/0700/p43
One particularly troubling trend is the acquisition of physician’s private practices by hospitals and hedge funds. This leads to higher costs and higher patient bills, not to the greater system efficiency, better patient care and lower costs that would and should be the desired result. https://www.gao.gov/blog/health-care-becoming-more-consolidated-including-physicians.-what-effect-it-having; https://www.nber.org/papers/w34039 and https://www.ama-assn.org/press-center/ama-press-releases/more-physicians-move-practices-owned-hospitals-private-equity
To a certain extent and with some success, consumer groups and others have fought back. California and then Congress enacted penalties on hospital emergency rooms and doctors for patient dumping. https://health-access.org/history/ California and then Congress stopped insurers from jacking up rates and denying or rescinding coverage for small businesses and those individuals with pre-existing conditions and the medically uninsurable. https://www.commonwealthfund.org/blog/2020/state-efforts-preexisting-conditions A package of major HMO reforms was passed to stop plan abuses in California. https://www.latimes.com/archives/la-xpm-1999-sep-28-mn-14873-story.html
The Affordable Care Act enacted a series of payment and delivery system reforms to move providers in Medicare and Medicaid from volume to value based reimbursement. https://www.ncbi.nlm.nih.gov/books/NBK241388/ The Commonwealth Fund assessed the nation’s progress in implementing these reforms; some of the reforms produced savings; some reduced hospitalizations; some improved quality; others had no discernible impacts. https://www.commonwealthfund.org/publications/2022/apr/impact-payment-and-delivery-system-reforms-affordable-care-act The ACA also capped insurers non-benefit expenses and created purchasing pools for individuals and small employers. It created marketplaces (Exchanges) to negotiate premiums and constructed premium assistance with strong financial incentives to purchase less costly plans (silver and bronze plans which covered 70 and 60% of expected medical expenses respectively).
California policy makers and some federal law makers were heavily influenced by the managed competition theories of Alain Enthoven and Richard Kronick. https://pubmed.ncbi.nlm.nih.gov/8477935/ The theory was that consumers could be organized into large powerful buying cooperatives like CalPERS which would in turn negotiate with health plans for their employees, who would have a choice among competing plans and their affiliated providers, and employees would pay for the price differential(s) of the more expensive plans they might prefer or get savings for choosing the less costly plans if they preferred.
Hospitals would affiliate with separate and distinct health plans – for example, in West Los Angeles, Cedars Sinai might affiliate with Blue Cross, Saint John’s might affiliate with Health Net, and UCLA might affiliate with Blue Shield, and they would compete with Kaiser for customers on transparent prices and quality measurements. It would require large metropolitan areas to support at least three competing plans with separate competing hospitals and their physician networks; this was not an approach that would work in rural or more sparsely populated regions. https://www.nejm.org/doi/full/10.1056/NEJM199301143280225
The theoretical concept never happened. Hospitals affiliated into larger and larger chains instead; they bought up physician practices; they participated in multiple competing plans, and they achieved market dominance both horizontally and vertically to set the prices that the commercial plans would have to pay. https://www.kff.org/health-costs/one-or-two-health-systems-controlled-the-entire-market-for-inpatient-hospital-care-in-nearly-half-of-metropolitan-areas/ and https://bipartisanpolicy.org/issue-brief/health-care-provider-consolidation/
Health Savings Accounts paired with high-deductible health plans are not a good solution to rising health costs. for two reasons: 1) the bulk of health care spending (70%) is for seriously ill or injured people, and 2) the tax advantages of these accounts disproportionately benefit those in high income tax brackets who need the least help affording care. https://www.cbpp.org/research/a-brief-overview-of-the-major-flaws-with-health-savings-accounts They do produce some savings, primarily in the first year and predominantly in the patients’ use of prescription drugs ordered by their doctor. https://pmc.ncbi.nlm.nih.gov/articles/PMC2910568/
To emphasize the breadth and depth of our cost containment challenges ahead. Let us look at the existing systems. Medicare pays for the elderly and disabled, and it accounts for over 1/5th of California health systems’ revenues. https://www.chcf.org/resource/2023/03/14/california-health-care-spending-almanac/ Roughly half of California’s Medicare patients are in the traditional public fee for service program, established in about 1965. https://www.kff.org/medicare/state-indicator/total-medicare-beneficiaries/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D Of the half in traditional Medicare, about a third have Medigap or Medicare Supp policies that fill in the payment “gaps” in traditional Medicare; or in other words they negate the coinsurance and deductibles in traditional Medicare. https://medicaresupp.org/top-medigap-markets-leading-coverage-growth/ Traditional Medicare’s deficiencies in controlling costs have included: fee for service reimbursements, lack of appropriate utilization controls, and inflationary reimbursement methodologies. The ACA made many reforms in payments to providers and plans to slow the program’s spending growth. https://www.medicareresources.org/basic-medicare-information/health-reform-and-medicare/ The ACA imposed a cap on the growth of Medicare spending with a requirement that an appointed Board (IPAB) recommend and unless overridden by Congress implement cost savings to keep the program’s per capita spending below the cap. Congress on a bi-partisan basis succumbed to provider and pharmaceutical industry lobbying and ultimately repealed the IPAB during the first Trump Administration. https://www.medicareresources.org/basic-medicare-information/health-reform-and-medicare/
Another half are enrolled in Medicare Advantage (Medicare Part C) plans, private HMOs and PPO’s, that deliver traditional Medicare services plus added benefits but pay untraditionally and have better controls on unnecessary utilization. https://www.kff.org/medicare/state-indicator/total-medicare-beneficiaries/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D Kaiser, for example, employs doctors and pays them a salary instead of fee for service, and owns and operates its own hospitals staffed with closed panel practitioners. It has much better controls on prices and utilization and a well-integrated delivery system, but it lacks the broad choice of providers many consumers say they prefer. The ACA reduced overly generous reimbursements for Medicare Part C plans, and the Biden Administration and Congress passed legislation to authorize negotiation with the pharmaceutical industry on excessive drug prices. https://www.kff.org/medicare/key-facts-about-medicare-drug-price-negotiation/ The Trump Administration and GOP Congress exempted more drug products from Medicare price negotiations in the “One Big Beautiful Bill”. Ibid. Health plans are dropping their Medicare Advantage offerings due to their inability to control rising hospital and drug costs. https://www.cnn.com/2026/10/15/politics/medicare-advantage-new-plans-turmoil
In 2033 and 2034, Medicare and Social Security are projected to hit a fiscal cliff where Social Security payroll taxes will no longer be sufficient to pay for the full scope of covered hospital services (Medicare Part A) and Social Security benefits. https://www.politico.com/news/2025/06/18/social-security-medicare-funding-cliff-00412879 The financial difficulties are caused by declining birth rates, deportation of working immigrants, increasing longevity and health spending that exceeds the growth in worker’s wages. The logical solutions are to combine removing the cap on Social Security taxes and revamping program reimbursements to support better integrated, more clinically effective health care delivery.
About 1.7 million Californians are Medi-Medis; in other words, they have both Medicare and Medicaid (MediCal). This fills in the service gaps, like long term care in nursing homes and at home, dental care, and vision care for many low- and moderate-income seniors – services that traditional Medicare does not, for the most part, cover. It covers the Medicare program’s copays, deductibles and Part B premiums. https://cahealthadvocates.org/low-income-help/medi-cal-for-people-with-medicare/ and https://www.dhcs.ca.gov/wp-content/uploads/2025/10/California-Medi-Medi-Plan-Expansion-in-2026-Webinar.pdf California (and most other states) has had difficulty managing two disparate and incongruous systems: the open panel fee for service Medicare system and the closed panel, managed care systems of MediCal; it now offers an integrated delivery system better combining the two forms of coverage. https://www.dhcs.ca.gov/services/medi-medi-plans/ Enrollment is not compulsory.
Medicaid (MediCal in California) covers low-income California residents – about 14 million persons or 1/3rd of the state’s population. It pays for 2/3rds of nursing home residents, 50% of all insured children, and 40% of our state’s births. It accounts for about 21% of California’s health spending. https://www.chcf.org/resource/2023/03/14/california-health-care-spending-almanac/ Most are enrolled in managed care plans that vary based on the 58 counties where they live. There is a small residual, fee for service system for individuals who are not susceptible to a managed care delivery system. In Sonoma where we now live, there is a single, non-profit, managed care plan that pays all participating providers the same way -in essence a single payer for the low income. In San Francisco, there are two competing managed care plans; each pays their participating providers somewhat differently; one is a public plan, and it competes with a private commercial plan. Providers can be in one or both or neither plan. The County operated plans and Kaiser are much more successful in their quality ratings. https://www.dhcs.ca.gov/wp-content/uploads/2025/10/QPHM-MCAS-Factsheet-MY-2023-1024.pdf In Sacramento County to our east, there are four competing commercial managed care plans from which enrollees can choose. Each pays their providers somewhat differently. While MediCal typically pays less for covered services than most employment-based insurance, FQHC clinics and major DSH hospitals are better compensated than others, and MediCal may be their best and most reliable payor, not their worst.
Over 17 million California workers and their family members have employment-based coverage. https://www.kff.org/health-costs/2025-california-health-benefits-survey/ About a third are enrolled in HMOs; a third in PPOs, a quarter in high-deductible plans with a health savings account, and roughly 10% in a Point of Service Plan. Kaiser, an HMO, is dominant in the large group (56%), small group (34%) and individual (32%) markets in California. https://www.chcf.org/wp-content/uploads/2025/02/InsurersEnrollmentAlmanac2025_QRG.pdf Kaiser’s major competitors in these commercial markets are Anthem and Blue Shield. Anthem is dominant (46%) in the administrative services only market (the federally regulated ERISA plans); these are mostly fee for service plans. There is no consistency or uniformity of payment incentives among the commercial plans in the markets for employment-based health coverage, and the state has limited ability to regulate the content and conduct of the ERISA plans, which are regulated instead by the US Department of Labor.
Fix the system’s financial incentives
California has begun a process to improve affordability and accountability of health plans and providers. https://hcai.ca.gov/affordability/ohca/promote-high-value-system-performance/ It has set expenditure targets of 3.5% annually phasing down to 3.0% over the next five years. There are penalties for plans and institutional providers whose performance does not meet the benchmarks. For example, several “high-cost” facilities are being sanctioned with lowered expenditure targets. https://hcai.ca.gov/wp-content/uploads/2025/04/Update-to-Draft-Motions-Presented-April-2025.pdf
The Board reviewed the high and unsupportable rates charged by the three hospitals in Monterrey County. https://hcai.ca.gov/wp-content/uploads/2025/11/OHCA-Investigative-Study-of-Hospital-Market-Competition-in-Monterey-County-1.pdf It concluded that steadily tightening global budgets were the best policy solution to the hospitals oligopolistic price setting, and linking to Medicare rates the next most feasible solution.
I asked an old provider friend how all the reimbursement changes and incentives are impacting their practice patterns; she said “not very much, because they are inconsistent from plan to plan and there are so many plans with different and not particularly compatible payment systems; they kind of cancel each other out and you do the best job you know how to treat all your patients; you can’t treat your Blue Cross patients one way, your Health Net patients a different way, your LA Care patients differently. You treat them all the same.”
I asked another old friend who ran a community clinic in rural California; he said “I have 60 different health plans for my patients up here, how can they possibly expect us to align with all their different incentive payments? We just send them (the payor) a bill and hope we get paid.”
Kaiser seems to have the best system in place among HMO’s. https://www.ncqa.org/highest-rated-health-plans/ Its doctors are on salary. https://healthy.kaiserpermanente.org/content/dam/kporg/final/documents/health-plan-documents/coverage-information/how-kaiser-permanente-providers-are-paid-ca-en.pdf It owns and operates its own hospitals which have global budgets. It negotiates prices directly with the pharmaceutical industry, and its clinicians decide the drug formulary. https://www.kpihp.org/blog/different-approach-to-prescription-drugs/ We need more Kaiser like plans throughout the nation. It has been very popular with its subscribers.
Many or at least some people prefer a broader choice of doctors and hospitals than the closed panel, fully integrated delivery systems like Kaiser offer.
At the other polar extreme is the traditional Medicare program. The federal government sets the payment rates for hospitals and doctors. https://www.kff.org/medicare/what-to-know-about-how-medicare-pays-physicians/ and https://www.kff.org/medicare/health-policy-101-medicare/?entry=table-of-contents-how-does-medicare-pay-hospitals-physicians-and-other-providers-in-traditional-medicare It negotiates the reimbursement rates of some drugs and could do so for many more. https://www.commonwealthfund.org/publications/explainer/2025/may/medicare-drug-price-negotiations-all-you-need-know There is a broad choice of providers and very little interference in the patient/provider decision-making on care and medical treatments. There are substantial copayments and deductibles to provide disincentives for unnecessary care, but they are broad brush and not particularly well targeted – i.e. they discourage both necessary and unnecessary care and financially burden the chronically ill and others with the most costly care. Those who favor Medicare for All would build on this structure, using the federal (or state) government to set reimbursement rates, but eliminating the myriad of copays and deductibles that deter care seeking. In my view this approach is a good bit more expensive and not particularly effective in delivering improved patient outcomes, but it is very popular with many health advocates.
One could use state and federal Exchanges to offer these two very different choices. This would allow patients, subscribers, consumers, voters to select annually the type of coverage they prefer. We already have experience with the Exchanges (Marketplaces) through the ACA, for Medicare subscribers, for state, local and government employees. This is a well tested and accepted model that can be built upon to offer much more affordable and reliable coverage for all. It is not something that can be done without Congressional approval as Medicare, as currently authorized, is limited to seniors and the disabled. There are many significant questions that would need to be answered by policy makers - the transitions of employment based coverage, the levels of patient cost sharing and a decision about whether to change extra for the more expensive of the two delivery systems, but it allows us to build on the existing systems with which many are very familiar.