Insurance Companies Make Out Like Bandits In CA Healthy Families Legislation

Last week I discussed the legislative fixes being made to save half a million kids from being dropped from the Healthy Families rolls. This fix would push more costs onto the families, making the program less affordable and the coverage stingier, and would extend a gross premiums tax on insurance companies, which was set to phase out in October, at a lower rate than they are now paying. Keeping that tax at the same rate would have spared families from increased premiums and co-pays.

But saving the program is saving the program, and yesterday the State Senate took the first step.

State lawmakers pushed forward Wednesday with a $196-million plan to keep nearly 700,000 children from being yanked off a government health insurance program for the working poor.

The state Senate passed a measure to create a new tax on insurance companies and bring in federal money to rescue the decade-old Healthy Families program, which had been cut deeply in recent months as lawmakers scrambled to balance the state budget.

Assembly officials expressed confidence that they would garner the needed two-thirds vote in the lower house, where the bill is expected to be taken up today. Administration officials said Gov. Arnold Schwarzenegger would sign the measure.

Again, not quite right. The "new tax" on insurance companies is an extension of an existing tax at a lower rate than before. This is why the insurance companies support the bill; they're getting taxed at a lower rate, keeping 600,000 kids on their insurance rolls, getting the families to pay more, and being credited with saving the system. It's a neat trick. Not only that:

The new tax would replace an existing 5.5% levy set to expire in October, prompting some lawmakers to quip that the new levy is actually a tax reduction. It would expire at the end of next year, and the insurers would be reimbursed for most of their cost.

"Of course the insurance companies want this -- it won't cost them a penny," Aanestad said.

Keeping the premiums tax in place does net $97 million in federal matching funds, which certainly helps matters. And keeping the program alive helps children in tangible ways. But this is a very strange conception of "shared responsibility," when the families participating in the program will have to pay more for premiums and co-pays, with less coverage overall, and the insurance companies get a lowered tax, which they will get reimbursement for down the road.

And the craziest part of all of this is that Sam Aanestad of the Yacht Party, while admitting this is a lowered tax and that insurers will not pay anything in the final analysis, voted against the bill because it "raises taxes on California business."

"Who pays is the bottom line here," said state Sen. Sam Aanestad (R-Grass Valley), who voted against the bill.

Sam Aanestad in this paragraph should read Sam Aanestad from the other paragraph.