Democratic lawmakers press Newsom to spend millions from health insurance fines

SACRAMENTO —  When Gov. Gavin Newsom took office four years ago, the Democrat went after Republicans on the national stage as they sought to gut the Affordable Care Act. Key to his ambitious healthcare agenda: reinstating the fine on Californians who don’t have health coverage, which had been eliminated at the federal level.

It was a tough sell for a new governor, and Newsom needed strong allies among state Democratic leaders, who at the time, in 2019, voiced concern about essentially levying a new tax on Californians unable to afford the rising cost of healthcare. Democrats, who, then as now, controlled the state Legislature, ultimately backed Newsom in exchange for a promise: The state would levy the fine but use that money to provide financial assistance to offset out-of-pocket costs for Californians purchasing health insurance on the state exchange, Covered California.

Newsom, now in his second term, has since backed off that promise. His administration is holding on to revenue raised from the so-called individual mandate — the requirement that people have health coverage or pay a fine. And his proposed budget for the upcoming fiscal year beginning July 1, which is being debated in the Legislature, funnels the money to the state’s general fund.

That is infuriating fellow Democrats who accuse him of breaking a promise and disregarding the millions of Californians who can’t afford their deductibles and copays.

California began fining the uninsured in 2020, raising an estimated $1.1 billion over the first three years — and the Newsom administration projects it will bring in more than $700 million more over the next two years, bringing the projected five-year total to $1.8 billion, according to the state Department of Finance. Democratic leaders said Newsom’s tactic of holding back the money for the general fund is a “rip-off.”

“Money from the mandate should stay in healthcare,” Senate President Pro Tem Toni Atkins told KFF Health News, arguing the state should be distributing money now to help people afford health coverage. “I don’t know what we’re waiting for. We’ve got to figure out a way to make healthcare more accessible, and there’s no question that the cost of health insurance is a barrier.”

Democratic lawmakers are expected to continue ratcheting up pressure on Newsom in hopes of reaching a deal by their June 15 deadline to pass a budget bill. “We’ve always felt that the money is meant to bring insurance costs down,” said Assemblymember Phil Ting (D-San Francisco), chair of the Budget Committee.

Newsom in 2019 stumped for the individual mandate amid concerns over rising insurance premiums, vowing to reduce Covered California consumer healthcare costs while setting himself apart from then-President Trump, who was attacking the insurance mandate as unfair. Congressional Republicans had gutted the federal penalty — part of the Affordable Care Act — in 2017. Newsom argued it would still work in California to lower healthcare costs, and to help him achieve his goal of universal healthcare, the centerpiece of his ambitious healthcare agenda.

Newsom now argues that federal health insurance subsidies that offset the cost of monthly premiums are sufficient. And, in the face of a projected $32-billion state budget deficit, Newsom says California cannot afford to spend the money to further reduce out-of-pocket costs. He argues spending the money to slash deductibles, for instance, would be “unsustainable.” His proposed budget would instead keep the money for the state’s general fund, to be used for anything California wants to spend it on.

But healthcare advocates who lobbied in favor of the fine, as well as many Democratic lawmakers, say the funds could be lifesaving and should be distributed now.

“The individual mandate was not intended to create funds for other government programs outside of healthcare,” said Assemblymember Jim Wood (D-Healdsburg), chair of the Assembly Health Committee, at a heated budget hearing this spring. “The clear intent of the Legislature was that this money was meant to go to affordability.”

Wood said he might have rejected Newsom’s plan had he known the revenue it generated would be deposited directly into the general fund. “I don’t think I would have supported it,” he said. “It just feels like a violation of what we thought we were doing.”

Soaring out-of-pocket healthcare costs, including for insurance premiums and deductibles, are leading people to forgo healthcare. In California, a staggering 52% of residents report having skipped or delayed treatment in the last year for financial reasons, according to a recent survey by the nonprofit California Health Care Foundation.

Diana Douglas, a lobbyist with Health Access California, which was part of the coalition that backed the state’s coverage mandate in 2019, said Newsom must recognize soaring costs and spend the money now on affordability assistance. “This penalty money should be used to help Californians afford coverage and care.”

Health insurance plans offered by Covered California are continuing to get more expensive. Deductibles for a mid-tier insurance plan, for example, will jump to $5,400 next year, according to Covered California, up from $4,750 this year and $3,700 two years ago.

And even many Californians who are purchasing coverage are putting off treatment in the face of high costs. A survey by Covered California in 2022 found that 48% of its consumers delayed important medical care due to cost.

Newsom this spring dodged a question by KFF Health News about the criticism he is facing over his push to retain the mandate money, saying simply he’s “proud” to have established the state coverage mandate and noting that federal premium subsidies are available for Californians purchasing coverage via Covered California. His administration defended the push to funnel money into the general fund, saying revenues would be repaid to a special health fund and be available to use on healthcare eventually, if the federal government cuts back existing premium subsidies. Administration officials argue that Newsom is essentially borrowing the money and saying it’ll be repaid later — though lawmakers have expressed concern that he’ll never make good on that promise.

Critics and some Democratic lawmakers say holding back the money is a double whammy for low- and middle-income residents who are struggling to pay for coverage, and argue that it amounts to a tax on the poor. “It feels like we’re trying to save it on the backs of our low-income communities,” said Democratic state Sen. Caroline Menjivar, who represents the San Fernando Valley.

Most of those paying the fine are low- and middle-income Californians who earn at or under 400% of the federal poverty line, which is $58,320 for an individual and $120,000 for a family of four, according to the latest data available from the state Franchise Tax Board.

Democratic lawmakers this year are backing an alternative proposal, championed by Health Access California, to spend revenue from fining uninsured residents on increasing health insurance subsidies for low- and middle-income people. They would be making good on a deal advocates secured with state Democratic lawmakers last year to reduce or eliminate out-of-pocket costs in Covered California and scrap deductibles entirely for a mid-tier plan.

“We need to make sure people not only have health coverage, but that they can also afford to actually use it,” said Ronald Coleman Baeza, a healthcare lobbyist with the California Pan-Ethnic Health Network.

Although Newsom and his Democratic allies have passed major expansions in coverage, the state does not have universal healthcare. Experts say more than 2.5 million Californians remain uninsured, including unauthorized immigrants who earn too much to qualify for Medi-Cal, and lawmakers are growing increasingly agitated that not all residents who are insured can afford to use their coverage.

“There was a clear commitment that these dollars were going to be used to bring down healthcare costs, and we haven’t done it,” said Assemblymember Pilar Schiavo, a Democrat representing the Santa Clarita Valley, who introduced a bill that would require any revenue raised from the individual mandate be permanently set aside for healthcare. Though it died this year, it can be revived next year, and advocates say they will continue pressing Newsom to distribute the existing money to Covered California consumers.

“We need to keep our promises,” Schiavo said. “If you have insurance that you can’t afford to use, or you’re afraid to go see the doctor because of how high that bill might be, then you don’t truly have access or universal coverage.”

This article was produced by KFF Health News, formerly known as Kaiser Health News, a national newsroom that produces in-depth journalism about health issues.