Expense Ratio Ohman's also concerned about what the future would hold under the proposed minimum medical expense ratio of 85%. He says that
aim takes plans down the road of rate regulation and probably less service at a higher cost. Administrative expenses aren't
necessarily a bad thing in his mind. For example, disease management programs have proven impact on driving down medical costs, but they cost money to administer.
Members with chronic conditions could lose services if disease management programs were disincentivized. "There is nothing quite like sitting across from the human resource benefits manager of a large company and having them ask
you to justify the administrative expenses that are being charged to the account," Ohman says. "You better have some darn
good answers, and they better be about good investment." Quantification is important for administrative expenses, and putting a limit on the medical expense ratio might not be justified
in some cases. Particularly with new programs that have start-up costs before the return on investment materializes, a hard
ceiling will limit the potential to improve quality of life and reduce costly hospitalizations. Of course, every aspect of the California healthcare proposal is up for debate, and it could be years before anything is implemented,
Ohman says. Maintaining Medi-Cal According to the Public Policy Institute of California, Gov. Schwarzenegger's redesign is essential to the future of the Medi-Cal
program and its 6.5 million enrollees. At its current spending rate, Medi-Cal would consume 21% of the General Fund by 2015,
taking away a $29 billion piece of the pie—an 8.5% annual growth rate over today's consumption, which outpaces the current
6% growth rate for state revenues. Like many states, California compensates Medi-Cal providers at a level below the pace of the rising costs of healthcare, Ohman
says. On average, those providers are paid about 60% of the Medicare fee schedule, and as a result, they shift costs to commercial
payers. "What's really impressive about the governor's proposal is that they bring up the cost shift in black and white and are completely
candid about the problem," he says. "They actually quantify it as a 7% cost shift. That underfunding is basically raising
premiums for folks who are acquiring commercial insurance by a magnitude of 7%. Other state Medicaid plans should really take
note that this is a wrong. This quiet, hidden cost shift is a wrong, which has all sorts of hidden consequences in terms of
higher cost in the commercial market and ultimately greater uninsured." Because everyone would have insurance coverage if the mandate is implemented, Medi-Cal providers would have a better chance
of collecting their fees and would be writing off less bad debt. Additionally, the 2% and 4% fees that providers would contribute
to the state pool would be matched by federal dollars, which Ohman says ultimately would be the pool that is used to pay the
providers. The funding source would grow with the rising cost of healthcare and result in a more sustainable model over time.
The fees are being hotly debated and labeled as illegal taxes on providers. Gov. Schwarzenegger's office is reportedly saying
that he isn't in favor of using taxes to pay for universal healthcare. Kim Belshe, the California secretary of health and human services, worked with the governor, regulators and a multidisciplinary
team to craft the proposal. They spoke to other states that are in various stages of universal coverage implementation as
well. "The degree of rigor of the proposal is pretty good," Ohman says. "It's now a public policy proposal subject to the meat grinder
of the legislative and political process. Even the best-laid and most well-thought plan can emerge to be quite different."
| 
