Government happens: Pimping health insurance in California

How does a community group that’s been funded to help Californians sign up for the new health “insurance” exchange trace back to a state law sponsored in 1990 by a senator who later served time for felony convictions?

In today’s post, we find out.  This tale is a classic drama of governmentism and its inevitable consequences.  None of it can be attributed to a grand plan – or not, at least, to a plan that was executed with intent by actors conscious of all its details.  Rather, it illustrates the maxim (OK, it ought to be a maxim) that “Government happens.”  Start government in motion, and everything else follows as night follows day.

Government happening

The drama begins in the 1930s, when states across the nation were chartering Blue Cross/Blue Shield organizations to provide low-cost medical insurance on a nonprofit basis.  (Blue Shield was specifically for hospitalization.)  Blue Cross of California was chartered for this purpose in 1939.  It continued to operate as a nonprofit for more than five decades, but by 1990, its financial situation had become increasingly unsound.

Key reasons for this were changes in federal and state law.  (For a more complete history, see this report.)  In 1966, just before relinquishing his office to the newly-elected Ronald Reagan, Governor Pat Brown and the state legislature rushed through the health insurance initiative called Medi-Cal, essentially a California version of the federal Medicaid program.   It quickly became unwieldy, but it began to siphon off subscribers from Blue Cross.

The federal HMO Act of 1973 gave HMOs advantages over traditional indemnity insurance plans, and HMOs on the “pre-paid,” managed-care model mushroomed, in California as in other states.  Under a Reagan-era effort at reform, Medi-Cal had begun offering pre-paid health plans in 1971.  Predictably, the widely reported fraud incident to this roll-out prompted the legislature to regulate the pre-paid health plans (PHPs) as it had not done before.  There is no evidence that PHPs unconnected with Medi-Cal encountered such problems, but it was natural for the state to conclude that the entire industry required special regulation.

Thus, the Waxman-Duffy and Knox-Keene Acts were passed, the former regulating Medi-Cal PHPs, and the latter placing private PHPs (like Kaiser) under the Department of Corporations, and making them subject to the standards laid out in the federal HMO act.

More government happening

Blue Shield offered PHPs by this time, and came under Knox-Keene.  Blue Cross still operated on the indemnity model, and its finances worsened as Medi-Cal made ever greater inroads in its traditional clientele.  As the 1970s turned into the 1980s, the federal HMO rules were changed so that HMOs could become for-profit companies, while at the same time they saw their subsidies from the 1973 HMO Act phased out.  A number of California PHPs petitioned to shift from non-profit to for-profit operation.  The state-imposed price of doing this, typically through a private merger in which their assets were bought, was using the funds from the buyout for public charity.  (This was because their income and capital gains had been untaxed while the corporations were operated on a non-profit basis.)

Such a transaction created the California Wellness Foundation, for example, which was launched in 1992 when Health Net became a for-profit company.  The typical move, known as a “health plan conversion,” was for the former non-profit corporation to create a non-profit foundation with the proceeds from its for-profit merger.  The foundations make grants to other non-profits involved in a number of community issues, health care being predominant among them.

There are several of these foundations today, and a small portion of their money goes to providing actual health care for the indigent.  But a very large amount of it goes to health-industry politics, as brokered by community organizers.  The thread with which we are concerned in this story involves a foundation called The California Endowment.  Its funding, and the Blue Cross transition from which it came, were integral to the success of a community association called the Health Consumer Alliance.

Blue Cross’s move to for-profit status was a bumpy one.  Various constituencies fought the transition in the 1980s, and for a number of years it was going nowhere.  But the parlous condition of state-backed insurance assets in California – in general, not just at Blue Cross – eventually drove lawmakers to move Blue Cross out of that troubled column.  That’s where former State Senator Alan E. Robbins came in.

A foundation is born

In 1990, Robbins, a Democrat from the San Fernando Valley, chaired the Senate Insurance Committee.  There were three health-insurance providers in the state in that year – Blue Cross was one – that were still regulated by the state Department of Insurance rather than the Department of Corporations, which regulated the Knox-Keene HMOs.  The two other providers applied in 1990 to convert to the Knox-Keene framework, leaving Blue Cross as the only indemnity provider.

But Blue Cross was “on the brink of insolvency,” according to the authors of Senate Bill 785, and the legislature didn’t want its risk to be a permanent threat to the new Health Insurance Guarantee Association fund.  (The discussion portion of a related 2004 assembly bill recounts the deliberations on the 1990 senate bill.)  So in Alan Robbins’s SB 785, which established the insurance guarantee fund, Blue Cross was specifically required to convert to a Knox-Keene operation by 1991.  In that process, Blue Cross California eventually launched a health plan conversion from which the for-profit corporation Wellpoint was created, along with The California Endowment (in 1996) and another non-profit, the California HealthCare Foundation.

Senator Robbins, unfortunately, turned out to be involved in racketeering (as well as tax evasion), and was specifically connected with influence-peddling related to the California insurance industry (see here and here for specifics).  He resigned in 1991 and was sentenced in 1992 to five years in federal prison, of which he served two.  So there’s a tinge of melodrama to the legislation behind the Blue Cross break-out – which makes it all the more typical of government and its propensity to happen.

(In a bizarre twist, it turns out that the same ex-Senator Alan Robbins, having served his time, now owns some major foreclosed real estate in Oklahoma City: the office complex known as Shepherd Mall.)

A community organizing group is supported

The California Endowment funds a number of community activities, but one of its most important recipients is the Health Consumer Alliance, a consortium of nine health advocacy organizations formed by California legal-aid agencies.  The HCA is a partner with the National Health Law Program, which serves as the “lead organization” of the HCA, and which receives more than half its funding from Atlantic Philanthropies and the Robert Wood Johnson Foundation.  But the HCA’s web-template boilerplate describes the alliance, which was started in 1987, as “Funded by generous support from the California Endowment.”  (Review the list of grants at the California Endowment website to verify that members of the HCA consortium are major recipients of California Endowment money.)

HCA was formed nearly a decade before the California Endowment came into being, but its stature today as a policy organization would clearly not be possible without the deep pockets of the foundation.

James Taranto noted in a post at the Wall Street Journal in June that the California Endowment is actively shilling for Obamacare (and for the extension of all health benefits to illegals).  This makes it a fitting partner for the HCA.  The HCA’s approach is outlined in these key points from a USC study of its practices published in 2010 (emphasis added):

In a 5-year period, the HCA assisted more than 60,000 individuals with problems related to obtaining access to care and health insurance coverage. The HCA used the information gained from this individual assistance to address both local and statewide policy issues by pooling the technical and political resources of individual health consumer centers (HCC) and their partners. …

The HCA model can be example of how information from individual consumer problems can be addressed at a broader level to reach and impact systemic change.

Public policy is what the HCA is about (it makes its own case about pushing for policy change here), which is why HCA devotes so much print to the demographic make-up of its clientele.

The community group gets a health-insurance grant from the taxpayers

So it should probably be no surprise that when the state of California was looking for a community group to shower money on to help Californians sign up for the new health insurance exchange, it decided on the Health Consumer Alliance.  “Covered California” is the trademark name for the state’s insurance exchange and its PR effort, and on 20 June, Covered California announced a grant of $3.4 million to the HCA “for providing community-based consumer assistance and problem resolution in the state’s new insurance marketplace.”

After all:

“The Health Consumer Alliance keeps track of the people who call our centers for help, so we’ll be able to tell Covered California about the experiences folks are having on the ground and how to fix them,” said Elizabeth Landsberg with the Western Center on Law & Poverty, a member of the Health Consumer Alliance.

Since we’re talking about taxpayer money here, one would like to think that “fixing” the experiences of folks on the ground would be done through a process more checked and balanced – more rigorous – than one in which the non-governmental, non-accountable HCA presents complaints and suggestions to the executive agency Covered California.  Say, a process involving the legislature, the media, and the voters.

But that’s not necessarily how government happens, once there are this many agencies with longstanding relationships; once the distinction between actual government agencies and non-governmental organizations with no public accountability is increasingly fuzzy; and once the standard method of throwing taxpayer dollars at folks’ experiences consists of a few buzzwords and a round of applause.

Had it not been for a long series of government actions and modifications that began more than 70 years ago, we could not have arrived at 2013, when there is such a thing as the state-mandated California Endowment foundation, which funds the Health Consumer Alliance, which has just been given $3.4 million to sign people up for Obamacare and come up with policy suggestions for a state agency that calls itself – as if it were a teenager thinking up slogans for school council initiatives – Covered California.

But those actions and modifications did occur, from Blue Cross to the HMO Act to Pat Brown and Alan Robbins.  And government happened.

This is what happens when government happens.  Only the details of this story will ever change.  We have two choices.  We can take things out of the hands of government, and get a different result.  Or we can continue to let government keep ratcheting up the cost of managing our lives for us.  If we choose the latter, there’s nothing we can do to stop it.  Government will happen.

J.E. Dyer’s articles have appeared at Hot Air, Commentary’s “contentions,” Patheos, The Daily Caller, The Jewish Press, and The Weekly Standard online. She also writes for the new blog Liberty Unyielding.

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