Restricting underwriting could cost taxpayers billions

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OPINION — With Medi-Cal spending already expected to hit a record $49 billion by 2027, more than doubling and outpacing the state budget in the past decade, the California legislature must be on the lookout for bills that will unintentionally increase spending.

A new Assembly bill could do just that — attempting to protect consumer privacy but decreasing access to private life and disability insurance coverage and ballooning Medi-Cal spending instead.

AB 1798 would limit life insurers’ access to genetic information in applicants’ medical records, reversing a 30-year practice that has seen the number of California life insurance policies grow to a record 10.2 million, delivered and maintained with strong personal privacy protections.

When life insurers have the information they need for precise underwriting, premiums for consumers are better aligned with expected risk which encourages broader participation. Broad participation helps sustain risk pools, supports long-duration policies, and increases the likelihood that private benefits are present when financial shocks occur.

Conversely, when life insurers can’t distinguish who is high risk and who is not, some consumers pay more than their risk warrants, and some may eventually opt out of coverage entirely.

The end result? More are left to shoulder the rising cost of care on their own. For example, long-term care in California already ranks among the nation’s most costly — about $182,000 a year for a private nursing home room — and is projected to rise nearly 5% annually. As families exhaust savings on care, more turn to Medi-Cal, deepening the strain on an already stretched state budget. New research from the International Center for Law & Economics bears this out and shows exactly how creating a bottleneck to coverage can increase costs for the state. When California’s flagship Partnership for Long-Term Care program stopped functioning as intended, Medi-Cal enrollees using long-term services and supports rose 20% from 2017 to 2022.

California cannot afford policies that push more residents from private coverage onto public rolls, especially as Californians ages 65 and older will make up 22% of the state’s population by 2040 and nearly 70% of people turning 65 today will need some form of long-term care.

While privacy concerns around genetic testing results are appropriate, life insurers’ use of this information has already been highly regulated for decades. Since the early 1990s, life insurers have worked with the Legislature to ensure that life insurers cannot compel an applicant to undergo genetic testing, must secure written informed consent before any such test, and yet may consider genetic results but only under strict privacy protections overseen by the California Department of Insurance. We are not aware of any complaints about these practices from consumers or from the CDI.

The data is clear — when private coverage works well, more families are covered. They are also less likely to exhaust their savings and fall back on public programs. As underwriting restrictions push costs up and coverage down, more Californians — disproportionately those with lower incomes — would be left uninsured and more likely to rely on Medi-Cal. A bill meant to protect consumers could instead shift costs onto taxpayers and add strain to a state budget already stretched thin.

When we bottleneck access to financial protection, no one wins. Those who lose the most are middle-income consumers with the least disposable income or with medical challenges. We can protect their privacy without reducing access to life insurance and long-term care coverage that can save California money where we need it most in the long run.

John Shirikian is president and CEO of the Association of California Life & Health Insurance Companies, based in Sacramento.