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Sacramento, We Have A Problem


When looking at the Golden State’s governor, Arnold Schwarzenegger, and his attempt to fix health care, I am reminded of a movie. Not one of his, rather the scene in Apollo 13 when the crew on the ground had to figure out some wacky mechanical fix that would enable the guys out in space to filter their oxygen without using more than the two amps of power they had available. It seems that we have a similar situation. The prognosis is grim, but the political reality is that, like the Apollo crew, we need to use the limited resources at hand.

Schwarzenegger taken on a big job and, it seems, entering his final four years as governor – a political career that began on a whim – he doesn’t much care who he takes on. Given that California is roughly 10% of the nation, with a higher than 10% share of the nation’s uninsured, most people were expecting that Schwarzenegger would identify covering all children as the extent of his health-care ambition. Children are politically palatable – when it comes to health and medicine. But Schwarzenegger didn’t stop with the children. Instead he actually believed all the stuff he was saying about all options being on the table to cure the system and has acted accordingly.

In an address on Monday he introduced a plan that actually went further towards universal coverage than the one State Senator Pro Tem Don Perata introduced late last year. Schwarzenegger called for full universal coverage, and promised to get there by a mix of what’s known as pay or play – a mandate that employers must cover their employees or pay a tax – and an individual mandate compelling citizens to buy health insurance. The details of the plan are very complex but understandable.

Once employer mandates are in effect, Schwarzenegger essentially wants to get to universal coverage by boosting Medicaid to cover anybody who is still isn’t covered. Employers get the choice of covering employees or paying a very significant payroll tax into a fund that will support the Medicaid expansion. Finally in order to make the concept of accepting Medicaid patients attractive to physicians and hospitals, the proposal suggests increasing payments for the Medicaid program. The way it funds that increase is to tax revenues from doctors and hospitals. This is a tax tacked on to payments made by richer people to their doctors and hospitals in order to raise the Medicare payments made by poorer people to their doctors and hospitals. These groups are, of course, served by different doctors and hospitals – unless an army of Paris Hiltons are moving from Beverly Hills down to South-Central for more than just TV schtick.

Given that he is calling for such a dramatic change, one almost feels that Schwarzenegger might have gone to the lengths that Senator Ron Wyden of Oregon has gone and called for the complete decoupling of health insurance from employment. The governor certainly disappointed the editorial board of the LA Times in not doing so.

Worth noting: By making the central thrust of the proposal an expanded employer mandate, he is also completed a remarkable political flip-flop. As recently as November 2004 Californians went to the polls to vote on proposition 72, which was a bill that mandated employers with more than 20 workers to provide insurance coverage for them. A flood of money from fast food interests and Wal-Mart – in other words big companies that do not provide health insurance for their workers – helped to stop the momentum that Prop 72 was showing in the polls. But what really assured its eventual narrow defeat was Schwarzenegger coming out against it in the late weeks of the campaign.

Now he’s back with a pay or play mandate that goes down to companies with as few as 10 employees which effectively pisses off twice as many small businesses as Prop 72 did. And that’s not all. We’ve already mentioned the provider tax – where wealthy hospitals help foot the bill for their struggling counterparts. That’s a version of a health care tactic that the AMA and AHA thought that they had killed off circa 1994 – even before Hillary Rodham Clinton made the health care scene.

But wait there’s more!

Schwarzenegger has also decided to go after the insurance companies. California has been a very profitable market for the big five insurance companies, two of which are subsidiaries of the nation’s largest insurers United and Wellpoint. In Schwarzenegger’s proposal, he limits to 15% the share of insurance premiums which do not get spent on direct medical care. This may seem like a modest proposal until you realise that most insurers only spend around 80% of premiums on medical care (this number is something that wonks and stock analysts call the “medical loss ratio”). So effectively Schwarzenegger is suggesting to these big for-profit companies that their revenues get reduced by a quarter and that their profits (presumably) will go down much more than that.

A day after the big announcement the NY Times noticed that this may all prove quite a struggle. It certainly is now back to the same old question; do the somewhat defuse benefits that the proposal would bring to the politically powerless – the uninsured – exceed the pain the proposal will inflict on the politically powerful. The answer is isn’t necessarily “no” because at least some other “powerful interests”– such as big employers who do provide health insurance (Safeway) and are competing with big employers who do not (Wal-Mart) — want to see a level playing field in which they are no longer cross-subsidising the healthcare costs of their competitors.

But as I said last week, I don’t think things are bad enough in the Golden State quite yet to put together that rare constellation of factors that will get something comprehensive passed. And of course even if it does it must also survive our crazy proposition process.

So, we’re back to the movies. Because he didn’t feel brave enough to go with something really radical like Wyden’s plan, or the single-payer plan which he vetoed last year, Schwarzenegger is just like the Apollo 13 crew trying to put together a new solution but limited by what he’s got on board. So I suspect the end result will be continued oxygen depletion until, perhaps in a few years, the situation is dire enough that somebody might open the hatch to see if there’s breathable air outside. Or was that in Galaxy Quest? I don’t remember.

Share  Posted by Matt Holt at 2:54 AM | Permalink

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