Posted on January 9, 2007

Gov. Schwarzenegger's health care proposal


California Governor Schwarzenegger’s Health Care Proposal

The Governor’s vision for health reform is an accessible, efficient, and affordable health care system that promotes a healthier California through prevention and wellness and universality of coverage. For the Governor’s vision to be realized, health care reform must reflect a “systems” approach that incorporates three essential building blocks in an integrated manner.

These building blocks are:
Prevention, health promotion, and wellness
Coverage for all Californians
Affordability and cost containment


By Don McCanne, MD

Gov. Schwarzenegger’s ten page proposal cannot be fully addressed here, but a brief discussion of the general concepts can give us a perspective as to whether this would achieve his stated goals of affordable health care for everyone. I’ll discuss the first and third building blocks first, and then his plan for coverage.

For prevention, health promotion and wellness, he recommends preventing diabetes and obesity, as if we really knew how to do that, and continuing our successful program to reduce the use of tobacco. He also recommends incentives/rewards to promote prevention, wellness, and healthy lifestyles. Although certainly we all agree that healthy lifestyles are important, as a public policy initiative, this building block will not add much to the foundation of a more effective and efficient health care system.

Affordability and cost containment are crucial to reform. But what does the governor offer? He would require that insurers and hospitals limit their administrative costs and profits to 15% of premiums paid. The current administrative waste is due to our fragmented system of financing health care, and he would do nothing to bring about the structural reform required. It will be very difficult to reduce the 31% spent on administration without an efficient system such as single payer. He recommends health savings accounts, which, if they do reduce spending, would do so by making beneficial health services unaffordable for many individuals with unfunded or depleted accounts. He states that health information technology will improve affordability, when there is already evidence that it will more likely increase costs. He suggests that pay-for-performance and reporting health plan performance will improve efficiency, though there is no real evidence for that. He maintains silence on important cost drivers such as lack of an adequate primary care infrastructure, an excess of non-beneficial high-tech services, and the highest prices of all nations. Without structural reform, this building block will not add much to our health care foundation.

The most important building block is his proposal to provide coverage for all Californians. He does this by expanding eligibility for Medi-Cal (Medicaid) and Healthy Families (SCHIP) for low-income individuals with means-tested premiums, providing subsidies for lower-income working uninsured to purchase coverage through a state pool, and enforcing an individual mandate for all others to purchase coverage. Specific proposals to cover the undocumented are also included.

Unfortunately, this block crumbles when you look at the mandated coverage. “The minimum health insurance benefit that must be maintained will be a $5,000 deductible plan with maximum out-of-pocket limits of $7,500 per person and $10,000 per family. For the majority of uninsured individuals, such coverage can be purchased today for $100 or less per month for an individual and $200 or less for two persons.” Considering that this proposal requires guaranteed issue and community rating, the premiums likely will be at least five or six times that much. And maximum-out-of-pocket limits are a fiction since they ignore non-covered and out-of-network services - often unavoidable. The total costs to individuals or families with significant health care needs can be in the tens of thousands of dollars. An insurance product that does not protect average-income Americans cannot serve as the foundation of an affordable, efficient health care system for all. This alone destroys the credibility of Gov. Schwarzenegger’s model.

There are a couple of other issues that should be mentioned. The 4% payroll tax for employers will likely result in crowd out - employers dropping their current plans because this payroll tax is much lower than the premiums paid for employer-sponsored plans. That tax will not be able to support adequate plans in the state-administered pool. Thus his budget-neutral funding breaks down.

Also the plan promises to significantly increase payment to Medi-Cal providers, at a cost to the state of $2.2 billion. The expanded eligibility under Medi-Cal will cost the state another $1.3 billion. With the mandate of budget neutrality, how do they intend to fund this $3.5 billion expansion? They are going to tax the gross revenues of hospitals at 4% and physicians at 2%, for a total of $3.5 billion. What is the net affect of this? Not only is the Medi-Cal rate increase confiscated by the state, but also the entire compensation for the new enrollees is confiscated. The fact that Schwarzenegger’s administration used a budget gimmick to require physicians and hospitals to provide free care to the expanded Medi-Cal population demonstrates the dishonesty that permeates this entire proposal.

Sen. Sheila Kuehl has an excellent op-ed in today’s Los Angeles Times that contrasts the proposals of Gov. Arnold Schwarzenegger, Senate President Pro Tem Don Perata, and Assembly Speaker Fabian Nuñez, with her own proposal for a single state fund (SB 840). For “A second, third and fourth opinion on healthcare:”,0,7944823.story?coll=la-opinion-rightrail