San Diego Union Tribune
January 9, 2007

Governor wants all insured
Health care plan's cost would be shared by nearly everyone

By Bill Ainsworth
Staff Writer

SACRAMENTO – Gov. Arnold Schwarzenegger proposed a sweeping plan yesterday to extend health coverage to all Californians that would dramatically transform the state's nearly $200 billion health care system.

“We have a good chance to make history and a model for the rest of the nation,” Schwarzenegger said.

The Republican governor's proposal demands that almost everyone involved in the plan share the cost. Because of that, several elements of the proposal are likely to meet opposition. A certain political flash point is a provision to provide coverage for illegal immigrants living in the state.

His plan requires all residents to have health insurance, forces employers with 10 or more workers to either provide coverage or pay a 4 percent payroll tax and creates a new program to cover people with lower incomes, including many of the 6.5 million Californians without coverage.

Schwarzenegger would increase by $4 billion the amount of money that hospitals and doctors are paid to treat Medi-Cal patients, the state/federal program for residents with low incomes. In return, he would impose a 4 percent fee on hospital revenue and a 2 percent fee on physicians.

California pays some of the lowest Medi-Cal rates in the nation, making it difficult for patients to find doctors.

His plan would also impose new rules on health insurers, requiring them to guarantee coverage to all individuals regardless of their health status or age. Currently, health plans can deny coverage to individuals who have an illness.

Schwarzenegger said that fixing the state's troubled health care system is just as important to the 80 percent of residents with coverage as it is to the 20 percent who are uninsured.

He noted that the uninsured rely too much on emergency rooms, an expensive form of treatment that drains money from the health system and can overburden hospitals.

The hidden cost of caring for the uninsured, he said, is one reason that insurance premiums for others are soaring, creating problems for employers throughout the state.

“We are paying a hidden tax. We are paying higher deductibles. We are paying higher out-of-pocket co-pays, and the list goes on and on,” Schwarzenegger said.

Schwarzenegger, who blocked or opposed many major plans to expand coverage during his first term, has put health care at the top of his list of priorities for his second term, along with protecting the environment and solving the state's prison crisis.

The governor has said that the current system is unsustainable.

The plan represents a departure for Schwarzenegger. He is asking his business allies to swallow a fee similar to the one that they fought hard to defeat in 2004 with the governor's help.

During the 2006 election campaign, Schwarzenegger blasted Democrat Phil Angelides for supporting an employer health insurance mandate, calling it a tax increase.

Yesterday, Schwarzenegger didn't use the term tax increase. He called his new fees on doctors and hospitals a “coverage dividend.”

Schwarzenegger's recent interaction with the health care system – he broke his leg skiing during the holiday season – forced him to deliver this major address via a video hook-up from Los Angeles on doctor's orders.

Today, he plans to deliver his State of the State speech here in person. The 5 p.m. speech can be viewed on the governor's Web site at www.gov.ca.gov.

Schwarzenegger took a controversial stand that immediately ran into opposition from fellow Republicans in the Legislature: His plan would cover illegal immigrants.

Federal courts require hospitals to treat anyone who is sick, regardless of immigration status, he said.

“The question really is how can we treat them in the most cost-effective way? . . . We are trying to be realistic here and not live in denial. This is the reality.”

Assembly Republican leader Mike Villines of Clovis has said that GOP members of the Assembly, though a minority, would seek to use their budget powers to block expanded coverage for illegal immigrants as well as other provisions they oppose.

Schwarzenegger's plan also covers all children by expanding two key state/federal low-income programs, Medi-Cal and Healthy Families.

In addition, it would change the tax codes to allow employees to spend pretax money on health care and pre-state tax money on Health Savings Accounts.

The plan is estimated to add about $12 billion to the health care system, much of it in federal dollars the state would be owed under the changes, while costing the state about $5 billion.

The employer fee would raise an estimated $1 billion. The fees on doctors and hospitals would raise an additional $3.5 billion, according to estimates by Schwarzenegger.

The plan won praise from a wide variety of health care experts.

Some said that it is far more sweeping than the health care plan enacted last year by Massachusetts, which has a lower percentage of uninsured residents.

“It is, in general, a bold, audacious and hopeful approach,” said Robert Ross, president of the California Endowment.

“Mandating health insurance for all Californians is a tremendous step,” said Tom Gehring, CEO of the San Diego County Medical Society, which represents area physicians who persistently complain that Medi-Cal pays them far less than what doctors in other high cost areas receive.

“San Diego County has such a high rate of uninsured, 20 percent, and Medi-Cal payments here are almost worse than getting nothing,” he said.

However, he said, the society has concerns that the plan would allow ancillary medical services providers, such as nurses in certain stand-alone settings, to provide care without physician supervision they have now.

It also drew criticism from both the right and the left. Business advocates and their Republican allies said that the employer payroll tax would hurt businesses.

“Imposing a new jobs tax on employers of any size and expanding costly government mandates is the wrong approach, one which will devastate our economy,” said Villines, the Assembly Republican leader.

On the other hand, Anthony Wright, executive director of Health Access, which represents consumers, said the 4 percent fee on businesses who don't cover workers is so low that it could provide incentive for employers to drop coverage. He said most employers who cover their workers spend 6 percent to 8 percent of payroll on health care.

Wright won support for this view from a surprising source: Safeway Inc. President and CEO Steve Burd.

“I frankly think that it should be higher,” Burd said.

Still, Burd called the plan a “terrific start.”

Assembly Speaker Fabian Núñez, D-Los Angeles, agreed, but said the proposal merely launches what will be intense negotiations.

“This is a very, very good start,” he said. “And I can tell you with certainty that in 2007, the California Legislature and the governor will produce health care reform that ensures each and every Californian access to a good health care coverage.”