Ventura County Star
January 9, 2007

Health coverage mandate
Schwarzenegger proposal is multifaceted

By Timm Herdt

SACRAMENTO – If you want to live in California, you have to get health insurance.

That basic principle — an individual mandate to have insurance — is the linchpin of a comprehensive healthcare reform plan proposed Monday by Gov. Arnold Schwarzenegger. Combined with new requirements on businesses, health insurance companies, hospitals and doctors, Schwarzenegger said, his plan would provide universal healthcare to all Californians and reduce costs for those who already have insurance.

"By building on shared responsibility, where everyone does their part, we will fix California's healthcare system," Schwarzenegger said.

The plan, about a year in the making, includes at least one component that nearly every interest group can hate. Among its other elements:

• A requirement that all employers with 10 or more workers either provide health insurance to employees or pay a 4 percent fee into a new statewide healthcare account.
• A mandate that insurance companies must provide policies to all individuals, regardless of age, occupation or health condition.
• A 4 percent tax on hospital revenue and a 2 percent tax on doctors' revenues.
• Expansion of subsidized children's health insurance that would provide coverage to virtually every child in the state, regardless of immigration status.
• A new state program that would subsidize the cost of insurance to adults with family incomes below 250 percent of the federal poverty level, or $50,000 for a family of four.
• A requirement that all health insurance plans and hospitals devote no more than 15 percent of their revenues to administrative costs and profits.

"Some of these are very drastic measures," Schwarzenegger said. Taken as a whole, however, "everyone is left with a better deal."

Plan praised as ‘visionary'

The proposal drew prompt criticism from some interest groups, but experts were quick to give Schwarzenegger credit for trying to tackle a huge problem with a comprehensive plan.

"There's no question that this is bigger than the Massachusetts plan," said Jay Gellert, president and CEO of Health Net Inc. "It makes Massachusetts look like the small state it, in truth, is."

C. Duane Dauner, president of the California Hospital Association, called the plan "visionary" and praised Schwarzenegger for "his willingness to tackle issues that have been swept under the rug for years."

Schwarzenegger and Democratic legislative leaders have pledged that healthcare reform will be the No. 1 issue the Legislature will tackle this year. Assembly Speaker Fabian Nuñez and Senate President Pro Tem Don Perata each released plans in December, both of which rely heavily on a requirement that businesses make insurance available to their workers.

Perata said the governor's plans, like those he and Nuñez have proposed, "recognizes that any real discussion about making healthcare more reliable, accessible and affordable starts with everyone giving a little."

The idea of an individual mandate has long been politically sensitive. The Schwarzenegger proposal would require anyone at 250 percent of the federal poverty level — $24,500 for an individual, $33,000 for a couple, $50,000 for a family of four — to either obtain coverage through their job or purchase on their own at least a basic insurance plan. The plan could have an out-of-pocket limit of $10,000 per family.

Administration officials said such a plan could be purchased today for less than $200 per month for a couple.

"We recognize that some bristle at the notion of obligation," Health and Human Services Secretary Kim Belshé said. She likened the approach to past efforts of government to impose compulsory school attendance, mandate income tax withholding or require everyone to wear a seat belt while riding in a car.

Labor leader voices objections

Perhaps the sharpest criticism was leveled by Art Pulaski, executive secretary of the California Labor Federation, who called the individual mandate "a whack in the side of the head for workers and a tax on the middle class."

Pulaski said the proposed 4 percent payroll tax on businesses that do not provide health benefits to workers is far too low and would invite companies now providing insurance to drop coverage and pay the fee instead.

"Four percent is less than the notorious commitment of Wal-Mart itself," he said. "This is a proposal that Wal-Mart could love, but that its workers would hate."

Business groups were more muted in their criticism.

Allan Zaremberg, president of the California Chamber of Commerce, said he is concerned that those who now have insurance "will end up paying more. ? Will it increase costs for employers and employees who accept their responsibility today?"

Administration officials said their plan over time would eliminate what they called a "hidden tax" that those with insurance now pay to subsidize doctors and hospitals for costs they incur when providing medical services to the uninsured and underinsured.

They estimate that subsidy at 17 percent of existing insurance premiums. Much of that, they said, is the result of Medi-Cal reimbursement rates paid to doctors and hospitals, which are the lowest in the nation.

Boost would help the poor

The plan proposes increasing those rates by $4 billion — an increase that would allow more doctors to treat poor patients and not have to increase charges for patients with private insurance.

"Commercial payers will be able to demand, and health plans will be able to offer, lower-cost health insurance," Belshé said.

The administration estimated that the government costs of the universal coverage plan at $12.1 billion — about half of which would be borne by the federal government through increased reimbursements for the federal-state healthcare programs Medi-Cal and Healthy Families.

The state's costs would mostly be covered by the 4 percent payroll tax on businesses that don't provide insurance ($1 billion), the 4 percent tax on gross hospital revenues and the 2 percent tax on the gross revenues of other healthcare providers ($3.5 billion combined).

Insurance industry groups were mostly favorable to the plan.

Jeffrey Miles, spokesman for the California Association of Health Underwriters, said the combination of an individual mandate with a requirement that insurance companies guarantee policies to anyone will create market conditions that will make insurance universally available and affordable.