Whose Reform Will Be the Cure to California's Health Care Ailments?

Declaring 2007 to be “the year of health care”, Governor Arnold Schwarzenegger introduced his newly revamped plan for California’s healthcare system on January 8, 2007. Governor Schwarzenegger’s proposal cites the need for universal coverage of all Californians as a necessary change to the current “broken” system. “California’s medical care, its medical knowledge, its medical technology, is as strong and vibrant as a body builder. Yet our health care system itself is a sick old man,” said the Governor. The proposal includes an expansion of Medi-Cal and the Healthy Families Program, and stresses the need for “shared responsibility” between employer and employee.

As predicted, the plan was met with mixed reviews. Mark Rivera, Vice President of Community Health Partnerships in Mission Viejo remarked that the Governor is “making a good first step toward doing two things: one, beginning to spread the fiscal responsibility for financing health care in California; and, two…[maximizing] the available resources to potentially squeeze the waste out of the system.”

However, others see the Governor’s plan as placing an unneeded hardship on the individual through his proposed individual mandate on health care coverage. “I can’t imagine that mandating that individual citizens have to prove that they have bought health insurance when they can barely afford food or place to live [will work],” says Beatrice Bostick, Executive Director of Community Health Clinic Ole in Napa referring to the individual mandate included in the Governor’s proposal.

The Governor’s projected “individual mandate” would be his first step in securing universal health care coverage for all California residents. The primary goal of Governor Schwarzenegger’s proposal is to tackle the 6.5 million Californians who go without health insurance coverage for all or part of the year, and the individual mandate would require that all residents, regardless of work or legal status, have some sort of health coverage. Residents would be required to have a minimum of a $5000 deductible with a maximum out-of-pocket cost of $7500 for an individual and $10,000 for a family.

For those beneath the Federal Poverty Level, roughly $9000 for an individual and $50,000 for a family of four, the government would provide no-cost Medi-Cal. A state-run subsidy pool would be created to help those living between 101%-250% of the Federal Poverty Level, $9000 to $32000 for an individual, to afford coverage. The Governor hopes to get rid of the “hidden tax” that is created when those without health insurance seek treatment and cannot afford to pay, causing taxpayers to foot the bill.

In order for all Californians to be able to afford their own coverage, Governor Schwarzenegger’s plan includes regulations on insurance companies as to how much they can charge and who they can cover. Under the Governor’s proposal, no individual can be denied coverage because of health status. Insurance companies would also be required to spend 85% of every dollar they receive in premiums on patient care. This means that only 15% of an insurance company’s income could be spent on administrative costs; the remaining 85% would go directly toward those who pay to have coverage in the form of reimbursements and immediate coverage.

The Governor’s next step toward universal coverage would be to also require an employer mandate that applies to all employers with ten or more employees. An employer has the choice to either offer health care coverage to employees, or pay 4% of the payroll toward the cost of employees’ health insurance.

Senate President Pro Tem Don Perata has proposed a similar plan with SB 48. SB 48 would require both an employer and individual mandate, but would only apply to working, legal residents of California and their dependents. Like the Governor’s proposal, Senator Perata’s vision is also for a state-run subsidy pool that would offer three tiers of coverage. Californians would be able to purchase various forms of coverage from the subsidy pool if they do not receive health care coverage through their place of employment. If an employer chooses not to offer health insurance, then he would be required to pay an equivalent amount into the subsidy pool.

A major difference between the proposals of Governor Schwarzenegger and Senator Perata is the coverage of illegal immigrants. The Governor’s plan includes coverage of all California residents, while Senator Perata’s plan only covers those legal residents with jobs. In the Governor’s plan, illegal immigrants would receive health care coverage through their employer or by purchasing insurance through the subsidy pool at a low cost. Also included in the Governor’s proposal is the coverage of all California children, including those of undocumented residents. All children below 300% of the Federal Poverty level would receive some form of coverage either through Medi-Cal or the Healthy Families Program.

“Insuring children of illegal immigrants is absolutely mandatory,” says Herrmann Spetzler, CSRHA board member and CEO of Open Doors Community Health Centers in Humboldt County. He went on to say that, “The reality is that [children of illegal immigrants] are here, and, as a normal kind of society, we do take care of people when they hit the ER and are sick. What we want to do is to make sure people who are here [get the care they need]. It is necessary.”

The third major health care reform scheme on the table, AB 8, was introduced by Assembly Speaker Fabian Nunez late last year. Assembly Speaker Nunez’s proposal, like the Governor’s, would offer coverage to all children in California regardless of residency status. However, unlike the Governor’s plan, AB 8 would not require an individual mandate, but instead would emphasize an employer “pay or play” system where both employer and employee would contribute to the cost of health care. The employer would have to provide healthcare, or pay a fee based on a certain percent of the payroll (not yet determined) into a state-run subsidy pool. The employee would also have to pay a percent of their income for healthcare.

Assembly Speaker Nunez believes that if individuals are required to buy their own insurance, insurance companies may be able to inflate prices, making it even harder to afford health insurance coverage. Like the proposals of Governor Schwarzenegger and Senate President Perata, Assembly Speaker Nunez’s plan also incorporates a statewide pool to pay out subsidies for those who cannot afford health insurance coverage.

All three proposals insist on an expansion of Medi-Cal and the Healthy Families Program. The Governor hopes to fund this expansion through a tax he proposes to levy on doctors and hospitals. This will include a 2% fee on doctors’ gross revenue, and a 4% fee on hospital gross revenue. The Governor claims that the increase in taxes on doctors and hospitals will be offset by an increase in Medi-Cal reimbursements for physicians and hospitals. Although the Governor may have good intentions surrounding the tax increase, there is a general fear that doctors and hospitals will not want to pay the extra fees and will leave the state, or that the Medi-Cal reimbursements will not actually cover the increase in fees.

Senator Perata plans to expand Medi-Cal by increasing the percent below the Federal Poverty Level one must be in order to receive benefits, from 250% to 300%. For example, a family of four making $50,000 to $150,000 would now be eligible for Medi-Cal benefits. Similarly, Assembly Speaker Nunez would increase Medi-Cal coverage primarily by establishing coverage for all children living below 300% of the Federal Poverty Level.

As of now, it is unclear which proposal will come out ahead. While all three proposals stress the importance of shared responsibility between the employer, employee, and the state, they differ in exactly who will be offered the most coverage. The differences in proposals, including the coverage of illegal immigrants’ children and the individual mandate, will most likely be what determine which proposal is acceptable. Eventually, in order to overhaul the state’s healthcare system, a major compromise between the three proposals will be essential.

“We need to make sure that the end result also meets the needs in rural areas and areas that don’t have the same economies as our urban counterparts,” says Spetzler. “The more sparsely populated the areas, the most difficult the system is to implement.”

For now, the debate continues and the state is left to wonder if universal coverage of all Californians is just wishful thinking, or something to be tangibly realized in the near future.

Please click here to view a comparison chart of the three major California health care reforms.

Article Posted 1/30/07