Physician revenue tax draws heat in California universal care proposal

The plan also includes individual and employer mandates to purchase health coverage.

By Doug Trapp — Posted Jan. 29, 2007

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California physicians commended Gov. Arnold Schwarzenegger for proposing a universal health care plan but expressed alarm at several of its provisions, among them a 2% tax on doctors' gross revenues.

"We think this is a regressive tax," said California Medical Assn. President Anmol S. Mahal, MD. "We think this is a tax that physicians cannot stand." The tax is expected to raise $1.3 billion.

But Schwarzenegger said the package's increase in Medi-Cal reimbursements and elimination of the problem of the uninsured would generate $10 billion to $15 billion in new money for hospitals and physicians. This would offset the levy on doctors and a 4% tax on hospitals, he said. The extra $4 billion in Medi-Cal funding would boost physician payment by 37%.

The CMA is pleased that the plan recognizes that reimbursements for the state's Medicaid program are unsustainably low, but it voiced displeasure over the governor's decision to place conditions on the boost in rates.

"These increases would only be available to providers who meet certain pay-for-performance, IT and cost-containment requirements," states the group's analysis of the plan. In addition, all doctors would be taxed, although not all doctors take Medi-Cal.

The tax would hit physicians with high overhead expenses especially hard, Dr. Mahal said. A physician revenue tax is essentially a tax on the sick, which adds to its unfairness, he said.

The California Hospital Assn. withheld judgment on the hospital tax until it could better understand the plan's overall impact on its members.

Physicians also are concerned about a provision to allow less supervision of physician assistants and nurse practitioners to improve health care access at retail clinics and other sites. The governor's staff is still working on details, said Schwarzenegger spokeswoman Sabrina Lockhart.

California law limits each doctor to supervising two assistants and four NPs, who must be in the same region as and linked electronically to the doctor.

Dr. Mahal worries that expanded scope of practice for these practitioners would hurt the quality of care.

The $12 billion plan, unveiled Jan. 8, would provide coverage to 33 million Californians, including 6.5 million uninsured. It would require all residents to purchase at least some basic, consumer-directed health insurance or to enroll in a state-subsidized purchasing pool. Public programs also would help low-income children and adults obtain coverage.

The package would mandate that employers with 10 or more workers either provide health coverage to employees or pay a 4% payroll tax. Those with fewer than 10 workers -- about 80% of California's businesses -- would be exempt. In addition, the proposal requires health plans to spend 85% of revenues on medical care.

"We have a good chance to make this a model for the rest of the nation," Schwarzenegger said.

AMA policy agrees with many of the California plan's proposals, with the main exception of the physician tax, said Jeremy A. Lazarus, MD, vice speaker of the AMA House of Delegates. The AMA supports state initiatives that increase health care access and looks forward to seeing how these proposals function in the real world.

Joseph Scherger, MD, a professor of family medicine at the University of California, San Diego, said the governor's bold and relatively simple plan is a great start. But he thinks it would be simpler to expand Medicare to cover everyone at a basic level, then allow people to buy higher levels of insurance or health care.

Dr. Scherger thinks the proposal needs to do more to reduce costs. Labs charge a retail price of $190 for a simple blood test but manage to stay in business after discounting the price to $45 for insurers. "It's going to be critical for any plan to deal with these things," he said.

Marcy Zwelling, MD, agreed with Dr. Scherger on the need for more price transparency. But Dr. Zwelling, an internist who publicly lists all of her charges, was much less receptive of the governor's plan. "It really is worthless."

Schwarzenegger doesn't understand the health care system in California, Dr. Zwelling said. If he did, he would have known it's going to be difficult to enforce the 85% spending rule for insurance companies, she said. What's to keep them from maintaining subsidiaries, Dr. Zwelling asked, each taking its own 15% cut?

Praise and concerns

Others applauded the governor for proposing a thoughtful plan that would provide health care to all. But no one praised the plan unequivocally.

The California Chamber of Commerce and the California Small Business Assn. said the plan might be underfinanced. The CMA shares this concern.

Health care costs have increased twice as fast as California wages, yet the plan depends on a large amount of payroll taxes, said Allan Zaremberg, the chamber's president and CEO. This leaves the question of how the inevitable funding shortfall will be addressed.

Betty Jo Toccoli, president of the California Small Business Assn., said the plan is very thorough and comprehensive, but she voiced concern that the $5 billion in federal revenues it counts on might not come through.

Blue Cross of California liked the proposed wellness incentives but believes the call for guaranteed-issue insurance and the 85% rule would drive up premiums considerably, said spokeswoman Tammy Taylor.

Schwarzenegger acknowledged that his plan was the beginning of the work toward achieving universal health care in California. "I look forward to having a vigorous and open debate," he said.

California lawmakers have introduced at least two other universal health care plans in the last few months. Last year, the Legislature passed a single-payer plan, which Schwarzenegger vetoed.

The state follows on the heels of Massachusetts, which adopted a universal coverage law in 2006 with an insurance purchasing mandate and state-subsidized health plans. By summer, residents must either buy coverage or prove they cannot afford to do so, or they will face tax penalties. Vermont and Maine also adopted reform plans last year.

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