California health reform debate enters new phase after veto

Washington -- California Gov. Arnold Schwarzenegger moved the state's health system reform debate into a new, possibly lengthy phase, in October when he vetoed the Democrats' bill and offered a legislative proposal of his own.

The governor, a Republican, and leading Democrats have been working on competing health care measures for months and still could reach an agreement this year. But observers said it's possible that the governor's 200-page bill could require months' more work through the formal legislative process. An informational hearing on his proposal was scheduled for Oct. 31.

Carla Kakutani, MD, president of the California Academy of Family Physicians, said the organization has not endorsed Schwarzenegger's bill but that it supports the governor's goal of universal care.

"It's been a little disappointing in the sense of how slow things are going and how [the process tends] to get very bogged down in the politics," Dr. Kakutani said.

The California Medical Assn. likewise hasn't taken a position on the governor's measure but supports the reform effort, according to CMA spokeswoman Karen Nikos.

Schwarzenegger and the leading Democratic negotiator -- Assembly Speaker Fabian Núñez -- share many of the same goals. Both would expand the state's Medicaid program, cover at least a majority of the state's 4.9 million uninsured and offer more affordable health insurance through a state-organized purchasing pool. Although Schwarzenegger included a 2% tax on physician revenues in his initial 10-page reform outline proposed in January, he dropped the provision from his Health Care Security and Cost Reduction Act.

The governor said he withdrew the physician tax because not all doctors would benefit from his proposal to boost reimbursement under Medi-Cal, the state's Medicaid program, from an average of 59% of Medicare rates to 80% of Medicare levels.

"All hospitals cover Medi-Cal patients and poor patients through their emergency rooms and so on, but not all doctors do," Schwarzenegger said.

The governor and Núñez disagree on how much employers and individuals should contribute toward health care, whether individuals should be required to have health insurance and the categories of people the reforms should cover. At press time in late October, the two had not reached a compromise.

"A lot of this stuff is still being negotiated," Schwarzenegger said. He added that he is working closely with Núñez and his staff. Said the governor's spokeswoman, Sabrina Lockhart: "We are making progress every day."

Alicia Trost, spokeswoman for the other key Democrat in the health reform debate -- Senate President Pro Tem Don Perata -- said the governor's bill is still a work in progress.

Núñez spokeswoman Beth Willon said the speaker is open to changes, but is emphatic about keeping insurance costs down and requiring employers to spend their fair share on health care. "The speaker does not want to back off from the main principles of the bill."

The Democrats' legislation, Assembly Bill 8, calls for employers to spend 7.5% of payroll on health care. In contrast, Schwarzenegger's measure would impose sliding-scale health care spending requirements of up to 4% of payroll on employers.

The governor opposes Núñez's higher employer contribution percentage. "A 7.5% fee would force employers to shoulder the entire burden of health care reform -- a devastating blow to small business in California," he said.

Cost control an issue

The various organizations with stakes in the health reform debate expressed a range of opinions about the governor's measure.

The California Labor Federation supported Assembly Bill 8 and has launched a campaign against the governor's plan. The labor group is concerned that his measure would burden some middle-income families unfairly because of its individual insurance requirement, even though the proposal includes sliding-scale premium limits in the state purchasing pool.

For example, if insurance premiums for workers earning between 250% and 350% of the poverty level exceeded 5% of their incomes, they would receive the difference as a tax credit. But the tax credits wouldn't cover out-of-pocket spending, such as co-payments or deductibles, the union noted.

"While the promise of universal coverage is an important starting point for addressing the state's health care crisis, solving the problem of the uninsured by mandating insurance is akin to solving world hunger by requiring people to buy food," wrote Emily Clayton, the federation's policy coordinator, in an October analysis of the governor's plan.

Dr. Kakutani said health care costs are a concern. "That's definitely an issue that still needs to be worked out."

The plan's funding has changed from the governor's January outline. Schwarzenegger is no longer proposing a 1% sales tax hike to support health reform. Instead, he wants to lease the state lottery to a private organization for 40 years. Analyses of the proposal say it could raise $2 billion, Lockhart said. The move would require voter approval. Schwarzenegger would like the issue to be put on the November 2008 ballot.

His bill would require health plans to spend 85% of their premium dollars on health care. That could offer a disincentive for insurance companies to invest in health information technology and certain wellness programs, suggested Nicole Kasabian Evans, spokeswoman for the California Assn. of Health Plans. The association, which represents 41 insurance companies, opposed Assembly Bill 8 but hasn't taken a formal position on the governor's measure.

The California Hospital Assn. supports Schwarzenegger's effort. Even though the bill would place a 4% tax on hospital revenues to raise $2.3 billion, it would allocate to counties and hospitals more than $2.5 billion in state and federal funding. Meanwhile, it would reduce the number of uninsured from 4.9 million to an estimated 800,000.

Dr. Kakutani said family physicians would like to see a provision encouraging medical students to enter primary care because California, like much of the nation, is facing a primary care physician shortage. This could be worsened by the bill boosting demand for health care.