Government

Health system reform stumbles in California

The setback means the federal government might have to take a larger role on the issue, policy experts said.

By Doug Trapp — Posted Feb. 18, 2008

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A California Senate committee has at least delayed, and may have killed, the state's health system reform bill after an independent legislative analysis concluded that the package could cost billions more than initially estimated.

Supporters, including California Gov. Arnold Schwarzenegger, vowed to keep working on the measure, even with the state facing a projected $14.5 billion budget deficit by June 2009. "This is a bump in the road," he said. "Whenever you deal with big issues, they are never easy to accomplish."

The bill, the Health Care Security and Cost Reduction Act, was a compromise between the Republican governor and Democratic legislative leaders that was a year in the making. After its defeat, policy experts said states will continue to tackle health reform but that the federal government might have to take a larger role.

"The failure of this ... due primarily to budget concerns reinforces the need for federal reforms to provide the financial support to extend coverage to all of America's uninsured," said American Medical Association Trustee Samantha L. Rosman, MD.

The Senate Health Committee rejected the bill 7-1 on Jan. 28, with three senators abstaining. The panel's four Republicans voted no. The California Assembly approved the measure 46-31 on Dec. 17, 2007, also without Republican support.

The California Medical Assn. did not take a position on the bill but worked with its authors. CMA President Richard Frankenstein, MD, said the effort advanced the cause of reform. "We have been working on this issue for many years and will continue to do so as long as it takes to make sure all Californians have access to top-quality health care."

The measure was modeled largely on reforms adopted by Massachusetts in 2006. It would have:

  • Required most Californians to have health insurance by July 2010, with exemptions based on income levels and hardships.
  • Created state-subsidized insurance with sliding-scale premiums.
  • Expanded Medicaid eligibility and required health plans to offer coverage to everyone subject to the insurance mandate.
  • Increased Medicaid reimbursements for physicians and hospitals by $500 million.

The measure's tax increases would have been subject to a vote on the November ballot. They included increasing cigarette taxes from 87 cents to $2.62 per pack and a 4% tax on hospitals' net patient revenues. Employers that didn't offer insurance would have been taxed between 1% and 6.5% of payroll, depending on payroll size.

Projected costs a big issue

The measure's downfall began in December when Senate President Pro Tem Don Perata, one of the sponsors, began to worry about costs in light of the state's anticipated budget deficit. Perata asked the California Legislative Analyst's Office for a nonpartisan financial analysis. The California Dept. of Finance, which advises the governor on budget issues, had drafted the initial cost estimates.

Panel members expressed concern in a hearing Jan. 23 about potentially higher-than-expected premiums for the bill's insurance pool. The measure forecast an average premium of $250 per member per month for the privately administered state insurance pool plans. The estimate was based on the $187 cost of state Medicaid plans with similar benefits. But the analysis concluded that a $300 premium was more likely because individual rates for employer-sponsored health insurance in California averaged $374 in 2007.

If premiums averaged $300 per member per month, the analysis concluded, the bill's revenue estimates quickly would turn to deficits. Expenses would exceed revenues by $122 million by 2011 and $1.5 billion by 2015, creating a shortfall of $3.9 billion by that year. In contrast, the bill had estimated a $2.7 billion surplus by 2015.

Reaction by two key bill co-sponsors was split. Assembly Speaker Fabian Nuñez did not accept all of the conclusions of the analysis. The average health plan premium could be even less than $250 per month, he said.

Although Perata remained sympathetic to reform, he withdrew his support. "The significant progress we have made can assure swift future steps when the state's budget and economic climate improves," he said.

Nuñez suggested that some Senate Health Committee members who opposed the health security measure might have been motivated by their support for a single-payer bill introduced in recent years by Sen. Sheila Kuehl, the health panel's Democratic chair. Four of the 10 Democratic senators who either voted against the reform measure or abstained from voting supported the single-payer bill in 2006, including Kuehl. Both chambers adopted the single-payer bill in 2006, but Schwarzenegger vetoed it.

Kuehl said she could not support the reform measure because it didn't do enough to protect middle-class people from rising health care costs.

Nuñez promised to hold hearings on all proposals. "It's time for us to have an honest conversation about single-payer," he said. Schwarzenegger said he still opposed such a system.

The setback prompted health policy experts to say there's a limit to what states can do on their own.

A state such as California has difficulty with systemic reform because of its large Medicaid and uninsured populations, said Ian Hill, a principal research associate in the Health Policy Center of the Urban Institute, a research organization.

Alan Weil, executive director of the National Academy for State Health Policy, said states with less-daunting costs could push ahead, but not every state will be able to do so.

The bill also failed because Schwarzenegger, Nuñez and Perata couldn't assemble the broad, committed coalition that enabled Massachusetts to adopt its reform plan, said Drew Altman, PhD, president and CEO of the Kaiser Family Foundation, a health issues research group. The defeat is a blow to health reform nationally but not fatal, he said. The question is "whether there will be a big debate about health [reform] in the general election, which builds momentum for action in the next Congress."

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ADDITIONAL INFORMATION

Analysis triggered reform doubts

The California Senate Health Committee rejected a health reform bill after an independent financial analysis concluded that the legislation could cost billions more than initially estimated by the measure's authors. The analysis said:

  • Health insurance premiums in a state pool could cost $300 per member per month, instead of the $250 planned in the reform. This could create a deficit of $3.9 billion by 2015.
  • About 500,000 more uninsured people would be eligible for coverage than the bill's estimate of 3.6 million. This could add hundreds of millions of dollars to the reform's cost.
  • Confusion would result because the bill attempts to expand access to programs, such as Medicaid, that Gov. Arnold Schwarzenegger has proposed to cut by 10% in his fiscal 2009 budget.

Source: California Legislative Analyst's Office, January

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