Not That Obama Needs My Advice

Senator Barack Obama got hammered by Senator Hillary Clinton and former Senator John Edwards on his health care reform proposal at their debate earlier this week in South Carolina. Senator Obama’s focus is on making coverage affordable; Senators Clinton and Edwards emphasize universal coverage. If he continues to let his opponents define the debate this way they win and he loses.

For those who might find it interesting, I discuss how what happened in California provides a way for Senator Obama to reframe the Democratic debate on health care reform over at the political blog.

Senate Health Committee Hearing on ABX1-1 Roundup

California voters should send thank you notes to the Senate Health Committee. For the first time in the 14 month health care reform “debate,” the compromise health care reform plan worked out by Governor Arnold Schwarzenegger and Speaker Fabian Nunez, with an assist from Senate President Pro Tem Don Perata got a full and thorough vetting. Whether you support the legislation, Assembly Bill X1-1, or oppose it, you have to acknowledge the value of what the Senate Health Committee accomplished. Over the course of an 11 hour hearing they heard from dozens of witnesses on virtually every aspect of the bill.

Among the many sources describing what happened at the hearing, here are some of the most useful:

The Associated Press as published by the Monterey County Herald, “Schwarzenegger health reform bid teetering in key committee”
Kaiser Family Foundation “California Senate President Pro Tempore Delays Vote on Health Care Overhaul Measure”
California Healthline “California Senate Panel’s Vote on Health Reform Plan Delayed” 
Health Access has several valuable posts on the hearing
San Francisco Chronicle “Key vote on health care coverage delayed”
San Diego Union “Senate Democrats express doubt over insurance proposal ”
Speaker Fabian Nunez video and press release on the Legislative Analyst’s Office report and on ABX1-1 health care reform

If a vote had been taken after Wednesday’s hearing, the 11 member Senate Health Committee would have defeated ABX1-1. Democratic Senators Sheila Kuehl and Leland Yee had publicly announced their opposition to the bill. None of the Republicans had indicated much enthusiasm for ABX1-1. Senator Perata asked for a delay of the vote until Monday to give him time to find a sixth vote.

ABX1-1 has the support of the Governor, Speaker and President Pro Tem. It’s a comprehensive response to a problem a majority of Californians consider critical. Passage should be a slam dunk, yet ABX1-1 is on the brink of failing. Why?

What’s happening to ABX1-1 illustrates why it’s so difficult to pass comprehensive health care reform. Stakeholders cling dearly to their positions. The political process makes it easier to attack the most visible problems (health insurance premiums, for example) and pushes to the background initiatives to deal with the root cause of the problems (skyrocketing medical costs). A change in one area creates new issues. It’s like pick-up-sticks. Try to lift one problem from the pile and you’re likely to jostle others in undesirable ways.

For example, a lot of those testifying at the hearing yesterday want carriers to sell coverae to all applicants for coverage. Yet they were among the first to object to requiring all Californians to buy coverage. Without both of these corresponding mandates, the result is skyrocketing premiums and substantially reduced consumer choice.

Passing ABX1-1 in the best of times would be a challenge. Passing ABX1-1 as the economy whipsaws the state’s finances and has lawmakers, economists and the media warning of a recession is nearly impossible. How do you ask state legislators to support a $14 billion health care package that risks running up a $4 billion deficit in its first five years of operation (according to the report published by the Legislative Analyst’s Office) at the same time you’re asking them to cut $14 billion from the current state budget?

That’s the question Governor Schwarzenegger, Speaker Nunez and Senator Perata need to answer before the Senate Health Committee votes on ABX1-1 on Monday, January 28th.  The odds are against them.

Senate Health Committee to Delay Vote on ABX1-1

Assembly Bill X1-1, the compromise health care reform plan hammered out by Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez, is in deep trouble. Even co-sponsor Senate President Pro Tem Don Perata is expressing pessimism.

At the Senate Health Committee’s hearing today Democrats and Republicans alike seized on the serious risks identified by the Legislative Analyst’s Office’s (LAO) report on the legislation’s impact on the state’s finances. Most significantly, two Democrats on the 11 member Committee have indicated they will oppose moving ABX1-1 forward. Assuming the Committee’s four Republicans continue to oppose the bill, this deprives the bill of the majority it needs.

To provide Senator Perata an opportunity to find the elusive sixth vote, Committee Chair Senator Shiela Kuehl agreed to his request to delay a vote on the bill until Monday. In the interim, Senator Perata will no doubt be having serious conversations with Senator Kuehl and Senator Leland Yee, the second Committee Democrat to announce he would oppose the bill. Senator Perata may even spend some time with the four Republicans. 

What he won’t be doing, according to the San Jose Mercury News, is shuffling the membership of the Committee to assure a majority will support ABX1-1.  This even though he admits to being pessimistic about the chances of ABX1-1 reaching the Governor’s desk. “You don’t instill public confidence by doing things that people don’t understand and they don’t think is a high priority. And I don’t think anybody right now believes anything (is more important) right now but the economy …” he told Mike Zapler of the Mercury News.

The LAO report is complicating the Senator’s quest. Using assumptions nearly as optimistic as those used by the bill’s sponsors, the LAO estimates the reform package would lose nearly $4 billion during its first five years of operation. It also identified other significant financial risks. Given the state faces a $14.5 billion deficit, this has, understandably, created substantial misgivings among lawmakers.

If a vote was held today it would fail. We’ll have to wait until Monday to see if the political skills and clout of Senator Perata, Governor Schwarzenegger and Speaker Nunez, can change this result.

LAO Report on ABX1-1 Identifies Risks

California’s non-partisan Legislative Analyst’s Office (LAO) has weighed in on the fiscal impact of Assembly Bill X1-1, the compromise health care reform package negotiated by Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez. The LAO report is expected to be influential in the State Senate which, in addition to considering ABX1-1, is facing tough decisions to address the state’s $14+ billion deficit. And it will no doubt be a hot topic of conversation during the Senate Health Committee’s upcoming hearing on the legislation.

The Legislative Analyst’s Office Report on ABX1-1 is, appropriately, couched in academic, unemotional prose. Their assignment was to assess the fiscal impact of the bill, not the soundness of its policies. There are nuggets in the report that proponents will like, but overall the report is a devastating blow to ABX1-1’s chances of passage. The LAO estimates the legislation would not only have a negative financial impact on the state’s 2008-09 budget, but is likely to require at least $4 billion more than the bill’s proponents estimate over the first five years of its operation.

Because of time constraints, and the complexity of the issue, the LAO could not thoroughly review every financial impact of ABX1-1. So it focused on the financial soundness of the state-run purchasing pool the bill establishes because it is one of the largest fiscal components of the legislation. It found that even given proponent’s overly optimistic projections, the pool would be running at a deficit. 

ABX1-1 proponents claim the cost of covering individuals in the government-run purchasing pool will be $250 per person per month (pmpm). The LAO report notes this figure is taken from the low end of various cost scenarios developed by a private consultant hired by the supporters. The consultant considered several benefit packages and estimated their cost to the pool. “The premium scenarios ranged from $246 pmpm to $330 pmpm. Thus, the $250 pmpm assumed in the proponents’ overall cost estimate is very near the bottom end of the range of possible benefit packages identified by their own consultant.”

The LAO noted that a 2007 study by the California Employer Health Benefits Survey found employers pay monthly premiums of about $374 for each employee. It questioned the state’s ability to achieve costs its $250 premium target without “setting the minimum benefit level substantially below the average employer-provided benefit level.”

In assessing the legislation’s impact on the state’s finances, the LAO used two cost estimates: the $250 pmpm optimistically suggested by the bill’s proponents and another at $300 pmpm. This higher figure still assumes the state is able to negotiate a discount approximately 20 percent below what employers pay, so it is difficult to call even the LAO premium assumption pessimistic.

Using the $250 estimate, the LAO concluded “there are sufficient revenues to support the program in the first year of operation (2010-11). However, by the fifth year of the program (2014-15), annual costs exceed revenues by $300 million.” Because tobacco tax and employer fee revenues are collected prior to the start of the program covering anyone, the LAO estimates the program will still have a “positive cumulative fund balance” after five years.

When the $300 pmpm cost is used, however, the LAO predicts the state-run pool’s costs will exceed revenues by $122 in the first year of opeation “and this shortfall increases to $1.5 billion by the fifth year of the program.” The LAO estimates the cumulative fund balance would climb to almost $4 billion by the end of this period, even with the early collection of the tobacco tax and employer fee revenue.

But wait, there’s more.

The LAO identified “a number of other fiscal risks and cost pressures. These risks total another $1.5 billion annually. Several of these items, however, are substantially more speculative than the impact of the average monthly cost per enrollee to the pool’s operation. For example, if proponents of ABX1-1 have significantly underestimated the number of uninsured in the state (by, say, 500,000 residents), there could be hundreds of millions of dollars additional costs to the program. Whether they have underestimated the number of uninsured is not known, however.

Others risks are less speculative. As the California Association of Health Underwriters and the National Association of Insurance and Financial Advisors-California cautioned in a letter to Senate President Pro Tem Don Perata recently, medical costs are likely to grow far faster than payrolls and wages. Because ABX1-1 relies on these slower-growing sources for a significant portion of its revenues, over time a shortfall is likely.

The LAO concurs. It estimates that “a 0.5 percent per year increase in medical inflation above that assumed by the proponents would result in potential annual costs by the fifth year of implementation of $300 million, or a cumulative net cost to the state by 201-15 of approximately $1 billion.” It’s important to recognize that the LAO is warning of an additional increase in medical inflation — the cost of health care, not the cost of insurance.  

As if the long term financial impact wasn’t enough, the LAO also expressed concern that ABX101 would have a negative impact on the proposed 2008-09 budget to support implementation activities by state agencies.

ABX1-1’s advocates are already mounting a defense against the report. The Associated Press reports Daniel Zingale, a key health care advisor to Governor Schwarzenegger, as defending the $250 pmpm estimate as sound and that having $300 million in uncovered costs in the fifth year was small compared to the overall size of the program.

Steve Maviglio, a spokesman for Speaker Nunez, told the AP that there would be cost risks associated with any health care reform plan. “‘Our job now is to move forward with bringing California closer to the goal of universal coverage and to work hard to avoid, contain and manage any realistic fiscal risks associated with the plan,’ he said in a statement. ‘The best tool we have for doing that continues to be the plan’s explicit provision that if funds aren’t available the plan doesn’t take effect.'”

The LAO also recognizes that any health care reform legislation as far-reaching and complex as ABX1-1 is subject to fiscal risk. It also can be argued that the LAO’s assumption, the one predicting a nearly $4 billion cumulative shortfall over five years, is optimistic. And then there’s the additional risks and their potential costs to the program.

What California’s State Senators will need to consider is whether a $4 billion gamble in the face of the state’s current $14.5 billion budget crisis — not counting the minimum $1.2 million required to fund health care obligations to state worker retirees — is a bet they’re willing to make.

Reasonable people can — and will — argue that the potential benefits of near universal coverage is worth the risk. But unless something comes along to undermine the credibility of the LAO report, the magnitude of the bet cannot, and should not, be ignored.

ABX1-1 Coming Up Short in Senate Health Committee

Senator Leland Yee has apparently moved from the “undecided” to the “oppose” column concerning Assembly Bill X1-1, the health care reform package being pushed by Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez. The bill will be heard by the Senate Health Committee tomorrow in what promises to be a long, thorough and, for the legislation’s supporters, bruising session.

As I posted on January 20th, Senator Yee had expressed strong concerns over the weekend about the state’s ability to afford ABX1-1. Today the Sacramento Bee’s CapitolAlert web site reports an aide to the San Francisco State Senator is confirming he will be vote no on the bill.

It takes six votes to pass a measure through the Senate Health Committee. With its four Republicans members and Democratic Chair, Senator Shiela Kuehl, already inclined to oppose the legislation, ABX1-1 appear to be headed to defeat tomorrow.

But a lot can still happen between now and then. As I speculated in the earlier post, Senator Kuehl could give the bill a “courtesey vote,” to keep it moving, even while pledging to vote “no” on the legislation when it reaches the full Senate. When asked if she’d consider such a gesture, she replied she “can’t answer that,” according to CapitolAlert.

Senator President Pro Tem Perata, who previously expressed concerns similar to those of Senator Yee, but who now appears interested in moving ABX1-1 forward, could restructure the Committee. He’s proven himself capable of such a move in the past, although its rare for a committee’s membership to be shuffled over just one bill. And whether he cares enough about the fate of the legislation to make such a move is questionable.

Anothe scenario: the CapitolAlert post speculates that one of the Republican Senators might vote for ABX1-1. They identify Senator Abel Maldonado of Santa Maria as the most likely suspect. The odds of this are slim, however. Senator Maldonado, although having shown a willingness to buck the party line, has indicated no enthusiasm for ABX1-1 or any similar health care reform packages.

Given normal circumstances, it would appear ABX1-1 will be defeated in the Senate Health Committe tomorrow. But, these are not normal circumstances.

ABX1-1 represents more than a year of negotiations between the legislative leaders and Governor Schwarzenegger. They’re not giving up yet. And there’s an election in  California just two weeks from today. One of the ballot measures, Proposition 93, will determine if the state’s term limits law is changed in a manner which enables Speaker Nunez and Senator Perata to hold onto their powerful posts. Do they really want to kill health care reform so close to that vote?

A lot can happen between now and the Committee’s vote tomorrow evening. And, given this is California and the topic is health care reform, most likely, a lot will happen.

Democrats Debate Access versus Affordability in South Carolina

Health care reform was a hot topic during the presidential candidate’s debate in South Carolina on Tuesday. Senator Hillary Clinton and former Senator John Edwards claimed universal coverage was the most important priority while Senator Barack Obama put affordability at the top of his list. This dichotomy mirrors the debate California experienced with Governor Arnold Schwarzenegger insisting on coverage for all and the legislature’s Democratic leadership questioning the fairness of requiring individuals to buy coverage they couldn’t afford.

I’ve written more about this somewhat strange, but probably not surprising, echo of California’s health care reform debate on the political blog.

Senate Health Committee Analysis of ABX1-1

In preparation for the January 23rd Senate Health Committee’s hearing on Assembly Bill X1-1 the Committee’s staff has issued its analysis of the bill. ABX1-1 is the compromise health care reform worked out between California Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez.

The Senate Health Committee Staff Analysis of ABX1-1 is the most thorough of study of the bill to date. It wil provide plenty of ammunition for both supporters and opponents of the bill, raising serious questions about the complex measure as well as identifying the benefits it could deliver. Along with the analysis due soon from the Legislative Analyst’s Office on the impact ABX1-1 will have on the state’s fiscal condition, the staff study provides Committee members with a rich source of information and questions for the hearing.

For legislation this important and complicated, it has received relatively little scrutiny. The Senate Health Committee’s hearing, will be a long one. Given the substance provided in the analysis, it is likely to be thorough as well. Regardless of the outcome, this can only be a good thing.

ABX1-1 Could Fail to Pass Senate Health Committee

The Governor wants the bill passed. The Assembly Speaker wants the bill passed. The Senate President Pro Tem may want the bill passed — or not, it’s hard to tell. Anyway, several powerful unions want the bill passed. So do some business groups and consumer groups. So why is Assembly Bill X1-1, California’s comprehensive health care reform package in danger of failing to make it past its first committee hearing?

On January 23rd, the Senate Health Committee is expected to dive deeply into ABX1-1. The hearing will start in the morning and is likely to go into the evening. (Here’s the anticipated agenda). But how thoroughly a bill is reviewed doesn’t always correlate with its viability.

What’s endangering ABX1-1 is the make-up of the Committee. There are seven Democrats and four Republicans on the Senate Health Committee. When it comes to ABX1-1, the four Republicans will certainly oppose it. That means supporters can only afford to lose one of the Democrats. Lose two and the bill fails.

There are at least two Democrats who could vote against the measure. The Committee Chair, Senator Sheila Kuehl, has been an outspoken critic of the compromise bill.  The legislature’s chief proponent of a single-payer health care system for California, Senator Kuehl voted against Speaker Fabian Nunez and Senator Perata’s previous health care reform bill, Assembly Bill 8. And most observers would be surprised to see her vote for that bill’s successor.

Another Democratic considering a “no” vote on ABX1-1 is Senator Leland Yee of San Francisco. The Associated Press, in a story posted on the San Francisco Chronicle’s SFGate.com web site, quotes Senator Yee as saying, “It’s rather difficult for me to vote for a health care plan that’s going to cost $14 billion at the same time I’m looking at cutting $14 billion” due to the fiscal crisis facing the state.

The non-partisan and highly regarded Legislative Analyst’s Office (LAO) is preparing a detailed report on the legislation’s impact on the state’s finances. Senator Yee will be relying heavily on this report in determining his vote. “I think all of us are trying to find something that’s going to be of help to the people of California and not in any of the out-years find that there are unintended consequences or that it’s going to shift the burden of costs to workers unfairly,” the Associated Press writer Steve Lawrence quotes Senator Yee as saying.

None of this means that ABX1-1 is doomed. Senator Kuehl could vote for it in Committee as a courtesy to the authors regardless of how she intends to vote on the bill when it reaches the Senate floor. The LAO report could show, as some believe it will, that the state’s financial situation would benefit from passage of ABX1-1, meaning Senator Yee could comfortably support the legislation. There’s numerous plausible scenarios that have the bill sailing through the Committee.

Then again, it’s easy to come up with scenarios that have ABX1-1 crashing in flames. It’s tough to tell how hard Senator Perata will be pushing to get the legislation through his chamber, so the pressure to pass the bill along may not be as strong in the Senate as it was in the Assembly. The LAO report could raise questions that make Senator Yee — and perhaps others — unable to support it.  Or the Committee’s thorough review of the bill could bring to light previously unknown structural or drafting problems with ABX1-1 that are severe enough to have the committee hold the bill over. This is, after all, the first real vetting this version of the legislation is receiving.

We won’t know until Wednesday evening. What’s surprising, at least to me, is that the outcome is in doubt at all. It’s actually an encouraging turn of events. After all, this is how the legislative process is supposed to work: lawmakers making up their minds based on public input, thorough analysis and their political beliefs.

State Tax Deduction for Cafeteria Plans Moves Forward

The Senate Health Committee heard testimony on several health care reform bills put forward by the Republican Caucus. All but one was defeated. The survivor, Senate BillX1-23 would offer businesses a tax credit equal to 15 percent of their costs for administering qualified cafeteria plans (often referred to as “Section 125 plans” in reference to the IRS Code concerning these arrangements). The credit would be available for eligible expenses incurred in 2007 through 2011. So the credit would need to be renewed by the legislature if it is to extend beyond 2011.

SBX1-23 still has a long road to travel before it becomes law. The measure, authored by Senator Roy Ashurn of Bakersfield, was referred by the Senate Health Committee to the Senate Revenue and Taxation Committee.

Section 125 plans allow employees to spend pre-tax dollars on their health insurance premiums, making it easier for them to pay their share of the cost of their coverage. Employers benefit because they avoid paying payroll taxes on these pre-tax dollars, making it easier for them to offer workers medical coverage.

The hoped for result: more companies offering coverage and more employees taking them up on the offer. By providing employers a tax credit for part of cost of administering their Section 125 plans, the author hopes more companies will implement the program.

SBX1-23 is hardly earthshaking, but it’s a worthwhile bill. What’s most significant about the bill, however, is that it is the only Republican health care reform-related proposal still alive in the Democratic-controlled legislature. Whether it can make it through both chambers to the Governor’s desk, remains to be seen.

ABX1-1 Earns Eclectic Mix of Opponents

People are known by the friends they keep. Public policy is often characterized by its opponents. “If so-and-so opposes this,” a supporter will say, “it must be good.” Assembly Bill AX1-1, the California health care reform compromise worked out by Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez, must be one eclectic bit of legislation. It’s opponents are folks you might expect to be loath to remain in the same room together, let alone sit on the same side of a table.

The California Nurses Association opposes ABX1-1 because it permits insurance companies to remain in existence. They prefer a government-run, single-payer system. Blue Cross of California, the state’s largest health plan, opposes ABX1-1 for, among other reasons, it gives government too large a role in the health insurance market.

The California Chamber of Commerce, the National Federation of Independent Business, and the California Manufacturers and Technology Association are among a dozen business groups opposing ABX1-1 because they consider it bad for, well, business. And the United Food and Commercial Workers opposes it because they think it harms workers.

Whether this makes them an eclectic crew or just a motley one says more about you than them, I suppose.

Of course, for every opponent, there’s an opposite and equal proponent. The California Hospital Association, a health plan or two, a business coalition led by Safeway CEO Steve Burd and the Service Employees International Union have already lined up behind ABX1-1 or are likely to soon.

Whether ABX1-1 will ever take effect is uncertain. Passed by the Assembly, it awaits consideration by the State Senate. If it gains legislative approval, it’s implementation is contingent upon passage of a funding initiative supporters are seeking to qualify for the November 2008 ballot.

In the meantime, rumor has it some of these opponents of the health care reform package are already talking about forming an alliance to defeat the funding measure. As one rumor monger, who asked for anonymity noted, “The California Nurses Association and the tobacco industry teaming up. You have to wonder what they’re smoking.”

You also have to wonder about what will happen to the space-time continuum if nurses start asking Californians to vote “No” on the health care reform initiative in commercials paid for by tobacco companies. Where’s Rod Serling when you need him?