Senator Perata the Key to California Health Care Reform Now

A lot of interesting developments in the past couple of days as California continues its long journey toward comprehensive health care reform. Here’s some of the highlights. Details will follow in the next few days — or become totally irrelevant.

  1. There’s now a new, improved ABX1-1 (Nunez).  According to a story by Laura Kurtzman of the Associated Press, the package requires all residents to obtain health care coverage, implements a one-to-six percent payroll tax on employers, and raises the cigarette tax. (One of the few remaining issues left to resolve is whether the tobacco tax will be raised by $1.50 or $2.00 per pack). The “affordability exemption” demanded by Labor and others is gone, but households earning up to 400 percent of the Federal Poverty Level would receive tax subsidies if premiums exceed 5.5 percent of their income; and for those earning up to 700 percent of the FPL tax credits would kick in if their premiums exceeded 10 percent of their income. As is apparent, negotiators made a lot of changes to the ABX1-1 passed by the Assembly Health Committee last month.  Understanding the package will require a thorough review. 
  2. Assembly Members don’t have much time for that review. Speaker Nunez has announced a vote on the compromise by the full Assembly on Monday, December 21st. Or, of course, they could skip reading the bill and simply vote the way their party leaders tell them. In either event, the result is likely to be the same: expect the Assembly to pass ABX1-1 on a party line vote.
  3. Senate President Pro Tem Don Perata called passage of health care reform legislation before Sacramento addresses the state’s looming budget crisis “imprudent and impolitic.” He told Senate colleagues not to expect to meet before the end of 2007. (This is significant because, depending on who you talk to, work on the initiative to finance ABX1-1 needs to begin next week or early-January if the measure is to be on the November 2008 ballot).
  4. Governor Arnold Schwarzenegger and Speaker Nunez have already begun positioning their compromise as being a financial boon for the state. According to a statement issued by the Governor’s office, health care reform would “bring billions of dollars of badly needed money to our healthcare system and ensure that future Governors will not have to make the decisions we are being forced to make today.”  Central to this argument is the relief ABX1-1 provides the General Fund in connection with MediCal financing. By using a tax on hospitals to raise the reimbursement rate, California providers will benefit from increased federal matching funds.

There’s a whole lot to digest here. It’s a complicated package and with lots of nooks and crannies for devils to hide in.  Whether understanding the bill will be worth the effort depends a great deal on Senator Perata.

It will be difficult for him to claim that what was “imprudent and impolitic” on Thursday is sound public policy on Monday. But both the Governor and Speaker are working hard to position their health care reform package as good for the state’s economy and budget. If their argument gains traction with the media and the public Senator Perata would have the coverage he would need to reverse course and push the compromise through the Senate. If that’s what he wants to do.

That’s unclear, however. He’s made very complimentary statements about the compromise, calling it better than he thought would emerge from the long and arduous negotiations. But he also seems genuinely focused on dealing with what could be a $14 billion budget deficit.

Over the next few days, it will be important to keep an eye on how various stakeholders respond to ABX1-1. Has it crossed the line in the sand Labor and its allies drew during the November 14th Assembly Health Committee hearing? Or has that line shifted to the right in the past month? Will the business community consider the reform package a benefit to their bottom lines or a drag on it? What do doctors think about the package? The carriers? Agents? Editorial boards?

If keeping track of how all these folks respond to the compromise seems too daunting a task, it’s easy to simply things: just watch for what Senator Perata. Because the fate of health care reform is largely in his hands now.

Another Delay for Health Care Reform in California.

Things aren’t looking good for comprehensive health care reform in California this year. Assembly Speaker Fabian postponed a floor session to consider health care reform that had been scheduled for December 5th and/or 6th. A spokesperson for the Speaker said negotiations are continuing on a compromise and additional time was needed to “draft language and shop it around.” Whether there will ever be compromise language worth shopping around, however, is a matter of some debate. Conventional wisdom, and the people who spout it, are growing increasingly doubtful Governor Arnold Schwarzenegger, Senate President Pro Tem Don Perata and Speaker Nunez can reach  a compromise this year.

The most significant sign health care reform is in trouble comes from Bill Ainsworth, who in the San Diego Union blog claims the blame game has begun. If so, this is the political equivalent of a B-Western cowboy seeing buzzards circling overhead. The blame game, as played in Capitols everywhere, involves key players spending a couple of news cycles giving others credit for the failure to accomplish something. And with California’s health care reform effort, there’s plenty of “others” to credit: the unions, the Republicans, the carriers, the Democrats, the Chamber of Commerce, the doctors, the Administration, the wildfires, the budget deficit and so on and so forth. If this is the route the principals will be taking, you’ll start hearing about the do-nothing legislature that’s too beholden to the unions and how the Governor sold out to big business and the insurance industry. Then the Legislature will pass their health care reform package, Assembly Bill X1-1 on party line votes and the Governor will veto the bill. Both sides will use these actions as opportunities to offer various innuendos, insults and accusations.

That’s the low road, but there’s another option available to the Governor, Speaker and Senator. Instead of savaging one another, they could salvage something meaningful from the wreckage. In this scenario, they enact several “small” reforms that lay the foundation for future, more comprehensive reforms while also fixing some present problems. I’ve already written about what three elements of such a package might be: 1) cost containment; 2) increasing MediCal reimbursement; and 3) improving outreach for Healthy Families. (The post even suggests how to fund these efforts). Assemblyman Mervyn Dymally already introduced a bill in the special session concerning the state’s high risk pool that would be a worthy addition to the package.

Whether it’s these or other incremental reforms, there’s reason to be optimistic that the troika will take the high road. They already have a track record of successfully working together. There are a host of other issues they will face next year (think water and budget deficits) that will require compromise and cooperation. Creating ill will over health care reform won’t make those issues any easier. And they all have a political needs a salvage operation would help meet.

They may yet fashion a compromise on health care reform. The conventional wisdom, after all, is rarely actually wise. But if they can’t, let’s hope, at the very least, they find a way to work together on a meaningful Plan B.

November 26th Assembly Session Postponed

Assembly Speaker Fabian Nunez announced today the floor session scheduled to consider health care reform would be pushed back from November 26th to the first full week of December. According the the Sacramento Bee’s CapitolAlert, the Assembly will meet on December 5th and 6th to consider special session legislation (which would include a water bill if those negotiations make progress).

In the meantime, negotiations continue on health care reform. As the need for a delay underscores, there are still substantial differences between Governor Arnold Schwarzenegger and the Democratic Legislative Leadership on some major issues. However, neither side is calling it quits yet. Indeed, they’re continuing to meet with stakeholders for input on a host of issues. 

Health Care Reform Bill Moves Forward, Compromise (Apparently) Doesn’t.

The Assembly Health Committee today passed ABX1-1 (Nunez), the Democratic Leadership’s health care reform plan, along to the Assembly Appropriation Committee while holding back the Republican reform package, ABX1-8 (Villines). It took nearly three hours and 60 witnesses to get to this preordained destination, but they got there.

That’s what happened legislatively, but politically there was lot more going on. For example:

1. While Speaker Fabian Nunez, the lead author of ABX1-1, committed to several changes to the bill, none seemed aimed at narrowing the gap with Governor Arnold Schwarzenegger. Instead they focused on concerns of his fellow Democrats, some technical issues, and even a broadly supported provision that was inadvertently left out of the bill. If progress towards a compromise with the Governor was moving forward, I would have expected to see more substantial changes.

2. The Governor sent a spokesperson from the Department of Health and Human Services to testify on the bills, not the Agency Secretary, Kim Belshe. The spokesperson spoke highly of the hard work and leadership shown by the Democratic Leadership. She praised some of the provisions in ABX1-1 that brought it closer to the Governor’s position than previous Democratic bills. Then she listed several concerns the Administration had with the bill, chief among them the broad exemption it contains from the requirement that all California residents have health care coverage. What was not given was a progress report on negotiations. Nor any enthusiastic statement that the parties were making terrific progress. Instead it sounded like substantial, difficult differences remain.

3. Speaker Nunez did succeed in rounding up most of his political supporters behind ABX1-1. This could not have been easy and is a testament to his political skill. While they expressed some reservations, it is clear that with some modest tweaking, Labor and it’s progressive allies will fully endorse the bill. However, they made very clear that they’d gone about as far as they could on some issues, especially the exemption from the requirement that all residents have health care coverage. This may indicate there’s not a lot more give in the Speaker’s position on an individual mandate. 

So, on one hand, the Governor’s spokesperson made clear the Administration considers the current exemption unacceptable. On the other hand, the Speaker’s allies made clear the current exemption was as far as they could go. What’s the sound of no hands clapping? I don’t know, but my guess is it doesn’t sound like victory.

Comprehensive health care reform is not dead (contrary to what I predict will be the tone of most news articles tomorrow). The political gain to the Governor and the Democratic Leadership from reaching a deal is enough to keep things moving forward for weeks, if not months.

Yes, a health care reform bill moved forward today. However, I don’t think the chances of comprehensive health care reform did.

Legislative Analysis of ABX1-1 and Running Notes on the Hearing

The Assembly Health Committee is underway. For those who might be listening I thought you might like to see the analyses of the bills prepared by the Committee’s staff. Here is the ABX1-1 (Nunez) Staff Analysis  and the ABX1-8 (Villines) Staff Analysis. (As a reminder for those without a program, ABX1-1 is the Democratic Legislative Leadership’s health care reform plan and ABX1-8 is the package put forward by the Assembly Republican Caucus.

What follows are notes and observations I’m posting during the hearing. I’ll write more about the meaning of what’s happening in a later post.

3:10:As was pre-ordained, the legislation is going to pass. The Committee is hearing witnesses on the bill now, but it’s clear this is a formality. In fact, it sounds like many of the Comittee members have left the room, leaving a smaller group of Legislators to hear testimony from the public. So far it appears the only amendments being made are fairly technical in nature which would suggest more negotiations will be required.

3:30: A win for Speaker Nunez: a lot of consumer groups and unions are lining up behind ABX1-1 (not all of them, but the majority). There was some question as to whether Labor and their allies would support the bill. It appears they are, although most are calling for amendments to, among other things, better define minimum coverage, warn against tightening the exemption to the requirement that all Californians obtain health care coverage, and the need to clarify how the state will pay for the reforms. There are other concerns being expressed (for example, broadening eligibility to enroll in the purchasing pool), but the key news here is that the Speaker’s supporters have not deserted him.

One other interesting element: it appears the assurances the California Hospital Association negotiated with the Governor in exchange for their support of a four percent tax on hospital gross revenues are not in ABX1-1. So there’s still some drafting to do on that account or the hospitals will pull their support. This would make it much more difficult to pass the bill this month and the financing initiative next November. 

3:40: The spokeswoman for the Department of Health and Human Services just testified representing the Administration. While praising several elements of the bill she did express several “significant” concerns. Her strongest language focused on the exemption to the mandate that individuals buy coverage. She described it as undermining the mandate and pretty much called it unacceptable Clearly, the Governor is not on board with ABX1-1.

3:50: Blue Shield’s spokesperson noted that, while the industry supports efforts to make improvements, the changes Committee is considering are dangerous. He only had time to give one example: guarantee issue will only work in conjunction with a strong, effective mandate to purchase coverage.

 4:00: An Association of California Life and Health Insurance Companies spokeswoman opposed the bill for a long laundry list of reasons. She asked the Committee to remove the small group reforms which are in ABX1-1, but not in the Governor’s proposal. She noted the required Medical Loss Ratio provision is drafted in a way which would be disastrous for the marketplace, again recommending the bill be amended to accept the Governor’s approach on the issue. She also warned against giving the state-run purchasing pool in the marketplace. There was more, but I couldn’t keep up. I’ll try to find something on their web site and post it later.

4:15: The Blue Cross spokesman only had a minute to explain why they opposed the bill. The only points he was able to make is that, if ABX1-1 were to pass, 892,000 of Blue Cross’ individual members would face substantial rate increases due to the bills ineffective enforcement of the requirement residents have health care coverage. He also said more than 500,000 of their individual members would have to change health plans as their current coverage would be unlikely to meet the definition of acceptable minimum coverage. A short time later the Kaiser Permanente spokesman stated that ABX1-1 exempts roughly 50 percent of the individual market from the mandate to buy coverage. (I think I heard that right). He recommended California consider an exemption more along the lines of that enacted in Massachusetts.

4:20:After 60 visits the Committee passed ABX1-1 on a party line vote. The bill will now move on to the Appropriations Committee. The Committee is now listening to a presentation on ABX1-8 (Villines), the health care reform plan put forward by the Assembly Republican Caucus.

4:45: The Assembly Republican bill is being strongly attacked most often along three main lines: 

  1. ABX1-8 permits out-of-state carriers to sell in California. Critics point out these carriers would not need to meet California regulations, putting in-state carriers at a disadvantage and endangering California consumers;
  2. AX1-8 promotes HSAs in several ways. Critics contend HSAs, as high deductible plans, results in consumers failing to obtain preventive care. (Clearly the HSA community has some educating to do.)
  3. AX1-8 allows carriers to offer mandate free plans. Critics claim these mandates are important and should be required.

4:50: ABX1-8 just failed to pass the Committee, effectively killing the bill.

So that’s the way it went. No surprises. And not much progress as I’ll discuss in a later post.

Assembly Health Committee: Some Possible Tea Leaves

The Assembly Health Committee will be considering the three major health care reform plans tomorrow in Sacramento. The conventional wisdom is that the Committee will pass ABX1-1 (Nunez), the Democratic Leadership’s health care reform plan, on a party line vote. ABX1-2, the Governor’s plan, and ABX1-8 (Villines), the Republican proposal, are expected to fail along party line votes. Few expect an announcement of a deal among Governor Arnold Schwarzenegger, Assembly Speaker Fabian Nunez and Senate President Pro Temp Don Perata to be announced before, during or after the hearing. Update: Now I’m hearing ABX1-2 will NOT be heard tomorrow. We’ll see.

This means observers will be looking for clues as to where negotiations stand. For those of you planning to listen in on the Assembly Health Committee hearing (please see the previous post for instructions on how to do this) what you may want to listen for is what version of ABX1-1 passes.

If it’s the current version with no substantial changes, it probably means negotiations between Governor Schwarzenegger and Speaker Nunez are not going well.  No meaningful amendments means the Speaker is holding tight to his original negotiating position. This in turn means the legislation will likely pass the full Assembly virtually unchanged on Monday, November 26th. Then attention will turn to the State Senate. If a compromise is to be reached, it will be while the legislation is working it’s way through the upper house.

If, however, Speaker Nunez accepts substantial compromises to the bill, changes which move it closer to Governor’s plan, then a deal more likely and imminent.  For example, if the Speaker accepts changes to the way the exemption from the mandate to purchase coverage is made, that’s a sign negotiations are going well. So would a further reduction in the payroll tax Democrats want to impose on the California businesses to finance reforms (they recently reduced their tax target from 7.5 percent of a company’s Social Security wages to 6.5 percent; the Governor is proposing a 5.5 percent payroll tax). Movement toward the Governor’s approach to reducing the burden of the tax on the state’s smallest businesses would also be a sign of progress. Another sign of progress: if the Governor’s staff testifies that premium subsidies should be raised toward the Assembly Democrat’s levels.

Then there’s financing. Both the Governor and the Speaker require some extraordinary measures to finance their plans (This, of course, assumes they’ve accurately estimated the cost of their reforms — the odds of which are extremely unlikely). The Speaker imposes a $2.00 per pack tax on cigarettes; the Governor would lease the state lottery. A move by one side towards the other’s financing plan would be a huge step toward an eventual compromise.

Not all changes are substantial, however. For example, ABX1-1 revives some of the group health insurance reforms that had been a part of Assembly Bill 8, the previous Democratic health care reform plan. If those are removed it’s a sign of progress, but not as significant as other amendments might be. The Governor’s staff has been intent on minimizing the risk of law suits based on ERISA. They would prefer not touching group coverage directly at all.

One thing to keep in mind is that the rhetoric of the hearing is less important than changes, if any, to ABX1-1. Everyone will be playing to their core constituencies. The key is to listen for what the participants do, not what they say.

Assembly Health Committee Hearing: Observations

On October 31st, the Assembly Health Committee held an “informational” hearing on Governor Arnold Schwarzenegger’s health care reform plan. It was a messy six hour meeting which makes it difficult to describe. Han Kim Quach, Policy Coordinator at Health Access, provides a very thorough summary of the hearing over at the Health Access blog. (Yes, the report skews things towards her organization’s position, but it’s still as thorough and helpful a recounting of the meeting as I’ve read). 

Not wishing to reinvent the wheel I’m simply going to provide some of my observations and link to what others are saying. In future posts I’ll have more to say on many of these issues.

A Deal by Thanksgiving?
If any news came out of the session, it was from Assembly Speaker Fabian Nunez. While noting the deep divide separating the positions of Democrats in the Legislature from those of the Republican/Post-Partisan Governor, he expressed a strong interest and commitment to reach a compromise by Thanksgiving. Whether this is wishful thinking, posturing or a realistic evaluation of the current status of negotiations is open to interpretation. Clearly there are strong political currents driving Speaker Nunez, Governor Schwarzenegger and Senate President Pro Temp Don Perata to find common ground. All of them need a win to come out of this special session. The Governor has created huge expectations, failing to deliver is an option he’d rather not accept.  Speaker Nunez and Senator Perata need to demonstrate to the public that their Legislature can deliver solutions to the state’s problems, preferably prior to the vote on their initiative to modify term limits. Perhaps its no coincidence that the Field Poll reported a sharp drop-off in support for their ballot measure the day of the hearing. This is not to say the Big Three don’t sincerely want to improve California’s health care system. It’s simply to note other motivating factors at play. What also might have been going on is an attempt by the Speaker to prevent failure to become a self-fulfilling prophecy. The San Diego Tribune ran an article yesterday that concludes health care reform is dead for the year and George Skelton in the Los Angeles Times today claims time is running out. I disagree, but that’s certainly becoming the conventional wisdom.

Lawmakers Want to Be Heard
The Big Three aren’t the only ones with a desire to reform California’s health care system. Rank-and-file members of the Legislature do, too. From the very beginning of the year, however, most of the substantive discussions on reforming California’s health care system has primarily been among the Governor, the Speaker, the Senate President Pro Temp and their staffs. Yes, others have had their chance to provide input, but real negotiations have been among a relatively small group. This has to be frustrating to other lawmakers. It’s one of the biggest issues of the day, their constituents care about it, and they’ve had limited opportunity to make a difference. Given an opportunity to insert themselves into the process during the hearing, they took full advantage. Normally one might have expected California Health and Human Services Agency Secretary Kim Belshe’s overview of the Governor’s plan to take around half an hour. Members of the Committee pelted her with questions for nearly two hours. She did a masterful job covering a broad range of topics — and criticism — from both Democrats and Republicans. The San Jose Mercury News report does a good job of describing this aspect of the hearing. The questions were substantive, so maybe I’m just being naive, but to me there was a sense of frustration and a desire to be heard underlying the grilling. As is often the case, once Secretary Belshe’s portion of the program many of the Legislators left the hearing. Once the next panel, this one from the Legislative Analyst Office, was over, even more had other places to be. But before they left, they made sure their views were known. 

Conventional Wisdom: It’s Broken
If participants at the hearing were required to pay a dollar every time they uttered the phrase, “California’s health care system is broken” we could finance coverage for every resident and half of Nevada’s, too.  Speaker Nunez used the term in his opening remark. Secretary Belshe did, too. Democrats, Republicans, conservatives, liberals. They all used the phrase like it was part of some religious liturgy. Over and over and over. I didn’t stay for the entire hearing, but I believe my testimony was the only one which pointed out that, while the system needs improving, it works well  for millions of Californians and that premiums in the state are substantially below the national average. While a few folks pointed out the state’s low Medi-Cal reimbursement rate is a problem, I don’t think anyone else noted that the state is failing to enroll the 15 percent of the uninsured already eligible for existing state programs.  Yes, the system needs improving, but the message from the hearing is that it’s broken nearly beyond repair. This is a dangerous conventional wisdom to foster, because eventually the average voter asks, “If it’s so broken, let’s throw the whole thing out and start over from scratch.” Or, while they realize the promises of a single-payer solution are overblown, they figure it can’t be any worse than today’s broken system. I understand the need to create a political window of opportunity for change. But by focusing exclusively on the problems without pausing to recognize the benefits of what we’ve got, folks are playing with fire. Of course, those who advocate a single payer system are delighted as polls show the consistent and constant negative drumbeat is working to their favor.

Affordability is the Key
Want a solution to the health care reform deadlock? Make coverage affordable. If there was a way to offer coverage with premiums and out-of-pocket expenses limited to no more than 5-to-10 percent of their incomes, it would pass faster than you can say “vote for me.” And that’s what’s interesting. Affordability is defined by the effect, not the cause. The effect is health insurance premiums and cost-sharing. The cause is the cost of medical care and utilization, but no one other than Jeff Shelton, Vice President of State Government Relations for Health Net and me brought that up. Buried in the Governor’s plan are several proposals to reduce the underlying cost of care. These ideas have broad, bi-partisan support. As a separate bill they’d be on the Governor’s desk already. Someone should step forward and introduce them separately because it would be the first step toward meaningful reform.

Which Came First, the Chicken, the Egg or the Omelet
Everyone wants everyone covered by insurance. However, there’s bit of a chicken-and-egg phenomena going on here. If everyone is to be covered, everyone needs to be able to buy coverage. But unless everyone actually obtains coverage guarantee issue in the individual market will be a disaster (see New York or New Jersey). So which do you do first? Well, you can’t ask people to buy coverage unless they can afford the coverage. And unless someone can constrain utilization and medical costs, prices will continue going up (see the previous point on the affordability). This means to be successful, reform must guarantee affordable coverage on a guarantee issue basis while simultaneously and successfully quaranteeing everyone buys coverage. Lets skip the chicken and the egg and just go straight to the omelet.

The Role of the Agent: Anyone Listening?
It was terrific that CAHU and NAIFA-California were invited to testify. It was recognition that we have a perspective that needs to be heard. So some folks clearly understand our role in the system and think it’s meaningful. That’s the good news. The bad news is a lot of folks have no idea what we do. During my panel someone commented that buying health insurance is too confusing for consumers. To help them every carrier should be required to offer a set of identical plans allowing for an apple-to-apple comparison. I’d already testified so I couldn’t jump in, but it was tough not to. My guess is she was thinking about her own testimony instead of listening to mine (understandable, I did the same thing <g>). But I’d just talked about how we help consumers find the right plan for their unique needs. The problem is that the attention is on the big fight (guarantee issue, affordability, employer fees) and the issues important to agents simply aren’t as exciting. So while we plug away — and make progress — behind the scenes, there’s a long way to go to educate the broader public.

What You Read is Not What They Got 
Confession time. You can read the testimony I intended to deliver. You can read the press release CAHU issued about the testimony I intended to deliver. You can even read CAHU’s Healthy Solutions health care reform plan which was given to every Committee member. But the reality is, I didn’t deliver that testimony. Presentation time was cut to three minutes so I basically winged it, touching on as many of the key points as I could cram in. But at least this provided me a paragraph in this post in which I could provide links to the testimony and the press release.

So that’s the highlights of what I took away from the hearing. There’s a lot more debate to come. Of course, the big question is, will anything actually come out of all this?

Unintended Consequences: A Looming Example

The law of unintended consequences is like gravity: it’s pervasive and unavoidable. Take ERISA. It was passed for the right reasons: to protect the health and pension benefits of American workers. Over the years, however, it has resulted in some unintended consequences which makes it difficult for states to experiment with certain health care reform models. For California, this may lead to a situation that has dire consequences for among the most in need  of help — lower income workers.

First some background: ERISA preempts some state laws relating to pensions and health benefit plans in part to enable national companies to have uniform programs in place across their entire workforce. As a result, when Maryland tried to enact a “pure” pay-or-play plan, one which would only have impacted WalMart, it was overturned in 2006 by the Fourth Circuit Court of Appeals on ERISA grounds. Just this year a federal district court in New York used similar reasoning to turn down a Sulfolk County ordinance.( For those wanting to learn more about ERISA and its impact on state health care reform, a good place to start is on the California Healthcare Foundation’s health care reform site.)

In part because of ERISA, the Governor’s current proposal pretty much leaves the group marketplace alone. For example, it does not (and under ERISA, probably could not) impose a minimum benefit package on health plans provided by employers.

Then things get complicated. The Administration wants to create a pool to provide low- and middle-income families (those with incomes up to about $50,000 for a family of four) with subsidized coverage. ERISA, however, requires a firewall to isolate the pool from the group group marketplace. Another provision of the plan (again, inspired in large part by ERISA) results in workers offered coverage under an employer plan ineligible for state subsidies.

Taken together the result will be that some low-income employees will be offered health care coverage by their companies requiring higher cost sharing than they would pay if they could participate in the purchasing pool. But being offered work-based coverage makes them ineligible to participate. It’s a Catch 22. It’s unintended, but it’s a consequence.

There are ways to mitigate this harm. For example, employers could be permitted and encouraged to pay more of the premium for lower-wage workers than for those earning more. To the extent existing laws or regulations hinder this approach in the small group market, changes to those obstacles should be made. Every creative solution to help help those who find themselves trapped by this dynamic should be explored.

Regardless of whatever mitigation emerges, however, this unfortunate situation highlights the reality of any legislation. The Governor’s proposal, with some modification, would benefit millions of Californians. Some, however, would fall through the unintended fissures every law creates. Yes, every law. This particular problem confronts the Governor’s efforts. Those with more far reaching solutions should not be smug however. Whenever anyone says their solution solves every problem, that it’s cost free yet delivers more, they’re simply ignoring the law of unintended consequences. As a wise man once said, we rarely solve problems, we just replace them with new ones.

It’s Tough Being Post-Partisan. Just Ask Governor Schwarzenegger.

There are three political parties in Sacramento: Democrats, Republicans and the Post-Partisans. The Democratic Party holds large majorities in both houses of the legislature. The Republican Party has enough votes in both houses to block anything requiring a two-thirds majority vote. The Post-Partisan Party is far smaller than either. In fact, it has only one member: Arnold Schwarzenegger. Of course, the fact that Mr. Schwarzenegger is also Governor Schwarzenegger gives the PPP a fair bit of clout. In the highly partisan environment that surrounds the state capital, however, it’s tough being a party of one.

The Governor put forward his health care reform plan earlier this week. There were some significant changes from what he proposed in January. The Governor and his staff were clearly listening to a lot of interested parties. Whatever one might think of the specifics, the Administration deserves credit for trying to find a compromise which all political parties could, and arguably should, support — at least in principal.

(Two things: Yes, I know the Governor is really a Republican, but bear with me for now. And personally, I have several serious problems with the Governor’s proposal, which I’ve described elsewhere. Now, back to our regularly scheduled post).

Yet he’s having a tough time finding anyonein the State Capital who agrees with him. Consider: the Governor’s proposal actually achieves universal coverage, which Democrats strongly support. It doesn’t achieve this goal by creating a government-run health care system, but at the end of the day, everyone would have health care coverage. The Governor even expanded subsidies to folks the Democratic health care reform legislation, Assembly Bil 8 (which the Governor officially vetoed yesterday), left behind. One might think the Democrats would applaud the Governor for this. They might applaud his call for expanding  state health care programs to cover more low-income residents, for calling for insurance reforms similar to what was in AB 8, and for subsidizing premiums for a large part of the middle class in the state. One might expect this, but one would be disappointed.

The Democrats and their allies in Labor are hammering the plan for failing to subsidize residents with households of $100,000 (for a family of four).  Having teased the Governor in the past for failing to put his reform plan in legislative form, they now complain it took so long. Democrats, hurried passage of their own bill through the Legislature on the last day of the regular session are now saying that health care reform is too complicated to rush. “Taking a few extra weeks is the responsible thing to do,” says Assemblyman Hector De La Torre according to the Sacramento Bee.  Assemblyman De La Torre, who chairs the Assembly Rules Committee, is right. Yet that wasn’t what we were hearing a month ago.

Meanwhile the Governor has embraced some of the ideas put forward by Republicans, especially the idea of encouraging use of community-based health clinics. He is also standing firm against a 7.5 percent payroll fee on business, instead suggesting a four percent tax on business.  Yet the rush of Republican lawmakers seeking to carry the Governor’s proposal is, well, there is no rush. Not one GOP lawmaker wants to be associated with the proposal.

So the Governor is learning just how difficult it can be to be a party of one. He’s getting knocks from the left and the right. He has no allies on this issue, at least among Legislators. There’s no party loyalty he can fall back on as he doesn’t share party affiliation with anyone else in Sacramento. In the immortal words of Three Dog Night (actually Harry Nilsson), “one is the loneliest number.”

The upshot is that the chances for health care reform this year are small and shrinking. The Associated Press reports Speaker Fabian Nunez as saying he still has hope of reaching a compromise on health care reform with the Governor. Then the Speaker goes on to say, “Are we far apart? …  Yeah. I think we’re a bit apart.” Meanwhile the Sacramento Bee reports Speaker Nunez as declairing, “… where we end up on health care will look a lot like AB 8 – particularly on affordability, fair participation from employers and keeping the costs of presciption drugs down.” I don’t want to read too much into a couple of simple statements. However, given the fact that the Speaker’s allies in Labor and the Legislature are ripping the Governor’s program, the hardening of his own public position, and the change in tenor from Mr. Nunez’s previous statements, it may be that “a bit apart” is a gap too wide to bridge.

While regrettable, this isn’t a bad thing, so long as the effort to craft health care reform legislation continues. After all, the important thing is to get health care reform right. If it can’t be done before the Legislature convenes in January, as Assemblyman De La Torre suggests, so be it. However, it would be a shame for the special session to turn into a forum for partisan bickering instead of a time when all three parties can seek out common ground and attempt to develop a compromise which improves on what each is currently proposing.

Either that or Governor Schwarzenegger really needs to start recruiting more members into the PPP.

Looming State Finance Shortfall Could Undermine Health Care Reform

Governor Schwarzenegger’s updated health care reform proposal sports a $12 billion annual price tag. To his credit, the Governor has identified revenue sources for his program. If legislation emerges from the current special session many of these funding mechanisms will be put before voters for approval through a November 2008 initiative. Of course, if that compromise includes the greater premium subsidies and the expanded eligibility for those subsidies, as Democrats are demanding, the cost of health care reform will be significantly higher.

The problem is the state is cruising toward a financial future which is looking increasingly dismal. And that spells trouble for health care reform. 

Judy Lin reports in today’s Sacramento Bee that current year revenues are already below what was projected in the state budget — yes, the budget passed just six weeks ago. During July and August state revenue from personal, corporate and sales taxes were $300 million below what was forecast. Ms. Lin reports state officials are already considering some of the revenue sources in the 2007-08 budget to be shaky. ,” she quotes Finance Director Mike Genest as acknowledging.

State finance officials were already predicting a $6.1 billion gap in next year’s budget.  Now they are recognizing this estimate is low, very low. “It’s fair to say the revenue situation is not going to be as good as we had hoped. It’s likely the $6.1 billion (projected operating deficit will be higher,” according to Finance Director Mike Genest. By higher he means a lot higher: something like $8.5 billion. Keep in mind, this summer’s budget debacle centered around a little more than $700 million in spending. Multiply the problem by 12 and you can estimate the kind of political maelstrom we’re heading for.

Into this storm marches health care reform. Every plan out there will increase state spending on heath care. Most admit this although some advocates of a single payer system believe eliminating the insurance industry will save enough to pay for the medical care they promise to all residents. However, doing away with insurance companies, agents and the like will take time and in the meantime there will be bills to pay. And ironically, eliminating the industry will cost the state substantial revenue in lost corporate, premium and individual taxes (I don’t know how much, but I bet there’s a lot of zeros involved). In addition, nuking the industry is pretty much a one time event. Once the industry is gone, those savings, if any, are gone. As the underlying cost of delivering health care increases the state will need to find new revenue sources.

So the budget battle of 2007 was just a skirmish involving sticks and stones. Next time around we’re likely to witness a nuclear conflict. More evidence: state agencies have already been told any new spending they propose for next year have to be offset by cuts to existing spending.

State budgets are all about setting priorities. Some of those priorities are set in stone. For example, certain funds are earmarked for education and can’t be diverted to health care or fixing aging infrastructure. One might think that something as critical as health care will wind up near the top of the list for lawmakers, making its funding secure. Unfortunately, it doesn’t work that way.

Consider: approximately three-quarters of the $700 million in cuts needed to close a budget deal this summer came from the Health and Human Services Department. Among the items cut : $55 million for a program to help homeless adults with serious mental illnesses; and $65 million for programs to get children already eligible for Healthy Families to enroll in the program. However, a tax deduction for new yacht sales survived — provided the new owner keeps the boat outside of California for a few months. There’s simply no way of predicting where cuts will fall, but no discretionary program is safe.

None of this means health care reform shouldn’t move forward. It should. But it does mean lawmakers have to face — and address — thee reality that making it work will be far more difficult than is currently being discussed.