Schwarzenegger’s Health Care Reform Dilemmas

Governor Arnold Schwarzenegger’s health care reform team may have backed themselves into a corner — one which could make passing comprehensive changes problematic.

Governor Schwarzenegger’s health care reform plan is a comprehensive package which would achieve universal coverage. This stands in contrast to proposals put forward by legislative leaders of both parties in both houses. The Governor has made clear he partial measures are unacceptable.

This creates two dilemmas for Governor. One is a morass, the other occupies space between a rock and a hard place.

The Morass: comprehensive reform has to somehow reach those companies which self-insure. These companies, usually large with many employees, assume much of the risk of their worker’s health care costs. An insurer takes over claims payment only if they reach a very large level ($100,000 per person or $1,000,000 for the entire company, for example). The problem for the Governor is that self-insured plans are generally exempt from state regulation under a federal law known as ERISA. Consequently a huge portion of the state’s population will find itself exempt from the Governor’s reform requirements. And as even the Administration’s team admits, without full participation the package begins to unravel. Most every comprehensive state proposal finds itself bogged down in the morass of ERISA exemptions.

But the Governor has a further problem: he also has backed himself into the proverbial rocky, hard place corner. You can’t require individuals and employers to obtain health care coverage if that coverage is unaffordable to them. Which is why the Governor’s plan rightly calls for premium subsidies to help low income individuals pay for the coverage his plan requires them to buy. And subsidies cost money.  Which is why Governor Schwarzenegger’s proposal includes new fees to be imposed on hospitals, doctors, employers and others. The Administration’s calling these revenue enhancements “fees” is critical. Under California law, raising taxes requires a two-thirds vote of the legislature. Fees require only a majority. To achieve a two-thirds majority some Republicans will have to vote for a bill. A simple majority can pass with only Democratic votes. Since Republicans in both chambers of the legislature have flatly ruled out voting for new taxes the funding in the Governor’s plans are called “fees.”

This definitional finesse may work within the Capital, but in the real world, if it quacks, walks and talks like a tax, it’s probably a tax. Which means as soon as the Governor and Democrats might pass “fee-based” health care reform, the law suits begin. And they’ll likely win.

This is all a long way of saying, the Governor’s health care reform plan requires subsidies which in turn requires new revenue. The Rock: If the Governor raises the revenue through taxes, Republican legislators defeat the reform package. The Hard Place: If he raises the revenue through fees which act like taxes the courts strike down the package.

This doesn’t mean comprehensive health care reform is dead in Sacramento. It simply points out that it won’t be easy. I agree comprehensive reform makes sense. CAHU’s Healthy Solutions plan does this is a realistic way. Yes, it suggests new taxes, but they’re appropriate and reasonable. Because it focuses on individuals, not employers, it avoids the ERISA exemption morass. And by calling a tax a tax, it allows for full debate on the trade offs involved in making sure every Californian has access to basic health care coverage. This may not completely avoid the Rock and Hard Place, but it allows attention to be given to the real issues, not the semantics.