1-19-07 Governor Unveils Much-Anticipated Health Care Initiative

Volume 20 For Publication Date: January 19, 2007 No. 2

Governor Unveils Much-Anticipated Health Care Initiative

On January 8, 2007, Governor Arnold Schwarzenegger announced his comprehensive plan to tackle the state’s growing health insurance crisis by requiring all Californians to obtain health insurance and by taking active steps to reduce the costs and barriers for individuals to obtain insurance. Additionally, his plan pays significant attention to preventative care and the benefits of a healthy, active lifestyle.

The Governor’s approach is one of shared responsibility and shared benefit, with each affected group participating in the solution, while realizing the benefits of universal coverage for everyone within the state. A core principle to his proposal is that all adults in the state will be required to obtain health insurance for themselves and their children.

Components of Initiative

The Governor proposes to lead the way by expanding the Healthy Families program to provide coverage for children whose parents earn up to 300% of the federal poverty level ($60,000 a year for a family of four). Additionally, a state fund would be established that will provide financial assistance to lower income families.

Employers with ten or more employees would be required to offer a minimal level of health insurance. If they do not, employers would contribute 4% of their payroll to the state fund. Employers would also be required to offer Section 125 plans, which would allow a participant to pay for medical expenses with pre-tax dollars.

Health care providers would also be required to pay into the state fund. Doctors would be required to pay 2% of their revenues into the state fund, while hospitals would pay 4%. While this seems as though it’s a new tax on doctors and hospitals, this payment is still significantly less than the additional revenues doctors and hospitals will receive once all Californians are insured. Additionally, Medi-Cal provider rates would be significantly increased to eliminate the need to shift the cost burden to non-Medi-Cal patients.

Insurance carriers would also have to share in the responsibility for ensuring access to coverage in California. No longer would insurers be able to deny coverage to someone based on their occupation or medical history. Nor would they be able to price high-risk individuals out of the market. Insurance carriers would also be required to provide “Healthy Action Benefits” to serve as incentives for encouraging healthy lifestyles and behaviors.

According to a December 2006 briefing by the New America Foundation, California’s 6.5 million uninsured adults have placed a hidden tax burden of $1,186 per family upon the backs of all other Californians via increased premiums. Through this comprehensive coverage plan, it is estimated that one-half of this hidden health care tax, almost $600, would be eliminated.

To eliminate the remainder, Governor Schwarzenegger has proposed eliminating much of the bureaucratic and regulatory hurdles that increase the cost of delivering medical services. He also wants to increase the use of information technology to manage patient records as a way to reduce the potential for medical errors and leverage the state’s purchasing power through Medi-Cal.

Local School Agencies

Although the Governor’s initiative would require employers to provide a minimal amount of health coverage, in general, school agencies already provide much more. Based upon data collected for the 2005-06 fiscal year, about 70% of school districts paid 100% of the premiums for their employees’ health care coverage, and about one-third of these districts paid 100% of the premiums for dependents as well. The statewide average cost paid by districts was approximately $7,300 annually per employee, and the statewide maximum was more than $20,000 annually per employee. However, a wrinkle may come with the issue of providing coverage for part-time employees who do not currently have coverage.

Based upon the information provided on the Governor’s initiative thus far, it appears that, on the whole, school agencies should not be significantly affected since generally more than a “minimal” amount of coverage is provided. This initiative could have the effect of lowering the cost of health care overall, but we believe the most significant effect for school agencies will be on the students—coverage would be provided for all students who attend California schools, including, as the Governor has proposed, undocumented immigrants.

Significant players affected by this proposal have already begun citing one or more components as “non-starters.” The Governor’s initiative relies upon a number of pieces falling into place, and if one or more significant pieces don’t, there may be little progress on this front.

We also think that it is well past the time that California should have attacked the health care issue. However, it should be remembered that even simple, incremental changes have been difficult to achieve. For example, California remains one of the few states that does not afford state tax benefits for Health Savings Accounts (HSAs) that are parallel to those offered by the federal government. We wonder how difficult it will be to enact broad, sweeping overhauls when even such minor changes have been deferred for years. The sting of SB 2 (Chapter 673/2003) and its repeal by Proposition 72 is another indication of the difficulty in developing consensus around solutions.

However, we have recently seen bipartisanship working in significant ways in California, such as for the infrastructure bonds that were approved by the voters last November. We hope that this collaboration continues and results in significant improvements in health care access and affordability for California’s residents and for the children who attend our schools.

—Dave Heckler and Sheila G. Vickers