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April 18-24, 2007

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Gov. Schwarzenegger

Photograph by Felipe Buitrago
Second opinion: Gov. Schwarzenegger has opposed the single-payer bill and is promoting an alternative health-care solution.

Does California Have the Cure?

Controversial single-payer bill could make state the center of the health-care debate in 2008

By Steve Hahn

A WORLD Health Organization comparative study released in 2000 found that the United States spends twice as much of its GDP on health care as any other country, yet is rated 37th in the world when it comes to the overall quality of medical care.

These troubling numbers made the systemic failings of our health-care system a hot-button issue in last November's midterm elections, and the issue is shaping up to be a central focus in the 2008 election as well. Presidential candidates may soon be pointing to California as the testing grounds for an alternative to our current health-care system based on private insurance plans.

California Senate Bill 840, sponsored by state Sen. Sheila Kuehl, proposes a radical reconfiguration of how Californians pay for health care. Instead of selecting an insurance plan from a multitude of options offered by privately owned insurers, every citizen would have an insurance plan administered by the state government. There would be one plan, and every California resident would have it. While there would be a new tax implemented to pay for the coverage and the Universal Health Care agency that will distribute payments, supporters of the bill say the price tag would still be significantly less than what insured citizens pay for premiums, co-pays and deductibles now.

S.B. 840 made it through both houses last year, but was vetoed by Gov. Arnold Schwarzenegger. Now Kuehl is making a second push. Of the numerous health-care fixes floating around Sacramento, S.B. 840 is by far the most extreme rejection of the current infrastructure, especially with its attempt to write insurance companies out of the equation. But Kuehl says her proposal would provide health-care relief to individuals as well as businesses.

"Employers pay about 7 percent of payroll [under S.B. 840], compared to what they pay now if they are providing any plan, which is 10 or 11 percent with no control of the fact that the prices rise every year," Kuehl says. "Individuals would pay about 3 1/2 to 4 percent of their income, which is a lot less than they pay now because they're paying huge deductibles and there would be no deductibles or co-pays in this plan."

The high costs of medical insurance under the current rubric have grabbed national headlines in recent years as prominent U.S. businesses either drop employee coverage altogether or cut back on their contributions to stay competitive with their peers in other countries, where health insurance costs are lower or covered by the government.

The Lewin Group, an independent analyst that studied the 2004 version of S.B. 840 (then titled S.B. 921), estimates that California businesses already covering their employees would save nearly $8 billion a year if Kuehl's bill became law. Businesses that do not currently offer insurance, Lewin estimates, would see their costs increase by nearly $9.5 billion, though this amount would be less than they would pay in today's insurance market.

How It Works

S.B. 840 calls for money currently spent in county-run programs supporting the uninsured to be reallocated to a central pool that would also draw funding from the payroll tax revenue. The Universal Health Care Agency would then draw from this pool when reallocating money to doctors and hospitals for services provided. Bill supporters such as Carol Robertson, a member of the single-payer advocacy group Health Care for All, believe this centralization of the insurance market will eliminate the "duplicity" that exists in a fragmented and competitive private insurance market.

"A very substantial chunk of what we spend is wasted on what the insurance companies refer to as administrative costs," Robertson explains. "Although the [Universal Health Care Agency] will be a bureaucracy, it's going to be small in comparison to the bureaucracies that are part of the present system, where we have hundreds of insurance companies who in California have between them thousands of different plans."

According to the Lewin Group, the bill would save a total of $25 billion in administrative costs as well as from the discounted prices on bulk pharmaceuticals and durable medical equipment that the state would negotiate with distributors.

"A drug like Lipitor is made in the United States, yet it is sold here for much more money than it is in Canada," says Robertson. "How's that? Well, the Canadians are negotiating for 34 million people, just the same as the commissioner here would be if he were negotiating for California."

The bill's plan to extend health-care coverage to all of the state's citizens may also be a key to reversing the expensive trend of overburdened emergency rooms.

"Half of the Emergency rooms in Los Angeles have now closed because it's costing the hospitals too much to keep them open," says Robertson. "They're losing too much money because there are too many unreimbursed costs. Of course, the hospitals jack up and inflate their other billings, so that it's essentially passed on to the consumer, who is paying higher premiums to cover the hospitals losses."

Schwarzenegger's Plan

S.B. 840 is far from being the only option on the table when it comes to health-care reform, however. As problems within the health insurance market continue to intensify, more and more politicians are designing fresh solutions they can slap their name onto. President Bush and Gov. Schwarzenegger have both floated different plans that would expand coverage to the uninsured through tax breaks and subsidies to individuals, while keeping the overall structure of the private insurance market intact.

Schwarzenegger proposes "an individual mandate to purchase health insurance" involving the extension of state-run programs and subsidies for low-income residents via a "purchasing pool" financed by noninsuring employers, federal reimbursements, a redirection of current spending on indigent care and hospital fees.

Sabrina Lockhart, deputy press secretary for Gov. Schwarzenegger, outlined the reasoning behind his plan: "The governor prefers an approach that has everybody become a part of the solution, and that's the concept of shared responsibility that his health-care reform plan is based upon," says Lockhart. "It doesn't put the entire onus on a single entity. Instead it has the individual as well as business, hospitals and doctors all being part of the solution. If everybody stands to benefit from having all Californians insured, then everyone needs to be a part of the solution."

While the governor's proposal would cover all Californians and therefore resolve the aforementioned crisis in emergency rooms by ensuring payments for hospital services, Sen. Kuehl is skeptical that it will offer the comprehensive coverage guaranteed under her bill. S.B. 840 would cover a long list of services ranging from eyeglasses and wheelchairs to mental health and adult day care, options generally reserved for the more expensive private insurance plans.

"The governor is talking about very high deductible policies, up to $5,000 deductible, and up to $7,500 out of pocket," she says, adding that anyone with an income over $9,000 a year would be legally required to purchase insurance under his proposal. "So, between the bare bones policies you could buy to satisfy his mandate and the high deductibles, it would almost be like paying premiums but never being able to access your insurance."

Kuehl is confident that the bill will pass both houses of the Assembly and end up back on the governor's desk this year. While Lockhart says the governor will veto any bill that "puts all the burden on taxpayers," S.B. 840 advocates believe the gears have already been set in motion on health-care reform and it will only be a matter of time before major restructuring will be necessary to save the system.

"This governor is not the end of the road for the concept of universal health-care coverage," says Kuehl.

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