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January 10, 2007

A Cyborg Health Plan From The Future!

Alright Arnold, let's rock. Sorry I couldn't get to this in more detail yesterday, but I was busy fighting lions with my bare hands. Nevertheless, as you've likely heard, Arnold Schwarzenegger has returned from some point in the distant future to save John Connor, now an uninsured Californian at a low wage service job who's going to need some critical diagnostic tests but currently lacks health coverage. So Schwarzenegger, in what's really an unexpected plot twist for the Republican governor, has proposed a comprehensive reform package for California.

If you remember my posts on Wyden's health reform bill, you're basically up to speed. Arnold's strategy is an individual mandate to guarantee universality, subsidies up to 250 percent to ensure affordability, and community rating (meaning insurers can't price discriminate based on health history or preexisting conditions) to keep the costs of the general pool affordable. All kids are covered -- including the children of illegal immigrants, which has the right in a predictable tizzy, but gives me far greater respect for Arnold. The bill diverges from Wyden's plan in that Arnold's offering what's called a Pay-or-Play scheme: Where Wyden dynamited the employer-based system, Arnold is using them for funding. Under his bill, businesses with 10+ employees can either offer their own health care or pay a tax (I'm sorry: "fee") equal to 4% of payroll. Doctors and hospitals would have to pay 2 and 4% of their revenue respectively into a fund for the uninsured. This too is called a "fee," a way for Arnold to keep saying he won't raise taxes -- a dodge I'm perfectly happy to watch him make.

Arnold's plan, which actually has a hope of passage, is more ambitious than anything a Democrat has been able to seriously propose in over a decade. This, again, shifts the conversation left, and it's unimaginably heartening to see a major Republican propose community rating. Nothing in health policy today is more important than instituting community rating. That said, it's got some problems: The subsidies are too stingy, and the minimum required coverage -- a very high deductible plan -- isn't nearly coverage enough. The Wyden plan, by contrast, subsidized up to 400% of the poverty line and demanded benefits equal to a Blue Cross standard plan -- a barebones but still protective insurance package. The worry here is that insurers will compete by offering the least coverage for the cheapest price, and Arnold's plan doesn't do enough to stop that.

4% is better than that $6 and some pocket lint (or whatever) that Massachusetts is assessing, but still much less than what actual insurance costs. So there are worries as well that the 4% payroll tax on businesses will actually be an incentive to avoid offering coverage, given that businesses providing health insurance actually pay much more than that (even Wal-Mart pays more than 7%). Business folk will tell you that the difference between companies offering coverage and those shirking the responsibility is currently 7+% vs. $0, so this will actually close the gap significantly. That may indeed be true. But whether it brings other businesses up or gives corporations currently offering insurance a superficially ethical way to drop their coverage is yet to be seen. This, of course, leads into a fundamental problem with the legislation: Its preservation of the immoral, unjust, and unwise employer-based health system. The proposed bill preserves what should be destroyed, and it doesn't bring insurance, as the Wyden plan does, into a more controllable, coherent structure through which efficiencies can be wrung out and future cost control mechanisms implemented.

So in the end, this is much better than anything I expected a Republican governor to come up with. It shifts the conversation left, includes some critical and serious components (mainly community rating), and actually does forge a serious path towards universal health care. That said, it is not a progressive reform proposal, and should not be mistook as such. It's not generous enough, it preserves the employer-based system, doesn't demand comprehensive basic coverage, and retains the problematic incentives wherein insurers and businesses can compete to lower costs by reducing coverage. So while it's much better than the status quo, it isn't even in the ballpark of ideal.

That said, we're looking at the governor's initial offering here, and California's Democrats and interest groups (in addition to its Republicans and businesses) haven't yet gotten their hands on it, so it's anyone's guess what the final will look like and whether it'll ever come anywhere near fruition. I should be clear, though: John Connor would be better off if it did.

Crossed to Tapped

January 10, 2007 in Health Care | Permalink

Comments

You are the expert, but I wonder if some of the reasons for the differences you mention is based upon this being a state plan, rather than a national plan such as Wyden is propossing. Obviously there are things that can be done effectively on a national scale that can't be done on a state scale (revamping fed. entitlements being the most obvious.) It would be useful if you could comment on that I think.

I am a fan of the laboratory of the states idea, but at the same time if the states are enough different than the federal level the utility of such a laboratory in this case may be limited.

Posted by: Dave Justus | Jan 10, 2007 9:36:57 AM

I have a question. I'm a fan of the Conyers way of getting to UHC, but what could be done about this statement of yours to make the California plan more progressive.

So there are worries as well that the 4% payroll tax on businesses will actually be an incentive to avoid offering coverage, given that businesses providing health insurance actually pay much more than that (even Wal-Mart pays more than 7%). Business folk will tell you that the difference between companies offering coverage and those shirking the responsibility is currently 7+% vs. $0, so this will actually close the gap significantly.

Posted by: Robert P. | Jan 10, 2007 10:23:01 AM

Ezra,

Beat you to the T-2 analogy. See:

http://mitchellfreedman.blogspot.com/2007/01/t-2-equals-i-2-for-schwarzenegger.html

Posted by: Mitchell Freedman | Jan 10, 2007 10:37:09 AM

Dave: I think that's largely right. There are different constraints and realities at the state level. It doesn't obviate the criticisms (maybe we should just do this nationally), but it's certainly a plausible source for some of the issues.

Posted by: Ezra | Jan 10, 2007 10:45:52 AM

While this plan may be a disincentive for some companies to continue offering coverage, it seems that a great many 10+ employee companies that had no intention of ever offering health insurance would suddenly discover themselves with insured employees. That's a good thing, yes, and it's also a good thing to see health care costs beginning to move over to the state.

Posted by: Karl Steel | Jan 10, 2007 10:46:45 AM

I personally hope the Dems in the State leg revive the Kuehl bill they passed last year, which is a single pay plan. Now that there is something to compare it to, the single pay plan will look stellar to small businesses as it separates health care from employment, just for starters. And people will immediately like single pay for its opening choice of doctors to Californians.

It is a prescription for the nation, of course, and what happens in CA tends to have political reverberations. This is a great opportunity for those who know the superiority of the single pay plan.

Posted by: Mitchell Freedman | Jan 10, 2007 10:57:38 AM

Ezra:


This too is called a "fee," a way for Arnold to keep saying he won't raise taxes -- a dodge I'm perfectly happy to watch him make

I'm not sure I agree with you here. The guv's biggest problems all involve fiscal irresponsibility; more to the point, I don't think it's a good idea to introduce the idea that we can magically reform health insurance without paying for it. An honest discussion of the slight tax increases and potential benefits would help make a tax for a national health care system palatable, and that matters. Maybe if this were a genuinely good plan, I could see supporting a dishonest sale, but it's too weak for a variety of reasons.

Posted by: bkreit | Jan 10, 2007 11:03:22 AM

Isn't it possible that they've done the calculations to make sure 4% covers this? I just...just find it hard to believe, even in my more cynical moments, that they just pull these numbers out of thin air.

Anyway, maybe someone here can answer this: over at Marginal Revolution, Tyler Cowen said that the state probably couldn't handle the financial disincentives this created. Which ones was he talking about? I must be missing something big, but the only one I can think of is that the state could have to cover all of the people that companies would drop.

Posted by: Brian | Jan 10, 2007 11:25:53 AM

Brian,

Your point about the state being the one to provide the last resort coverage is yet one more reason why all roads lead to single pay, with only the political will (a big if) being necessary. Having most people in one pool, a government backed pool, offers great reductions in admin costs and allows for more effective negotiations with Big Pharma. And it restores choice of doctors and hospitals.

No system is perfect, though, and yes, there are the tax issues to contend with--though I love Arnold S. talking about it as fees, since it is the way to get around the onerous 2/3rds majority consisting of the idiots--I mean, Republican legislators, well, they are idiots. Tom McClintock was emblematic of these particular Republican "leaders" who was in the leg for almost 20 years, always said "no" to anything helpful to people, bitched about taxation, but never proposed his own budget as far as I could see. I think he was finally term limited out of office, thank goodness.

Posted by: Mitchell Freedman | Jan 10, 2007 12:07:27 PM

Those were NOT lions.

I'm afraid what you had ahold of there my good man, were ANTEATERS.

Posted by: tweez | Jan 10, 2007 12:17:58 PM

It may not be progressive compared to where we'd like to be, but it's surely progressive from where we are. Like Medicare D, it's a big step.

Ezra, you both complain that it doesn't abolish the immoral employment-based system and that it will give employers a superficially ethical way to break the link. Maybe the latter is a good thing. I suspect some employers currently offering more will offer supplements rather than full plans, if that fits with the system. Is Wal-Mart's current coverage really better than the alternative?

Posted by: Sanpete | Jan 10, 2007 2:13:13 PM

How does his plan reduce cost to all involved? I mean subsidies are great, but how does one deal with the fact that if the insurance costs a lot of money? Let's say insurance increases by 2 or 3 times inflation- how does this help that issue? This is what's killing me. My insurance went from 321 to 361 this year.

Posted by: akaison | Jan 10, 2007 4:48:56 PM

A 20 to 25 person company -- not atypical for business -- is looking at about a million dollar payroll annually. For someone like them, the difference between 7% (guesstimated current cost of health insurance) and 4% (the new 'fee') is about $30,000.

$30,000 is a not insignificant budget item for a company that size. And if they're paying more than 7% for health insurance currently, the carrot increases. I could potentially see a lot of companies dumping their employee health insurance plans if that's the case.

Posted by: fiat lux | Jan 10, 2007 5:38:58 PM

...$30,000 is a not insignificant budget item for a company that size. And if they're paying more than 7% for health insurance currently, the carrot increases. I could potentially see a lot of companies dumping their employee health insurance plans if that's the case.

I agree. And that's why it's a good idea. I think one thing progressives fail to comprehend (and Ezra falls into this trap by complaining about how Arnie's plan helps perpetuate employment-based health insurance) is that a California or Massachusetts system may well be the first step on the road to bringing down the house of cards of employment-based health insurance. Yes, that road may be bumpy. But we'd best get started on the journey -- delay only makes the eventual journey all the more painful. Let private employers abandon the practice of being buyer's agents for health insurance. Isn't that one thing we all want?

Posted by: Jasper | Jan 10, 2007 7:20:45 PM

"Tom McClintock was emblematic of these particular Republican 'leaders' who was in the leg for almost 20 years, always said 'no' to anything helpful to people, bitched about taxation, but never proposed his own budget as far as I could see."

I remember that guy from the recall election. I saw him on television saying he would not raise taxes but still close the budget gap, even though some ridiculously high percentage of spending in California--maybe it was as high as seventy-five percent--is mandated by law and very little is discretionary.

Anyway, I am going to take your response as a "yes," and believe that is the big disincentive that TC at MR was talking about.

Posted by: Brian | Jan 11, 2007 12:26:26 AM

Could someone explain a basic thing to me? Thanks. Here it is:

If you mandate that everyone must obtain health insurance, how do you enforce that?

I mean, if you drive, you're required to carry auto insurance. If you drive uninsured and are found out, you will get fined; if that doesn't dissuade you, you lose your license - thus, no more uninsured driver, no problem.

What's the penalty supposed to be for being alive in California without health insurance? Assuming they don't just kill you, it'd have to be a fine - which would make it even harder to buy insurance, wouldn't it?

What am I missing??

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