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CRITICAL LEGISLATION: It doesn't look good for Sheila Kuehl's single-payer solution to the state's health care problem. But competing plans are still on the table.

Signs of Life

Business has finally signed on for health-care reform. Will it be radical enough for Silicon Valley?

By Paul Wagner

THE GOVERNOR is drawing fire for his newest plan to finance California's health care, but really, why not a lottery scheme? The Great California Health Care Gamble of 2007 is already a complete game of chance. Everything from Schwarzenegger's gambit to the state Democrats' proposal to Sheila Kuehl's single-payer bill is now regularly pronounced dead by Sacramento experts and then miraculously "revived."

The wheel is spinning, but bet on this: real health-care reform is coming. The biggest holdouts have suddenly gone all in.

"We can't just continue to say no," says president Jot Condie of the California Restaurant Association, which had successfully convinced statewide voters in 2003 to overturn legislature-ordered mandatory employer health coverage.

Now they've joined the push for universal health coverage for state residents, calling for a one-cent statewide sales tax increase. The move carries a lot of weight in the business world: by last month, the Independent Grocers Association, California Retailers Association, California Small Business Association and California Black Chamber of Commerce had all signed on.

Despite the sales tax increase idea appearing in no bill or formal proposal, the idea seems to be taking off. An Oct. 15 poll conducted by San Jose State University's Survey and Policy Research Institute found 52 percent of voters supporting it.

"We consider that a good indication," says California State Restaurant Association spokesperson Kearston Shepherd, of the impact the sales tax proposal has already had, including on the extended legislative session now in progress. "The special session gives the governor more time to work out a proposal." Shepherd is hoping such a proposal will include the sales tax increase, but he admits that "only time will tell."

Because a 1 percent sales tax increase would raise only $5.6 billion—or around $3.6 billion after the 40 percent-for-schools cut guaranteed by state law—sponsors at the CRA note that its proposal won't "solve the systemic problems in our health-care system."

It would, however, points out Shepherd, "create a stable funding mechanism for a portion." But toward what kind of overall program would the money go?

"That's the part we're still working out—the program," Shepherd told Metro. "The devil is, as always, in the details."

Can It Work?

Schwarzenegger's plan, originally unveiled in January, certainly needs some help, having lost momentum after arriving in a high-energy media blitz.

As recently laid out, the governor proposes to have the state cover around three-quarters of California's current uninsured population—including all children—directly, while continuing to hold counties responsible (as they are now) for providing health care to indigent undocumented adult immigrants. Thus while the plan is not universal on the state level, some agency or another would cover all residents to make it so.

Some provisions of the plan: first, insurance companies wanting to continue to profit in the state's lucrative health insurance market would be limited, for the first time, to choosing potential customers by age or living place, so as to allow specialized or regional plans. Prior-condition rejections would no longer be legal. Insurance company profits above payouts couldn't exceed 15 percent.

In return for these restrictions, they'd get to keep on offering health-care policies and nab a larger market, because Schwarzenegger's plan (like Massachusetts' state health-care system) imposes an "individual mandate": all adult state residents, including self-employed people, would be required to have health insurance policies. Even if they'd be minimal catastrophic-event policies with $5,000 deductibles and requiring $7,500 per person and $10,000 per family out-of-pocket annual expenses. There would be no choice: if you're a Californian, you must buy some kind of health insurance.

Several mechanisms would guarantee affordable policies for the uninsured. First, the state would open up Medi-Cal or, if a resident preferred, provide at least a minimal free policy, to everyone with an income of $10,000 or less. Those in the income range of zero to 2.5 times the federal poverty level would get state-backed policies guaranteed to cost no more than 3 to 6 percent of total wages. Above 2.5 times federal poverty income level, policies, whether state or private, would be priced at market rate.

And how would this be funded? Here's the surprise: Schwarzenegger would increase–yes, increase—Medi-Cal payments to doctors and hospitals by 20 percent,collect that back from the federal government, which reimburses states for their health-care expenses, tax doctors 2 percent and hospitals 4 percent for the easy new money, and require employers of 10 or more people to offer coverage or pay 4 percent in payroll taxes. Voila: extra bucks for policies for the uninsured. Schwarzenegger refers to this as "shared responsibility." Total new costs of the plan: $12 billion.

Hospitals signed on earlier this year, and the federal government indicated that it all sounds achievable, but doctors refused to be taxed. So in recent weeks Schwarzenegger has proposed replacing the tax on doctors' incomes with a scheme to lease out the state lottery to private interests, to raise the missing $2 billion a year.

That, however, would leave current state lottery workers unemployed, which has attracted union opposition, and would only bring in that level of revenue (say lottery experts such as JP Morgan Chase) if offering a massive number of new public gaming terminals. That, in turn, say many public policy advocates, would defeat longstanding, built-in limitations on individual access to gambling, which they vociferously oppose. In short, the governor's recipe may prove impossible to prepare.

Local Opposition

In innovative Silicon Valley, the governor's proposal has drawn opposition among health-care reformers for not going far enough. Lynn Huidekoper, a San Jose nurse who's the legislative liaison for the Silicon Valley Coalition of the multi-state organization Health Care for All, doesn't believe that the governor's proposal will ever see paper.

"Arnie doesn't have a bill," she says of the frequently reformulated proposal. "He's never had a bill. No one will carry his ideas." Why not? First, because Schwarzenegger's characterization of his plan as "universal health care," is misleading, she says—only single-payer is universal.

In addition, she says, it doesn't address spiraling health-care costs.

"As long as we keep insurance companies, [state health care] will remain a corrupt system, and people will be denied care," she says.

Health Care For All sticks by the single-payer plan, which is often derided by opponents as socialized medicine.

"The VA is a socialized system in which government both provides care and owns the facilities," says Huidekoper by way of example. "What we're proposing is a publicly financed system of privately provided health care."

Law Professor and 27th Assembly district candidate Bill Monning agrees. "I still favor working toward a single-payer system as a long-term solution," he says. Monning believes the single-payer system will "invest in preventive care when people are younger, obviating the need for high expenditures later in life."

Off the Table

Unfortunately for single-payer advocates, their only real hope in the health-care race was Sheila Kuehl's proposal, which appears out of the running until at least next year. Under Kuehl's plan, $72 billion would be nabbed from current public health spending programs on all government levels and $95 billion of it raised in new taxes.

Those include: a new payroll tax on employers of just over 8 percent; a new payroll tax, on employees, of nearly 4 percent; an additional income tax of between 2.5 and 3.5 percent on earned annual income of more than $7,000 and less than $200,000 a year; a similar-level tax on unearned income (such as investment profits) so as to also tap retirees; a tax of between 8 and 12 percent (the formula has changed several times in 2007) on self-employed people, and a 1 percent income tax surcharge on those making more than $200,000 a year.

Overall, workers' direct and indirect new individual tax obligations, including employer-paid payroll taxes (which are usually passed on to workers in the form of skipped or minimal raises) would come to between 12 and 16 percent, self-employed people, 8 to 12 percent, and retirees, zero and 4.5 percent depending on income.

Again, those figures look huge, but single-payer supporters point out that Californians already spend some 16 percent of gross state domestic product on health care, and within a few years that will reach 20 percent. Comparatively, the single-payer approach would save most to all state residents money from the moment of implementation, with savings increasing every year.

Kuehl, however, has now pulled her bills from consideration, convinced that Gov. Schwarzenegger will veto them as he has vetoed past versions. Instead of running headlong into that likely outcome, she's converted them to two-year bills and will, next spring, start the campaign anew.

Competing Plan

Competing with Kuehl's bill is a second proposal, bill AB 8, sponsored by state Senate President Don Perata and Assembly Speaker Fabian Nunez. Less ambitious, it proposes to expand coverage to around two-thirds of currently uninsured state residents by requiring a "pay or play" approach; that is, one which will require employers to provide their workers health coverage, employees to provide it for themselves, or each to pay into a state pool that issues coverage policies.

Under the bill, all employers, regardless of number of employees, would have to provide a health coverage program that limits employees' total expenses to 5 percent of their income and $1,500 out of their own pockets per year, at a minimum. Employers who don't would be required to fork over a payroll tax of 7.5 percent into a California Cooperative Health Insurance Purchasing Program (CalCHIPP) fund, which would provide medical insurance policies. Employees without coverage of any kind would be required to enroll.

The Perata/Nunez bill additionally creates a complex set of timelines involving re-calculations of the poverty level, sets up temporary income-based insurance rate bands that then must be dissolved at a later date, an insurance company profit limit of 15 percent, and relatively bloodless cost-containment measures—such as a resolution that "California will 'adopt and encourage' healthy lifestyles through workplace and individual efforts to improve health."

Gov. Schwarzenegger, while congratulating Perata and Nunez on getting as far as they had with their bill, which passed both state legislative houses, has pocket-vetoed the bill, saying that it's not universal enough.

Of course, Schwarzenegger's alternative has itself been declared either dead or on life support by critics, and even some supporters. Assembly Democrats, however, have scheduled a hearing on the proposal for Oct. 31, at which point—like every recent health-care bill—it may just rise again.

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