Coverage for All Californians

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

In January, Governor Schwarzenegger unveiled a proposal to reform health care in the state of California. The Governor?s plan would mandate individuals to carry health insurance and expand public programs to achieve universal coverage; take various steps to contain runaway health care costs; and expand and implement several programs to improve the health of individual Californians. Reforms would be financed by the state and through levies on employers, physicians and hospitals.

Purpose of health policy or idea

Schwarzenegger calls for fundamental reform

In January 2007, California governor Arnold Schwarzenegger made public an ambitious proposal to overhaul the state's health care system. The Governor's plan is comprised of three overarching components. The "Coverage for all Californians" component proposes a mandate that all individuals carry health insurance and would ensure that all Californians can access a minimum level of coverage. The "Affordability and cost containment" component would ensure that coverage is affordable. The "Prevention, health promotion, and wellness" component aims to improve overall individual health through disease prevention programs and healthy behavior incentives.   

Coverage for all Californians
California's health care system is both large and plagued with problems. Nearly a fifth of the state's 36 million residents are uninsured, and a full million of the uninsured are illegal immigrants. To address the problem, the Governor's proposal would require that all individuals obtain insurance, either through employer-sponsored plans, individually purchased plans, or state plans, whose eligibility requirements would be eased to make them accessible to greater numbers of the currently uninsured.  

The plan lays out several provisions to ensure that coverage is affordable and accessible for all. A new state purchasing pool, or fund, would be established. The pool would be funded by a levy on doctors and hospitals. The pool would then leverage state purchasing power to negotiate for affordable health plan premiums. Families within a certain income window would be eligible to purchase a plan through the pool. As further protection against high premiums, the Governor has proposed caps on premiums, determined by age and health condition, and would require that health plans, like HMOs, spend 85 cents of every dollar charged for premiums on patient care. Health plans would also be prevented from denying coverage to high-risk individuals, because of age or health status.  

Affordability and cost containment
The Governor's proposal takes aim at skyrocketing health care costs through several mechanisms. Reports suggest that the high cost of health care is at least in part due to the costs of caring for the uninsured (which make out to a total of $1186 per Californian family per year). Uninsured Californians are expensive to treat, strain already overcrowded emergency rooms, and receive less preventive care, often seeking treatment only when illnesses get to advanced, hard-to-treat stages. Universal coverage is predicted to begin to curb the costs of health care in the state by eliminating the high costs of caring for the uninsured.  

Prevention, health promotion, and wellness
The Governor's plan also includes provisions targeting chronic diseases and risk behaviors, including diabetes, obesity and smoking. The proposal calls for the state to lead the nation in the treatment and prevention of diabetes, which affects 2 million Californians. A statewide diabetes prevention initiative would be instituted by Medi-Cal (California's Medicaid program) and the California Diabetes Program. A program to target obesity, which costs the state $28.5 billion a year, would be modeled on California's successful anti-tobacco campaign, which has included a media campaign as well as community-, workplace- and school-based prevention programs. The proposal would simultaneously expand the state's smoking control programs. It also calls for incentives to encourage health promoting behaviors, which, in the lung run, would curb the incidence of such chronic diseases as cancer and heart disease in the state.

Main points

Main objectives

The primary objective of the Governor's plan is to make health insurance accessible and affordable for all Californians. More than 18 percent of Californians were uninsured at some point last year, for a total of 6.5 million people, according to the administration. (The total uninsured at any given time is 4.9 million Californians.) Among those who are insured, 58 percent are covered through employer-sponsored programs, a fraction that has been declining in recent decades as employers cut back on health benefits. Of California's 6.5 million uninsured, 75 percent were in working families last year, according to statistics cited by the Governor's proposal.  

The Governor's plan would cover all Californians (with the exception of undocumented immigrant adults) through a multifaceted approach. To begin, all Californians would be required to carry health insurance. For many working Californians, this could mean obtaining coverage through an employer-sponsored plan. The proposal does not mandate that employers offer coverage to employees. However, employers with ten or more employees would be obligated to contribute 4 percent of payroll either toward their employees' coverage or into a new state fund to subsidize insurance coverage for the uninsured. (An employer spending 4 percent of payroll on employee coverage would not have to contribute to the state fund; however, if an employer covers all employees for 3 percent of payroll, he or she would be obligated to contribute the remaining 1 percent to the state.) Because 80 percent of the state's employers either already provide coverage or employ fewer than ten individuals, just 20 percent of state businesses would be affected by the proposal.  

To ease the financial burden on individuals who would have to bear some or all of the cost of purchasing coverage, the proposal would require that employers offer to set up accounts through which employees could pay for their premiums with pre-tax dollars. The proposal would also align state law with federal laws governing Health Savings Accounts, which allow consumers to make certain health care purchases with pre-tax savings. Approximately 820,000 individuals who currently do not have insurance are expected to sign up for employer-based plans under the proposal.  

To cover low-income Californians, the Governor's proposal would expand access to state health care programs, including Medi-Cal and the Healthy Families Program, which is for children and teens. Currently, adults can enroll in Medi-Cal only if they have children and earn less than 2.5 times the Federal Poverty Level, or FPL. (The FPL is $20,650 for a family of four.) Under the proposal, all adults earning less than the FPL would be able to enroll in Medi-Cal at no cost, provided they are legal residents. Families earning up to three times FPL would be eligible for Medi-Cal or Healthy Families, depending on their level of income. To encourage treatment of Medi-Cal enrollees, hospital and physician Medi-Cal reimbursement rates would receive a $4 billion boost under the proposal. Expanding Medi-Cal and Healthy Families would insure an additional 1.1 million of the state's currently uninsured.  

The 1.2 million adults earning between 100 percent and 250 percent of the FPL would be eligible for a plan offered through the state purchasing pool. The individual's or family's contribution toward the premium would range from 3 to 6 percent of their gross income, depending on income level. Adults earning 2.5 times the FPL or more would be mandated to purchase individual or employer sponsored coverage.  

The remaining one million uninsured Californians are either undocumented or in the country on a temporary visa. Undocumented immigrants would be entitled to care at county facilities and state hospitals. The proposal directs $2 billion toward county and University of California hospitals for the express purpose of providing care for this group. The uninsured also receive care through emergency Medi-Cal, which the state will continue to fund.  

The Governor's plan also includes several proposals to improve health care quality and transparency for consumers. To reduce accidental deaths and injuries, including nosocomial (hospital-acquired) infections, facilities would be required to report these to the state and reduce errors and hospital-acquired infections by 10 percent in four years. The proposed reforms would further target medical errors by instituting universal electronic prescribing to prevent harmful drug interactions and other adverse events. In fact, the proposal includes several steps to advance the adoption of additional health information technologies, a topic which is described in a separate report (Health Information Technology Initiative).

Finally, the Office of the Patient Advocate's Web site would provide comprehensive and comparable information on health plans, and the Office of Statewide Health Planning and Development's ability to collect and distribute data on health costs and outcomes would be strengthened. The aim of these measures is to make information relevant to making health care purchasing decisions available to all consumers, whether they are choosing a family doctor, deciding where to undergo a surgical procedure, or selecting a new health plan.

Type of incentives

The Governor's plan includes several incentives designed to promote individual health, improve the quality of care, and encourage employer-based coverage. A Healthy Action Rewards/Incentives program would provide rewards to individuals for activities and behaviors that have been shown to prevent chronic disease. Rewards for maintaining an optimal weight or healthy blood sugar levels, for example, could take the form of gym memberships, weight management programs or premium reductions. All health insurers, both public and commercial, would be required to offer health plans including such reward programs.  

The proposal also suggests increasing the state's notoriously low Medi-Cal reimbursement rates for doctors and hospitals as an incentive for those who treat Medi-Cal enrollees. Doctors and hospitals would receive an extra $4 billion a year for treating patients on Medi-Cal, and future rate increases would be tied to measures of improved performance. However, critics say the rate increases are offset by a new set of fees, which some critics are labeling taxes. Doctors would be required to contribute 2 percent of gross income and hospitals would be required to pay 4 percent of gross revenues to the state each year in order to pay for the Medi-Cal rate increases.   Finally, by requiring employers to channel 4 percent of wages either into the state purchasing fund or into employee coverage, the proposal presents businesses with an incentive to provide a minimum quality of coverage for their employees.  

In the months since the Governor's proposal was first unveiled, the administration has been considering additional incentives as a means of enforcing the coverage mandate for individuals. In one proposal, those who don't buy insurance may face an increase in state taxes. In other proposals, including one independently introduced in the Senate by Senate President Pro Tempore Don Perata, individuals could earn a tax credit for purchasing coverage or face fines if caught without it. 

Groups affected

Individuals/health care consumers, employers/businesses, health plans, insurers, providers, hospitals

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral

Political and economic background

Rising number of uninsured

In recent years, the fraction of employers offering coverage to their employees has fallen and the fraction of working individuals without coverage has risen. Meanwhile, health care premiums have also steadily risen and the federal government has failed to take action-making the U.S. a country notorious for its 45 million uninsured. As a result, state legislatures across the nation-including California's-have reviewed countless measures to address the problem in small steps. States have begun by approving measures to ensure coverage for all children, for example, or reduce benefit costs for small employers.    

Comprehensive health insurance reforms in other states

Even more recently, however, a handful of states have abandoned incremental measures in favor of attempts at comprehensive reforms. In the last four years, Maine, Massachusetts and Vermont have passed measures to provide universal coverage.  

California lawmakers and voters have seen several proposals to both incrementally and comprehensively overhaul health coverage in the state. Since his election, however, the Governor has opposed nearly all of these. In 2004, he led the campaign to repeal an approved Democratic measure that would have required large employers to provide coverage for employees or contribute to a state fund. In 2005, he opposed a bill that would have covered all children in families with income up to three times FPL. Last year, he vetoed a single-payer bill introduced by State Senator Sheila Kuehl, chair of the Senate Health Committee. The bill passed the Legislature, and a similar bill appears poised to pass again this year. But despite widespread endorsement for Kuehl's bill, Schwarzenegger's spokespersons have said the Governor does not plan to support it.  

Schwarzenegger's current proposal differs from Kuehl's most significantly in that it does not establish a single-payer system. The proposal is instead largely modeled after Massachusetts' plan, which passed last year. The Massachusetts law is transforming the state's pool of funds for caring for the uninsured into a fund to subsidize insurance for those who couldn't otherwise afford it. The law also established a coverage mandate; all adults over age 18 in the state need to obtain health coverage by this July. (Vermont's program, by comparison, is voluntary.) The state has also expanded Medicaid coverage and promoted Health Savings Accounts.  

Massachusetts' uninsured population totals just over half a million, however, compared to California's 6.5 million uninsured. Schwarzenegger's plan is considered more ambitious due to the size of California's uninsured population alone. If the Governor's proposal wins approval, California could be establishing a model for universal coverage nationwide.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

Over the last six years, health insurance premiums rose by 64 percent in California, while one in five Californians remains uninsured. In 2005, health care spending totaled $169 billion, or 11 percent of the state's economy. During his re-election campaign in October 2006, Schwarzenegger promised to propose a solution to the state's health care woes by January if he was elected, and it's a promise he has kept. 

The current proposal contains elements foreshadowed by the Governor's previous activities in office and on the campaign trail. Though he has rejected single-payer proposals in the past, the governor has stated his support for universal coverage, including coverage of undocumented children. While in office, he made his opposition to employer-based coverage mandates clear. During his 2006 campaign, he stated that when it came down to making coverage affordable and accessible, he favored a multi-pronged approach that spread the costs over employers, insurers, providers and individuals.  

Following his election in November 2006, Schwarzenegger hired a bi-partisan team of health policy experts to draft a plan to reform health care in the state. One of his key stipulations was that the plan embody the Governor's "shared responsibility" vision.  

The Governor has credited research by the non-partisan think tank the New American Foundation with influencing the team's final proposal. The team also reportedly studied models in which very large employers leveraged their size to negotiate favorable group coverage rates for their employees. They also examined the Massachusetts plan, which was signed into law by fellow Republican governor Mitt Romney in cooperation with his state's Democratic legislature. The plan was one which Schwarzenegger has publicly admired and which the current proposal mirrors. 

Initiators of idea/main actors

• Regierung

Approach of idea

The approach of the idea is described as:
new:
renewed: The approach is considered unique in scale, though it bears many similarities to the universal coverage bill passed in Massachusetts last year. However, certain aspects of the plan are novel, in particular the proposal to reward health promoting behavior.

Innovation or pilot project

Else - Modeled largely after the Massachusettes reforms passed in 2006

Stakeholder positions

Supporters & Opponents:

Governor Schwarzenegger believes his proposal requests compromise from every category of stakeholders in the health care sector in exchange for ultimate long-term benefits for all. The plan has, in fact, garnered measured support from many groups, but it has also drawn much criticism. Interestingly, Democrats have been largely supportive of the Governor's plan, particularly the proposal's main objective of ensuring coverage for all Californians. Republicans, on the other hand, have criticized the proposal's fees on employers, doctors and hospitals, calling them taxes-and reminding the Governor of his vow not to raise taxes. (The Schwarzenegger administration insists that the fees are not taxes.) Many Republicans are also critical of the proposal's plan to cover undocumented immigrants.     

Insurers, including those represented by the California Association of Health Plans, have expressed mixed opinions regarding the plan. While insurers are largely supportive of a measure that would require all individuals to purchase health coverage, they are not pleased with provisions that would prevent them from denying coverage to individuals they deem costly or high-risk. Insurance groups are also critical of the premium caps included in the proposal and the stipulation that 85 percent of premiums go directly toward care, putting a limit on profits.  

Other business groups, including the state Chamber of Commerce and the California Restaurant Association, argue that not all small businesses will be able to afford to provide insurance for all employees and would be burdened by the mandatory 4 percent contribution to either employee coverage or the state purchasing fund. Some groups representing small businesses, including the National Federation of Independent Businesses, say the fees could force many small employers out of business, particularly given the fact that health insurance premiums are rising at a much faster rate than wages. Such groups have also been critical of the proposal's requirement that businesses establish pre-tax health care spending accounts for their employees. 

Most of these critics have sided with Republicans and taxpayer advocates in calling the proposed fees a tax. Doctor groups, including the California Medical Association, which represents 34,000 California doctors, argue that the proposal would unfairly tax them, too. In fact, while many doctor and hospital groups applaud the Governor's proposal to make insurance mandatory and boost Medi-Cal reimbursement rates, many are concerned about the burden fees would place on them, and predict that the financial burden would ultimately be passed on to patients. Not all doctor groups are aligned in their opinions on the Governor's proposal however; emergency doctors, who tend to see the most uninsured patients and could benefit most from Medi-Cal rate hikes, are most supportive of the plan.  

Groups representing California's hospitals have also criticized the plan's proposal to take $2 billion in state funding, which currently subsidizes hospital care for the uninsured, and redirect it into the state purchasing pool. The Governor has argued that the pool is critical for expanding coverage, which would in turn decrease hospital costs associated with treating the uninsured. Hospital groups, however, anticipate a lag period in which state funds disappear while uninsured continue to show up for costly, emergency treatment.       

Finally, some unions and consumer advocates have argued that even the minimum required coverage-high-deductible plans that would cost about $1,200 per person per year-would be too expensive for those whose incomes are just above the cutoff for enrollment in state programs, such as Medi-Cal, and whose employers do not offer sponsored plans. The California Nurses Association has sided with such groups, calling the Governor's plan a "gift" to the insurance industry.  

Consumer and health care advocates have also pointed out that mandating employers to spend 4 percent of payroll on health coverage may have an undesired effect, encouraging businesses who currently spend more than that to actually cut back on benefits for their employees. Employers who do offer coverage to their employees currently spend an average of 8 percent of payroll on such benefits. This effect could take a particularly heavy toll on middle-class Californians, 2.9 million of which do not have employer-sponsored coverage and yet earn too much to be eligible for a plan through the proposed state purchasing pool.   

Actors and positions

Regierung
Governor Arnold Schwarzenegger	sehr unterstützend		stark dagegen
Assemblywoman Sheila Kuehl	sehr unterstützend		stark dagegen

Influences in policy making and legislation

Schwarzenegger's health reforms were first introduced as an election promise. He has indicated that his plan would make the state eligible for federal support totaling $5.5 billion, disbursed to help states cover the costs of uncompensated treatment. Bush administration support for the Governor's plan has so far garnered the state $3.4 billion in federal funds.

Legislative outcome

pending

Actors and influence

Regierung
Governor Arnold Schwarzenegger	sehr groß		kein
Assemblywoman Sheila Kuehl	sehr groß		kein

Positions and Influences at a glance

Expected outcome

Political experts who predicted that the Governor's health care reforms would be incremental in approach have been proven wrong. The Governor's ambitious reforms would cost the state $12 billion annually, and individuals and employers would bear costs totaling close to $3 billion a year. The proposal does not specify a timeline for implementation of its components, and critics have argued that the proposal as it now stands carries significant fiscal risks for the state. An analysis of the proposal by the Legislative Analysts Office found that some costs could be higher than estimated by the Governor's administration-but that overlooked state resources could cover some of this shortfall.  

Several health care industry experts say that the proposal's most significant strength is that it requests compromises on the part of all stakeholders and involves incentives and  bonuses for all parties as well. Experts have predicted that such a cost and benefit sharing approach could prove more successful than previous, narrower approaches when it comes to winning widespread approval.  

Yet the Governor's plan could ultimately be stalled or even derailed by legal technicalities. The administration asserts that the proposal's fees on doctors, hospitals and employers are "coverage dividends," not taxes. Taxes are defined, by law, as revenue, and cannot be tied to specific programs-as the fees would be under the current proposal. Some lawmakers, however, argue that a tax is any compulsory payment collected in support of government. Whereas a fee would require a simple majority vote to pass in the Legislature, a tax requires a two-thirds vote. The issue has emerged as a significant point of contention. If Republican lawmakers win the semantic battle, redefining the Governor's fees as a tax on businesses, hospitals and health care providers (a decision that may ultimately have to be decided in the courts), the Governor's proposal may not stand a very good chance of being passed in the Legislature.  

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch

References

Sources of Information

References (partial list)  

Hill, Elizabeth. "The 2007 - 2008 Budget: Perspectives and Issues." Report from the Legislative Analyst's Office to the Joint Legislative Budget Committee. At: www.lao.ca.gov/analysis_2007/2007_pandi/pandi_07.pdf#page=144  

National Conference of State Legislatures. 2007 Bills on Universal Health Care Coverage. Legislatures Fill in the Gaps. At www.ncsl.org/programs/health/universalhealth2007.htm.  

Office of the Governor. "Governor's Health Care Proposal." At: www.gov.ca.gov/pdf/press/Governors_HC_Proposal.pdf. 

Reform formerly reported in

California Single-Payer Plan Process Stages: Gesetzgebung

Individual Mandate Universal Healthcare Proposal Process Stages: Gesetzgebung

Author/s and/or contributors to this survey

Conis, Elena and Carol Medlin

Elena Conis, MS and Carol Medlin, PhD
University of California, San Francisco

Empfohlene Zitierweise für diesen Online-Artikel:

Conis, Elena and Carol Medlin. "Coverage for All Californians". Health Policy Monitor, April 2007. Available at http://www.hpm.org/survey/us/d9/2