Governor Schwarzenegger introduces health care proposal

By CMTA Staff

Capitol Update, Jan. 11, 2007

By the end of last year, Governor Arnold Schwarzenegger was saying publicly that 2007 would be the year of health care reform and he hinted at what that might mean.  His much anticipated health care proposal was finally released this week. 

The proposal reflects the Governor’s concept of "shared responsibility".  The plan includes an individual mandate, an employer mandate, increased government spending, and a provider tax.  The proposal also includes a section on cost containment and affordability.

Employer Mandate / Pay or Play
Businesses with 10 or more employees would be required to provide health care benefits for their employees or pay four percent of their payroll costs into a fund that the state will use to provide care.  Mike Genest, State Director of Finance, has already authored an article arguing that the assessment on employers does not constitute a tax increase, but rather a fee (meaning that the legislative proposal can pass with a simple majority rather than the two-thirds required for tax increases). 

Individual Mandate
All adults would be required to have a minimum level of health insurance for themselves and their dependants.  The State will provide subsidies to low income Californians who do not qualify for Medi-Cal or other state programs.

Increased Government Spending
The State will increase enrollment in safety net programs such as Medi-Cal and Healthy Families.  This will allow many of the individuals to meet the requirement of the individual mandate.  The State will also increase the reimbursement levels for Medi-Cal, which has historically paid providers less than the cost of care. 

Physician and Hospital Tax

The plan includes a provider tax on physicians and hospitals.  The tax will be assessed as a percentage of gross revenues – 2 for physicians, and 4 for hospitals.  While the physician and hospital communities are not happy with this assessment, it is possible this cost would simply be passed through to payers in the form of higher prices. 

Cost Containment and Affordability
The most important aspect of health care reform to those who are already paying for it is affordability.  We have seen skyrocketing prices in recent years and increasing numbers of businesses and individuals are being priced out.  The Governor’s proposal contains a large section on cost containment, however there has been no public estimate of expected savings from this portion of the proposal.

2007 will be an exciting year for health care reform.  With the proposals by the Governor and Legislative leaders being so similar and with ballot initiatives being created, it could be that this is the year a deal is cut.

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