States face huge hurdles when trying to expand health care

The cost of health care would drop. The state would save billions of dollars. And no Californian would lack medical insurance. That was the promise of Governor Schwarzenegger's health care reform plan earlier this year, and he got close to making it happen. Yesterday, KPCC's Julie Small showed how big opponents and weak political will helped kill that plan. Today, she examines whether California, or any state, can afford to expand health care.

Julie Small: The governor had hospitals and most of California's major health insurance companies behind his $14 billion health care reform plan. After the Assembly approved ABX1 1, all Schwarzenegger needed was a "yes" from the Senate.

But when the economy slowed, the expected state budget deficit in the next fiscal year ballooned. Soon after, the governor's bill died in the Senate. Proponents say, with historic health care reform within the state's grasp, Senate leader Don Perata should have pushed the bill through. Perata didn't – and he doesn't deny it.

Don Perata: No, and I'll take full credit for that. The proposal that the governor was advancing was, in retrospect, clearly irresponsible, because the budget deficit today would have completely disallowed funding with a straight face any portion of what he was asking voters to support.

Small: The governor's plan required every Californian to buy health insurance. The state would provide coverage to the poorest residents for a $250 monthly premium. To make the plan work, employees and employers would kick in some money.

Hospitals and doctors would pay a tax to put more people on Medi-Cal – the federally-funded health insurance program for the poor. Bigger Medi-Cal rolls would attract billions in matching federal dollars.

That money would increase reimbursement rates to hospitals and doctors that treated Medi-Cal patients. That was the plan. Senator Perata says that's not what he saw in the bill.

Perata: I thought it was one of those horses designed by committee, becomes a camel. This was nothing that it appeared to be by the time it ended up coming to the Senate.

Small: By then, doctors had refused to chip in money – so a tobacco tax had been tacked on. And since Republicans wouldn't support any taxes, the entire funding plan would need to go on the ballot.

A doubtful Don Perata asked the nonpartisan legislative analyst to check the governor's cost projections. She said if the governor was wrong and monthly premiums rose just $50 higher than the $250 target, the health care reform plan's costs would jump by $4 billion over the next five years. That's when senators killed the plan; Anne McLeod says they pulled that plug too quickly.

Anne McLeod: What Governor Schwarzenegger was doing was needed and it was bold, and it was a risk, but it was a step forward. The status quo doesn't work!

Small: McLeod analyzes medical costs for the California Hospital Association. She says the legislative analyst based her cost projections on the state health plan in Massachusetts. McLeod says the governor based his on California's 20 years of experience running Medi-Cal.

McLeod: And they do a very good job of estimating the costs and projecting the costs and, quite frankly to the detriment of hospitals, controlling the costs.

Small: McLeod says hospital executives felt comfortable enough with the governor's projections to break a 22-year stance against taxes – to support the reform measure.

McLeod: This would have covered almost 5 million people, would have clearly set an example of something that could be used in other states, would have improved the payment rates to providers. Yes, to hospitals and to physicians alike. Improved rates would have improved access.

Small: Still, senators voted no – Marian Mulkey understands why.

Marian Mulkey: There would have been uncertainty about how low a premium you could have negotiated, and how big a population you could have the premium apply to.

Small: Mulkey is with the California HealthCare Foundation. The Oakland-based nonprofit group funded the MIT analyst that projected costs for the governor's plan. But Mulkey says the state's legislative analyst's projections of a $4 billion overrun were also valid.

The problem, she says, is that rising costs are a risk inherent in any major expansion of health care. She doubts California politicians will tackle that risk as boldly again.

Mulkey: The seriousness and the substance of the political conversation this last year was deep and rare, and it will be hard to engage at that level and with that much momentum soon.

Small: That said, Marian Mulkey thinks that if the federal government fails to provide universal care, states struggling with millions of uninsured will continue to look for solutions of their own. Governor Arnold Schwarzenegger, for one, has vowed to try again.

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