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California: The Health Care Debate is On

The debate to reform California's health care system is on. This past Monday, Governor Arnold Schwarzenegger proposed a sweeping reform of the state's health care system designed to achieve universal coverage through a mix of new rules and requirements targeting employers, insurers, and individuals. Last month, two of the legislature's leading legislators, Senate President Pro Tem Don Perata and Assembly Speaker Fabian Nunez, released their own separate reform proposals that are just as comprehensive.

All three plans include employer, employee and individual mandates to purchase coverage, expand public programs, establish state purchasing pools to help low-income residents afford coverage, and institute important consumer protections by reforming the insurance market. However, the plans from the legislative leaders present a fairer blend of employer and individual responsibility and do more to ensure access to comprehensive care.

Mandating Coverage: The Schwarzenegger plan requires businesses with ten or more employees to provide coverage, or contribute 4% of their payroll to a state health care purchasing pool for the uninsured, roughly $1,600 for an uncovered employee earning $40,000 per year. A serious concern is what the state will set as the minimum benefit package required to avoid the assessment. Merely requiring high-deductible catastrophic coverage will do little to improve health and ensure people the health security they need. For uninsured employees and individuals, the plan calls for a burdensome individual mandate, which is the wrong approach to health care reform.

In contrast, the Democratic plans require greater fair share contributions for employers that refuse to provide coverage. Senator Perata would require all employers to provide coverage equal to a certain percentage of social security wages or pay a fee of equal value. Speaker Nunez would expand the employer mandate to firms with two or more employees and charge a fee based on a fair share percentage of payroll. Both plans from the legislative leaders limit the individual mandate to working individuals, who will mostly be receiving help from their employers. Workers without coverage would forfeit certain tax credits under Sen. Perata's plan or pay a fair share fee based on a percentage of income. In contrast to Schwarzenegger's plan, the Democratic proposals specify that benefit levels, particularly those involved in the new state purchasing pools, include comprehensive, primary and preventive care. This ensures a high level of quality health care that helps people be and remain healthy.

Expanding Public Programs: All three plans would expand Medicaid and SCHIP, but Senator Perata would make parents and children eligible for Medicaid and SCHIP to 300% of the federal poverty level ($60,000 per year for a family of four). This combined level of eligibility would be the highest in the country. Several states currently cover children through SCHIP to 300% FPL with New Jersey SCHIP eligibility at 350%. Minnesota has the highest level of parents eligibility at 275% FPL.

Insurance Market Reforms and Provider Fees: Significantly, each proposal would ban "medical underwriting" by insurance companies, requiring them to guarantee issue and community rate their products. These are important consumer protections which prevent insurance companies from refusing to sell people coverage based on a prior medical condition or charge them exorbitant premiums based on their health status. Additionally, Gov. Schwarzenegger would require insurance companies to spend at least 85% of their premium revenue on patient care, thereby reducing what is available for administration, marketing and profits.

To help fund his proposal, Schwarzenegger includes doctor and hospital fees that would be offset, at least in part, by increased Medicaid reimbursement. The plan, however, is facing early opposition from the provider community.

While there are important differences between these plans, the broad similarities between them means that enacting comprehensive reform in California this year is a great possibility.

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