Will special session yield California health care reform?

Governor Schwarzenegger has promised to veto a Democratic plan to bring the state closer to universal health care that was passed earlier this week prior to the legislature's adjournment. The veto, however, is not necessarily the end of reform this year.  Schwarzenegger has already called a special session to iron out differences between his health care reform priorities rolled out earlier this year and the Democratic legislation.

The primary differences between the Governor and Democratic leadership on the scope of reform are (1) how much should employers be required to contribute to employee health care coverage and (2) should individuals be required, or mandated, to obtain health insurance? The similarities of the competing health care plans and the pronouncements by the Governor and Democratic leadership that compromise is possible bode well for major health care reform in California.

How much should employers pay?  The Democrats' plan, which melds earlier proposals from Speaker Nunez and Senate President Perata, requires all but the smallest employers to spend 7.5% of payroll on employee health care or pay the difference into a state pool to help finance health care expansions, called the California Health Insurance Purchasing Program, or Cal-CHIPP. This is the largest pay-or-play employer mandate of any major state health care reform proposal to pass both bodies. The Massachusetts and Vermont employer pay-or-play mandates are considerably less, at $295 and $365 per employee per year. Governor Schwarzenegger, for his part, wants an employer mandate of 4% of payroll and would only impose it on businesses with ten or more employees.

Should insurance be mandated?  The Democratic plan does not include an individual mandate. However, it does require employees to participate in employer-provided coverage if it is offered, unless expenses exceed 5% of the employee's family income. Employees in companies that contribute to the Cal-CHIPP pool can purchase coverage through it. Similarly, expenses in Cal-CHIPP are capped at 5% of family income for families living below 300% of poverty.

In contrast to the Democrats' plan, Governor Schwarzenegger is committed to an individual mandate.  Families without employer coverage would be able to obtain health insurance through a connector-like purchasing pool with sliding scale premiums for families with incomes below 250% of poverty. A minimum benefit option with a $5,000 deductible would be offered, although critics point out the stark economic drawbacks to high deductible insurance for low-income families. 

Areas of agreement:  Despite the differences over the employer pay-or-play fee and the individual mandate, there is much agreement between the competing plans, increasing the possibility that compromise can be reached. Each would establish a medical loss ratio of 85%, requiring insurance companies to spend no less than 85% of premium revenue on medical care. Other insurance regulations include guaranteed issue and modified community rating, allowing insurers to vary premium rates based only on age and geography, not health status or medical history.  Each plan would increase eligibility for public programs, particularly childrens' coverage through the state SCHIP program from 133% to 300% of poverty. 

Significantly, the Democrats' plan will allow public non-profit county-based health plans to join forces around the state, thereby achieving administrative efficiencies, developing a large public insured pool, and offering an alternative to for-profit health plans.

Funding, of course, remains an imposing question as lawmakers look forward to the special session. The Governor supports provider taxes that would be used to draw down additional federal Medicaid dollars and increase payments to many hospitals, a sort of tax-and-match mechanism. Although hospitals have signaled a willingness to go along with the tax, Republican legislators remain opposed and would likely oppose other possible tax increases needed to finance reform. Because a super-majority in the legislature is required to increase taxes, opponents could force the Governor to take any tax increase to the public for approval through a ballot initiative. In fact, this is a contingency plan that Governor Schwarzenegger and Speaker Nunez are considering, if compromise on a package of reforms can be reached.

Individual mandates on the cheap:  Without affordability protections, insurance mandates for individuals and families are extremely problematic. While Governor Schwarzenegger would expand public programs and offer subsidies to some low-income residents, it is unclear his measures would guarantee access to comprehensive and affordable insurance. In related news, a Colorado blue ribbon commission studying four different health care reform proposals submitted by stakeholders, has recently added its own reform plan to the mix. The commission's plan hinges on an individual mandate. But, it appears commission members who support this fifth plan may be mandating insurance on the cheap. The plan would require insurers to offer low-cost, minimum coverage plans capped at $50,000 in benefits, which is little more than insurance in name only. 

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