On January 28, California Gov. Arnold Schwarzenegger lost a key vote on his way to being the second Republican governor to institute universal health coverage. The bill, ABX1 1, a joint effort between the Republican Schwarzenegger and the Democrat Assembly Speaker Fabian N??ºñez, died in the senate health committee on a vote of one to seven, with three abstentions.
The four Republican senators on the committee voted “no” because the bill represented a dramatic $14.9-billion expansion in the size of government, would have instituted the largest business tax in California history and would have added to California’s growing budget deficit. Committee vice-chair, Dr. Sam Aanestad (R.-Grass Valley), an oral surgeon, said, “Extracting billions of dollars in new taxes from employers will just drive many of them out of business. We can come up with a better plan.” The bill sought to impose a payroll tax on business, along with a hospital tax and a $1.75 hike in the cigarette tax. It also extended benefits and coverage to illegal immigrants.
Democrats cited two main concerns in opposing the bill. First, it looked financially unstable, threatening to add to California’s $14.5 billion deficit, thus jeopardizing existing welfare programs. Perhaps more importantly though was that it did not go far enough in their eyes. Sen. Sheila Kuehl (D.-Los Angeles) chairs the health committee. Sen. Kuehl authored SB 840, a state single-payer plan vetoed by the governor in 2006. Kuehl voted against the measure, citing among reasons a personal mandate similar to that imposed in Massachusetts, saying, “We can’t simply say to the people of California, ‘Go buy insurance.’”
Many observers considered this the most stunning of Schwarzenegger setbacks, especially as ABX1 1 passed out of the assembly with such fanfare on December 17 when the speaker, acting on the governor’s call for a special session, called the assembly back into session for the sole purpose of ramming the healthcare bill though. It passed 46 to 31 without one Republican voting for it. (Schwarzenegger’s operative definition of “bi-partisanship” is him plus legislative Democrats.)
Despite the defeat, Schwarzenegger declared his intent to keep trying the very next day while giving his annual address to the Sacramento Press Club. During his remarks the governor said, “We know that there will be families, hardworking Californians that will have to live in fear that they will not get healthcare, they will not have access to healthcare.… People have to live in fear that they’ll go to an emergency room with their children, and they have to wait maybe for 10 hours for a doctor.… Also, people have to continuously pay 20% of that hidden tax, which is around $14.5 billion in California.”
A careful review of the governor’s comments is important in understanding the fundamental challenge inherent in this issue.
The governor first says, “We know that there will be families, hardworking Californians that will have to live in fear that they will not get healthcare, they will not have access to healthcare.” In this statement, the governor conflates paying for health insurance with access to healthcare. They are not the same thing. Everyone, both citizen and illegal immigrant alike, can access healthcare in America — the level of care and who pays for it are the issue.
The governor’s next statement, “People have to live in fear that they’ll go to an emergency room with their children, and they have to wait maybe for 10 hours for a doctor,” is true in many emergency rooms around the nation. Emergency rooms triage their patients. Those without life threatening conditions wait. Those who are in immediate danger are supposed to get first attention. If a family attempts to use the emergency room to deal with a child’s bad cold, then they may wait for 10 hours. Of course, there are walk-in clinics that could deal with the problem, but they would require insurance or a modest payment.
The governor’s last comment is more vexing: “Also, people have to continuously pay 20% of that hidden tax, which is around $14.5 billion in California.” This statement supposes that the real healthcare cost problem is the uninsureds’ passing of their costs on to the rest of the state through unreimbursed trips to the emergency room.
The Schwarzenegger health insurance initiative sought to cover the roughly 6.5 million people in California without insurance during some or all of the year. To solve a problem, one must first understand it. Of the 6.5 million people, about one-third are in California illegally. Of the remainder, about half have coverage during part of the year, but lost it because they moved from one job to another and decided to forgo signing up for healthcare coverage (COBRA plans can be costly). The remainder work for employers in typically low-wage jobs that don’t offer health insurance or are people who simply refuse health insurance, preferring instead to pocket the extra money. These latter people are usually young, healthy and male, seeing health insurance as a needless waste of money.
Contrary to popular opinion, because of the tax treatment of health insurance costs, the young and healthy without insurance are actually subsidizing the rest of us, not the other way around. This is one of the points in Healthy Competition: What’s Holding Back Health Care and How to Free It, a powerful book about healthcare reform by the Cato Institute’s Michael Cannon and Michael Tanner. Cannon and Tanner argue that the U.S. has the best healthcare services in the world but that “too much government influence and too little choice and competition” have sickened America’s healthcare.
Ironically, one of Gov. Schwarzenegger’s key economic advisors is George P. Shultz, a cabinet member for both Presidents Nixon and Reagan. Secretary Shultz wrote the foreword for Healthy Competition, noting that America’s healthcare system “is consistently criticized for not being accessible enough, and yet is so accessible that overutilization is leading to runaway costs.” Overutilization of healthcare services should not be a surprise to anyone in America when considering that 85% of healthcare expenditures today are paid for by the government or insurance companies — sources people see as “OPM” (Other People’s Money). That’s one of the reasons health savings accounts (HSAs) act to hold down costs — at least $1,000 per year per individual — without compromising health. It seems when people are spending some of their own hard-earned cash to get well, they look at healthcare differently than when Uncle Sam is paying the tab.
California is one of only four states that do not allow a tax deduction for an HSA.
Gov. Schwarzenegger can take a big step towards reducing healthcare costs and increasing access by listening carefully to the advice of an important Republican advisor: Secretary George Shultz. Failing that, the governor’s healthcare plans will continue to drift left until they are embraced by liberal Sacramento lawmakers.