California Governor Plans to Wield Veto Pen

Published November 1, 2008

California Gov. Arnold Schwarzenegger (R) is expected to veto several bills passed by the state legislature, even though the measures are similar to a sweeping health care plan he proposed but failed to get through the General Assembly earlier this year (“California Considers Imposing a Health Insurance Mandate,” Health Care News, March 2008).

Schwarzenegger had promised to veto all legislation delivered to him by the California General Assembly until it passed a budget. While it did so on September 16—two months late—Schwarzenegger said the budget is unacceptable and he plans to veto it,

Schwarzenegger also firmly opposes altering the state’s health care market “in piecemeal fashion,” instead preferring to do so all at once, according to advisor Daniel Zingale.

Single-Payer Plan

One of the half-dozen bills passed by the General Assembly, SB 840, would replace California’s current health care market with a state-run, single-payer health care system using state and federal tax dollars.

The bill included a cap on patient premiums and co-payments, limiting the amount paid out-of-pocket by residents to $250 per individual and $500 per family per year.

“California’s health care sector is as bloated and inefficient as the rest of the country’s, meaning that it already bleeds the taxpayers dry,” said Michael Cannon, director of health policy studies at the Cato Institute.

Shifting Costs

“Policies with low cost-sharing generally have higher premiums, while raising co-pays and cost-sharing is a viable strategy to make coverage affordable,” said Devon Herrick, Ph.D., a senior fellow with the National Center for Policy Analysis. “Capping premiums and cost-sharing will merely saddle taxpayers with a greater portion of the health care tab.

“The cost of health care isn’t going down,” Herrick added. “The source of payment is just being shifted from the consumer’s bank account to the tax bill coming out of that consumer’s paycheck.”

This shifting of costs is not “real health care reform,” said John R. Graham of the San Francisco-based Pacific Research Institute. He says actually reforming the system will save money.

“Real health reform will cost less, not more, than the status quo,” said Graham. “This includes state income tax deductibility for health savings account contributions, deregulating health insurance so that premiums drop, deregulating the scope of practice of nurse practitioners and other health professionals, and legislating a way to allow Section 125 payroll deductions to be directed to pay for individual health insurance.”

Managing Insurers’ Money

Another pending bill, SB 1440, would require insurers to spend at least 85 percent of premium revenue on medical care alone, leaving 15 percent or less to be divided among administrative costs, other expenses, and profit.

SB 1440 is intended to prevent insurance providers from engaging in “wasteful administrative costs and excessive profits,” said state Sen. Sheila Kuehl (D-Santa Monica), the sponsor of this bill and SB 840.

The measure would force insurers to “reconsider growth in the individual and small-group markets,” Oppenheimer Funds analyst Carl McDonald told The Wall Street Journal—which would play perfectly into Kuehl’s effort to establish single-payer health care throughout the state.

Shooting at Wrong Target

“Profits and administrative costs aren’t the problem with skyrocketing health care costs; it’s the price of medical treatment that drives premiums,” said Alan Katz, former president of the California Association of Health Underwriters. He noted, “85 percent of the increase in revenue per enrollee between 2002 and 2006 was the result of medical costs.”

“Lawmakers could address 85 percent of the problem,” Katz continued, “but that’s hard work. It requires examining the drivers of increased medical costs and making tough decisions on how to reduce their rate of increase. It’s far easier—if less impactful—to go after health insurance companies and HMOs. Never mind that … the profits of California HMOs are less than the profitability of the companies comprising the S&P 500. The reality is that, along with oil and tobacco companies, they are about as easy a political target as exists.”

“So lawmakers will pass SB 1440 and declare a blow against rising insurance premiums,” Katz concluded. “They may not be able to pass a budget, but they can teach those insurance companies a lesson. The fact that the legislation won’t have much if any impact on premiums is irrelevant. The fact that it won’t bring medical inflation down to general inflation levels doesn’t matter.”

Stiffing Providers

If Schwarzenegger in fact vetoes the budget and the standoff lasts into October as expected, California will owe nearly $12 billion to providers who have taken Medi-Cal cases during the time since the previous budget’s expiration.
Combined with a state law prohibiting payments being made to Medi-Cal providers when the state is operating without a budget, the impasse means several California practitioners could be facing bankruptcy.

There is an emergency fund in place to pay Medi-Cal providers when the state is late passing a budget, but that fund ran out at the beginning of August.

Katie Flanigan ([email protected]) writes from Georgia.

For more information …

“California Considers Imposing a Health Insurance Mandate,” Health Care News, March 2008:

Senate Bill 840, The California Universal Healthcare Act:

Senate Bill 1440:

The Alan Katz Health Care Reform Blog: