HEALTH PLAN IS BAD NEWS
Ventura County Star -Dec. 16: The Assembly is expected to take up its new healthcare bill, AB1X, again on Monday. Gov. Arnold Schwarzenegger, despite some disagreements, may sign it into law, handing California taxpayers enormous new taxes, including a payroll tax that will hit all California workers, a hospital tax and a $2-per-pack cigarette tax hike. The total price tag is a whopping $14 billion, which might be worth it if the state could afford it and it offered real solutions to the problem of healthcare affordability. Unfortunately, big-government healthcare programs have a poor track record for cost containment, and this healthcare plan would likely be unaffordable for Californians in both their roles as healthcare consumers and as taxpayers.
At the heart of the bill, as well as the governor’s proposal, is a massive expansion of Medi-Cal to cover not just the poor, but moderate to upper middle income Californians as well. The effect of this dramatic expansion will be to move not just the uninsured onto the Medi-Cal rolls, but also to move many workers off of their existing plans and into a government-run system. This plan represents the largest expansion of state-run healthcare since the creation of Medicare and Medicaid 40 years ago. Subsidies would be available to people between 300 percent and 450 percent of the federal poverty level through tax incentives.
The bill also includes a pay-or-play mandate, requiring California businesses to spend 6.5 percent of payroll on healthcare benefits or pay that same amount in a payroll tax. That’s an outsized $6.6 billion tax hike on small businesses, with an estimated impact, according to the National Federation of Independent Business, of 249,000 lost jobs over the next five years.
One point of contention between the governor and Assembly Democrats is which sin should be taxed for the additional billions of dollars to fund the plan.
Democrats want to tax smoking, while the governor would prefer to tax gambling by leasing the state lottery. But sin taxes are among the worst, most regressive state revenue sources. Whether it’s lottery revenue or cigarette taxes, it seems perverse to prey on the state’s poor, who disproportionately smoke and play the lottery, to fund the expansion of Medi-Cal and tax incentives up the income ladder.
It’s hard to believe that more big government is a solution for healthcare affordability, rather than the problem. For the past decade, we’ve seen falling prices in sectors of the economy that are highly competitive, such as consumer electronics, apparel and communication, while, at the same time, we’ve seen runaway price increases in the areas of the economy that have the most government intrusion: healthcare and education. Medicaid programs, in particular, have seen galloping costs that are straining state budgets nationally especially here where Medi-Cal already faces substantial cost issues.
Government just can’t do a good job controlling costs not just because of bureaucratic waste and mismanagement, although those are issues but because when people use a government service, it appears to be free, although it’s actually quite expensive for taxpayers.
There are similar problems in the private insurance markets, where people perceive healthcare as free and, therefore, have little incentive to control costs. Health Savings Accounts, which have grown from around 4.5 million covered lives in 2006 to about 8 million in 2007 nationally, offer a compelling solution to this problem. These accounts allow workers to put pre-tax dollars in accounts that they can use to pay for routine medical services, while relying on high-deductible health plans to cover catastrophic costs. These plans have low, and in many cases falling, premiums; they eliminate the tax loophole of employer-based plans and empower individuals as healthcare consumers with an interest in controlling costs.
Unfortunately, California remains one of only four states that doesn’t allow a state income tax deduction for Health Saving Accounts contributions, limiting the attractiveness of these plans here. A Republican alternative healthcare reform bill, ABX18, which was rejected in committee, would have brought California in line with the 46 states that already have deductibility.
The Republican bill also contains an innovative idea that would dramatically reduce the cost of health insurance-interstate competition. One reason health insurance is expensive in California is a raft of regulations and coverage mandates for a wide variety of services that many people simply don’t need.
Every health plan in California has to cover things like alcoholism, contraceptives, hearing aids, well-child care, acupuncturists and speech therapists, according to an analysis by the Council for Affordable Health Insurance. The Republican bill would leave all of these mandates in place, but it would allow a consumer interested in a less-comprehensive, more affordable plan to look out of state for more options.
California is clearly at a crossroad on healthcare, and the outcome here will help determine what happens in the rest of the country, too. Expanding big government programs at the (considerable) expense of taxpayers will shift costs around, but is far less likely to actually contain them than empowering individual consumers would be. While it looks like the Democrats’ big government bill is headed for passage, voters will have the final say on the funding plan. If they are concerned with affordability both of healthcare and of living and working in California they will vote no.