IN THE STATES: Rekindling the California Reform Debate?

We asked Leif Wellington Haase, director of New America's California Program, and Micah Weinberg, a research fellow in the California program, to update us on where health reform stands in California a few months after the state's major coverage initiative collapsed.

California Health Reform: Rekindling the Debate? Micah Weinberg & Leif Wellington Haase

Where Things Stand Today

The flame of comprehensive health care reform has been sputtering in California since the Senate Health Committee’s defeat of Governor Arnold Schwarzenegger’s proposal in late January. The conclusion of the regular legislative session in Sacramento hasn’t rekindled it.

Several significant bills related to issues such as rescissions (the retroactive cancellation of existing individual health insurance policies), medical loss ratios, and balance billing await the Governor’s signature or veto, due by September 30^. Paul Testa summed up these reforms last week. Here are some further thoughts and analysis.

One major bill (SB 1522) that would have made it easier for consumers to compare competing health plans went down to defeat. The insurance industry argued that its insistence on minimum benefit standards would have driven up premiums and reduced consumer choice.

Ironically, this bill may have been a casualty of the failure of comprehensive health care reform earlier in the year. The Los Angeles Times reported on September 4 that the Assembly’s rejection of this bill, sponsored by incoming Senate President Pro Tem Darrell Steinberg (D-Sacramento) was “widely interpreted as payback for the Senate’s rejection of the comprehensive healthcare plan” former Assembly Speaker Fabian Nunez had devised with Schwarzenegger, although Nunez later denied this.

It is worth remembering, however, that these reforms are aimed almost exclusively at the individual market, an important but secondary niche that covers just seven percent of Californians. Comprehensive change has been put off yet again. Most of the provisions on the Governor’s scaled-down wish list, such as innovations in health information technology, never came to a vote. Senator Sheila Kuehl’s (D-Los Angeles) perennial single-payer bill will move on to the Governor’s desk, and is expected to be vetoed as a formality. The Senate’s Revenue and Tax Committee has already turned down the bill’s $200 billion financing provisions.

The Unhealthy Budget Impasse

The political infighting that probably killed Steinberg’s health bill is merely a symptom of the larger poisonous political conflict at the heart of California politics, reflected in the state’s ongoing budget impasse. Until the structural and institutional causes of the budget deficit are addressed, prospects for serious health reform are iffy at best.

Today is day 74 of California’s fiscal year, and no budget has passed, nor is a budget compromise on the horizon. This easily breaks the previous record of 67 days which was set six years ago. Last year’s budget was 55 days late. To address the $17.2 billion budget gap, Republicans are unwilling to support any plan that includes a modest short-term tax increase even in exchange for a long-term permanent tax decrease and the implementation of more stringent spending controls. Schwarzenegger’s most recent proposal included such a deal and was supported by the California Taxpayers’ Association. The Republican response was to vote in lock-step against the proposal and publicly admonish this venerable taxpayers’ organization.

Legislative Democrats, on the other hand, are unwilling to support a proposal that would require the significant cuts in programs and services—and extensive borrowing and selling-off of public assets— necessary to balance the budget without raising taxes. The legislature is dominated by Democrats, but since California is one of only three states that require a supermajority to pass its budget, a bipartisan compromise is necessary.

This worsening structural deficit—and the institutional factors that abet short-term fixes such as borrowing that ultimately weaken the state’s long-term financial standing—mean that the climate will remain unfavorable to comprehensive health reform which will inevitably carry a large price tag. Growing wariness about the budget deficit was one of the major reasons the Schwarzenegger/Nunez health plan foundered earlier this year.

In addition to standing as a barrier to comprehensive reform, the budget stand-off is also generating acute health care crises. The delayed Medi-Cal payments (the state’s Medicaid program) associated with the impasse has hit health care providers very hard, primarily those with the fewest resources. The San Francisco Chronicle reported on September 6 that many hospitals and clinics that cater primarily to the disabled will have lost up to $5.4 billion by the end of the month. In an attempt to bridge the funding shortfall, these providers have “already received loans, maxed out their credit cards and even poured in personal funds to keep their centers open—and they are running out of time, money and options.”

Even under normal circumstances, Medi-Cal providers have been hit with a 10 percent across-the-board pay cut that is now being challenged by a coalition of providers and advocacy groups in court. If the cuts stand, this could further aggravate an already difficult situation for these providers as well as larger hospitals in urban and rural areas that depend substantially on these payments. Medi-Cal is already a comparatively lean program in terms of spending per capita and provider payments; California ranks 45th out of 50 states in federal Medicaid spending per beneficiary.

Rekindling the Reform Effort

Though the ongoing budget conflict bodes poorly for comprehensive healthcare reform in the immediate future, promising signs remain. The need for reform has never been more apparent and public support for these efforts remains strong. The Los Angeles Times reported on a recent poll by the Public Policy Institute of California that found that “54 percent of likely California voters were willing to pay more either through high premiums or taxes to increase the number of Americans with medical coverage. The same percentage favored a government-run system.”

A Field Poll earlier this summer found that only four percent of Californians would support cutting health care to balance the budget. This was the smallest percentage of any of the options offered including prisons and correction, higher education, and public schools.

Further, the last round of comprehensive healthcare reform brought together a broad—if somewhat shaky— coalition including bipartisan political leadership and representatives of labor, major businesses and the insurance industry.

Three things, at a minimum, are needed to rekindle the push for health reform on which California has previously taken a leadership role:

1) A satisfactory resolution of the current budget impasse as well as statutory and constitutional changes designed to address the structural and institutional barriers to sensible budgeting. New America’s Mark Paul, for example, has put forward a formula for state budget reform and has highlighted the high cost to the state of “ballot box budgeting."

2) Once the budget stalemate has ended, the next major push for reform in California will have to incorporate more input from big stakeholders and should more actively solicit their cooperation. As our recent discussion with a well-placed consultant to a legislative health committee stressed, the tactics of health care reform could be markedly improved. In particular, political leaders should ensure that public announcements are followed up quickly by extensive research that explains the logic of reform and justifies the financing. Negotiations around these proposals should consistently involve a larger set of public officials and representatives of the labor, business and health advocacy communities. Special legislative sessions—which were called by the Governor during the health reform debate last year—could be held once a stronger consensus has been built around the elements of a reform proposal. Foundations and other groups could play a leading role in authoring and sponsoring this research, convening meetings among key stakeholders, and actively nurturing these political coalitions.

3) No reform can move forward in the absence of strong political leadership. Governor Schwarzenegger’s will to pass health reform remains strong, but his approval ratings have tumbled and he even faces the possibility of a recall vote sponsored by the prison guards’ union However, even wounded, he is a better bet to take on this issue than another incoming executive who would lack Schwarzenegger’s experience and genuine passion. The opportunity still remains for comprehensive health care reform to be his legacy.