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California’s Universal Healthcare Plan is a Generous Proposal, but is it Realistic?

On January 8, 2007 Governor Arnold Schwarzenegger proposed a fix for what he characterized as the “broken California healthcare system.” The proposal includes the provision of healthcare coverage for everyone in California, including children and illegal immigrants.

As reported in the Los Angeles Times, Schwarzenegger's plan would require employers with 10 workers or more to purchase insurance for their workers or contribute a fee of 4% of their payroll to a program to help provide coverage for the uninsured. Schwarzenegger would also tax doctors 2% of their gross revenue and place a 4% tax on hospitals.

The plan would require insurance companies to spend 85% of their premiums on patient care—a move that would limit the amount of money companies could spend on administrative costs and profits. Despite these restrictions, insurers would still benefit because mandatory insurance means private carriers would acquire four to five million new customers.

Because 6.5 million people in California (20%) are without healthcare coverage, Schwarzenegger said the burden falls on the other 80% of Californians to make up the difference by paying higher deductibles, treatment costs, insurance premiums and co-pays.

Prices for healthcare and insurance in California are rising twice as fast as inflation and twice as fast as wages. Schwarzenegger considers these escalating costs a terrible drain on the state’s economy, making it almost impossible for businesses to make a profit.

The broad policy that Governor Schwarzenegger is proposing rewards healthy lifestyles and increases the use of healthcare IT. Plan advocates hope to reduce medical errors, cut regulatory barriers and utilize the purchasing power of Medi-Cal, the state’s Department of Health Services.

The Boston Globe reported that California’s plan draws heavily from the Massachusetts healthcare law in both spirit and detail. However, if The Boston Globe’s estimates are correct, the Californian plan may be much more difficult to implement. Annual estimates for healthcare costs under the proposal are $12 billion (covering the 20% of California’s population who are uninsured); whereas Massachusetts’ annual projections are $1.3 billion (covering 7.2% of the Commonwealth’s citizens who are uninsured).

Schwarzenegger emphasized that this would not be a government-run program, but one in which the government only sets guidelines and establishes rules. He also has set up a statewide round table tour to promote the concept. It is hoped that during these round table meetings, state business and health leaders will feel free to voice their opinions and concerns directly to the Governor and his administration.

At his first public forum, Schwarzenegger faced questions from small companies about the proposed 10-employee cut-off, wellness objectives and concerns that companies currently spending more than 4% on healthcare might drop their coverage to spend only the 4% required under his new plan. Stating that though there is nothing in place to stop a company from doing this, the Governor suggested that there is also no real incentive to do so. When saving money was raised as an incentive, a businessman participating in the round table cautioned that in Silicon Valley, for example, if a company dropped its healthcare program, it would lose workers.

The Schwarzenegger plan may not be perfect, but it has sparked immediate debate in many parts of the country over the ever present healthcare crisis. Though generated from the best of pragmatic and altruistic motives, the California universal healthcare plan faces an uphill battle.