Legislators and governors in many states intend to shepherd some form of health coverage expansion along in the next year. In California, Governor Schwarzenegger has introduced an ambitious plan that would make insurance coverage mandatory. Fees would be imposed on physicians, hospitals and businesses to help expand coverage, while low-income and uninsured individuals would receive subsidies to purchase insurance.

Louisiana is exploring a form of universal coverage currently available in Vermont, Maine and Massachusetts. Missouri is considering using federal funds to subsidize more coverage offered by small businesses. New Mexico is examining three potential plans. One, the New Mexico Health Security Act, would put all the state’s residents into a single pool run by a government commission.

I have to be careful not to refer to anything in this article as health care reform because nothing I’ve seen in any of these proposals qualify as reform, including Governor Schwarzenegger’s coverage expansion plan. The same can be said for Assembly Speaker Fabian Nunez’s employer mandate “pay or play” proposal and Senate President Pro Tem Don Perata’s version of the plan.

Assuming that the coverage expansion proposals advanced by these political leaders will frame the plan California Legislature may ultimately adopt, if they do not expand their thinking we will be left with the same inept financing and delivery system with annual costs rising by three times or more of our overall inflation rate. Otherwise, new food sources will have been created to feed the insatiable beast and the merits of these plans will be overcome by costs gone wild. (One only needs to recall what happened when Congress added renal dialysis as a benefit to Medicare.)

The governor’s proposal is the boldest and most comprehensive of the California proposals. He proposes to cover almost all of California’s estimated 6.5 million uninsured people, including children residing in the state illegally, and he charges just about everyone who has skin in the game to pay for it, including individuals, employers (with 10 or more workers), doctors and hospitals. And he redirects portions of existing funds earmarked for safety net providers to help finance his plan. Here are some early observations about the plan:

• By increasing Medi-Cal payments to doctors and hospitals by $4 billion annually, the governor proposes to end the estimated 17 percent cost increase to insurance premiums caused by the state’s underpaying doctors and hospitals for treating state-funded patients. It is not clear, however, when or how employers or subscribers would see any health insurance premium cost reductions.
• The governor may call his charges “fees” or “coverage dividends,” but a chorus of stakeholders and members of his own political party define them as “taxes,” which sets the stage for legal challenges if passage of his proposal, or that of Assembly Member Nunez and Senator Perata, is attempted without securing a two-thirds vote of the Legislature.
• The “coverage dividend” proposed by the governor would create medical provider donors and beneficiaries. The 2 and 4 percent of revenues to be paid by doctors and hospitals, respectively, would benefit those medical providers who treat more Medi-Cal and uninsured patients at the expense of those who treat few or low numbers of these patients. Doctors and hospitals serving richer communities will be subsidizing medical care provided in poorer communities.
• The 4 percent of wages charged to employers who do not provide health care coverage is at most half of the amount needed to cover the cost of health insurance premiums. If not increased, this could create either a new under-funded government entitlement program or motivate employers to pay the new fee in lieu of continuing to provide coverage for their workers.
• As was the case with the California Health Insurance Act of 2003 (SB 2), any comprehensive coverage mandate will invite legal challenges because of the federal preemption on state regulation of self-funded plans set up pursuant to the Employee Retirement Income Security Act of 1974 (ERISA).

Still ahead are efforts unfolding at the federal level. Congressional leaders are promising to do something. America’s Health Insurance Plans (AHIP), a health insurance industry trade group, is joining forces with physician organizations and health-activist groups to put forth a plan for universal coverage. Similarly, the Service Employees International Union (SEIU) is joining the Business Roundtable, which represents the nation’s leading corporations, to put forth a plan.

Stay tuned!

See my OP-ED on the governor’s plan in the January 29th edition of the Los Angeles Business Journal.