Lessons From California

Gov. Arnold Schwarzenegger of California titled 2007 "The Year of Health Reform." By early 2008, a comprehensive health-reform plan had been negotiated by a Republican governor and a Democratic assembly speaker. It was supported by a broad coalition of not just prominent community groups and labor unions but also key health providers, insurers, and business leaders. As a longtime consumer advocate active in the debate, I was disappointed that the effort ultimately stalled in California's Senate. The policy framework would have expanded coverage to the vast majority of the uninsured -- ultimately covering over 95 percent of Californians as well as providing financial assistance to millions of insured families now struggling with health-care costs. But this is not the final round in the effort for health reform in California.

What lessons can we learn from the near miss of 2007-2008?

Persistence pays off. Gov. Schwarz-enegger seemed an unlikely health reformer. The Democratic legislature passed multiple proposals to expand coverage -- for workers (through an employer requirement in 2003 and 2004), children (via a public program expansion in 2005 and 2006), and all Californians (with a single-payer framework in 2006) -- all of which Schwarzenegger blocked either through a veto or by opposing a ballot measure. But by forcing the governor to continually say no, the pressure mounted for him to put forward something to which he could say yes.

Different paths can lead to the same conclusion. To Schwarzenegger's credit, in January 2007 he put forward a serious and iconoclastic proposal. He started from a philosophy of individual responsibility -- that everybody should be mandated to have health insurance, especially to reduce the "hidden tax" in premiums that goes to uncompensated care. We challenged this framing of the problem that blamed the uninsured, rather than the system. But Schwarzenegger recognized that people couldn't be required to get coverage without systemic reforms. This chain of logic led the business-backed Republican governor to support many policy elements from previous Democratic proposals.

Under the governor's initial proposal, insurers would be prohibited from denying coverage because of pre-existing conditions. Recognizing that many low-income families couldn't afford insurance, Schwarzenegger proposed major expansions of subsidized public programs. With more Californians relying on these programs, he sought to make it easier to enroll, and to increase provider rates. And to prevent employers from dropping their current coverage, he also proposed a minimum employer contribution to health benefits.

It's all about affordability. There was one central problem. The governor proposed a universal mandate without adequate assistance. The issue wasn't that consumers did not want coverage but that the original mandate wasn't conditioned on availability and affordability. For too many facing the mandate, the coverage wasn't affordable to purchase (with reasonable premiums), affordable to use (with reasonable out-of-pocket costs and covered benefits), or affordable in value (with premium dollars going to patient care rather than to middlemen).

Late in 2007, Gov. Schwarzenegger ultimately agreed on a proposal more acceptable to a Democratic legislature and its constituencies. The final proposal would have created:

  • the largest expansion of public programs since the establishment of Medicare and Medicaid 40 years ago -- and additional subsidies for families up to four times the poverty level, above median income;
  • a meaningful minimum employer contribution (of up to 6.5 percent of payroll) to health benefits, setting a standard like the minimum wage does for pay;
  • a statewide purchasing pool that could bargain for lower rates; and
  • a public insurance option that would have been a new, affordable choice for employers and consumers.

Focus on group -- not individual -- coverage. The proposal bolstered group coverage with which people are familiar, through employers (now covering half of Californians) and public programs (covering nearly a third). Those still buying coverage as individuals received additional consumer protections, like the ability to get insurance regardless of health status. The plan also would have appropriately shrunk the size of the individual market, where individuals have the least market power to negotiate with big insurers and where coverage is most expensive.

Remember the more than 90 percent of voters who are insured. Like the plans of the Democratic presidential candidates, the California proposal would have allowed most people to keep the coverage they have now -- coverage they value and want to protect. This framework helped reduce, but not eliminate, understandable fears of change in the health system.

Take strategic steps to bigger solutions. While some single-payer supporters opposed the proposal, others saw it as a strategic step forward that creates some of the policy infrastructure for single-payer, including expanded public programs, a state agency tasked with purchasing health benefits, and even a financing stream through assessments on employers. This type of reform could facilitate a political realignment toward single-payer. Employers who don't provide coverage would have to pay their fair share either way. Improving payments to providers in public programs would help ease their concerns that a single-payer system will pay poorly. With more low- and middle-income Californians getting care through public programs or a state purchasing pool, it would be harder to demonize government-run health care. But fundamentally, success breeds success: Even a partial victory provides momentum and encourages policy-makers to look for the next best thing.

Powerful forces have a stake in the status quo. In the end, opposing interests killed the proposal. These interests included Blue Cross/WellPoint, as well as the Chamber of Commerce, the National Federation of Independent Business, and other major employer organizations. Big Tobacco was opposed to a tobacco tax of $1.75 per pack of cigarettes added to round out the financing. These groups had enough sway with enough business-oriented Democratic state senators to put the proposal in doubt.

Don't let political leaders escape accountability. A united health-reform base of consumers, labor, and providers might have overcome such opposition, but these constituencies were split as well. With some opposing the proposal from the left (and with a looming budget crisis), there was enough political cover for state senators to avoid accountability.

Get enough support to unite -- and divide. And so we missed a great political opportunity where the constituencies traditionally opposed to reform -- employers and insurers -- were split. Gov. Schwarzenegger had brought along some of his allies in the business community, framing the reform as "shared responsibility." And while Blue Cross/WellPoint, the state's largest insurer, opposed the proposal -- because of the guaranteed issue requirement and the minimum benefit standards -- many of the competing insurers agreed that they could live with new rules.

Don't give up. We're never done. Despite the stalling of this effort, this isn't 1994: Public opinion polls in California and nationwide continue to rank health reform as a top priority and show broad support for this framework. The two recent coverage expansions on the California ballot came within a percentage point or two of passing, despite multimillion-dollar opposition campaigns. Gov. Schwarzenegger is still committed to health reform, as are the incoming Democratic leaders in the California assembly and Senate. The presidential campaign has already elevated the issue, increasing the chance of real reform passing at both the state and federal levels.

As with the previous efforts at health reform in California, we dust ourselves off, keep working, and get closer. This was not the first year of health reform, and it won't be the last.

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