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News of the Day ... In Perspective

1/22/2007

Schwarzenegger wants doctors, hospitals, and New Yorkers to finance “universal care” for Californians

Gov. Schwarzenegger, who campaigned on opposing a far less onerous measure proposed by former Gov. Gray Davis, wants to drive toward “universal coverage,” perhaps garnering media plaudits such as those that heralded Gov. Mitt Romney’s Massachusetts plan.

The proposed California plan would have individual mandates enforced by measures such as garnishing wages. Businesses with more than 10 employees that did not provide insurance would be forced to pay 4 percent of Social Security wages into a fund to subsidize insurance for the working uninsured. And hospitals would have to pay 4 percent of gross revenues, and doctors 2 percent—even if operating at or near a loss. Paying patients will probably see their costs increased in an effort to offset this loss.

California’s state and local tax burden ($4,451 per capita) is already the 15th highest in the nation, and its business climate ranks 45th. Tens of thousands of Californians flee the state every year to escape the high taxes, writes Michael Tanner of the Cato Institute.

The Schwarzenegger plan would recruit taxpayers from other states to help. By increasing payments to providers, he would trigger increases in federal matching funds. He would then tax doctors and hospitals to “recoup” the extra payments, even from those who did not receive any of the money, bringing in enough to finance the rest of the plan. Through this “old Medicaid trick,” out-of-state taxpayers could contribute up to $4.3 billion, more than three times as much as Californians, writes Michael Cannon of the Cato Institute.

Cannon recalls the tagline from Commando: “Somewhere…somehow…someone’s going to pay!”

Californians will pay in other ways. The new mandates for community rating and guaranteed issue will drive up the cost of insurance. A single 35-yeaar-old man in Beverly Hills, who can now get decent coverage for $69/mon could end up paying New York rates of $416/mon to get any coverage at all (“Schwarzenkennedy,” Wall Street Journal 1/13/07).

Then there’s the 50 percent “crowding out effect”: For every two persons newly enrolled in Medicaid, one drops a private policy and becomes a ward of the state. Schwarzenegger’s plan would expand Medi-Cal to adults earning as much as 100% above the poverty line and to children, even those here illegally, in middle-income families (David Henderson, “TerminatorCare,” Wall Street Journal 1/10/07).

Would the Schwarzenegger plan at least achieve the Holy Grail of universal coverage to offset the damage to the state’s economy? Auto insurance is mandatory, but more Californians drive without coverage (25 percent) than go without health insurance (20 percent). And many of the state’s uninsured—the unemployed, the mentally ill, transients, and illegal aliens—are beyond the reach of any mandate, Tanner writes. The plan thus might not make too much of a dent in the 3 percent of total spending attributed to “free riders” in the emergency room.

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