Freedom Caucus & ACHA

Yesterday, I wrote about underwriting practices of health plans in California that have the potential to whack more and more people off of health insurance rolls. Today, this afternoon, Arnold Schwarzenegger announced his proposal to reform healthcare in the State of California. I am happy to report that there is a lot to like in this proposal. Here is my take, based on listening to the webcast of the plan roll-out.

First of all, it mandates that everyone must have health insurance. That, my friends, is the approach most likely to get us to universal coverage in the absence of creating a national (i.e., government-run) health plan.

As I wrote yesterday, if we are going to fix the system, everyone has to be insured. Those who do not have employer- or government-sponsored health insurance will have the ability to have their mandatory insurance subsidized via a broadly funded pool of money that is described below.

Second, everyone has to help pay for the increased costs:

  • Employers with more than 10 employees must pay for health insurance for their employees or they must pay a 4% payroll tax into a pool that will help to subsidize premiums for low-income folks without employer-based insurance. This cost is supposed to be offset by employer savings related to less cost-shifting.
  • Employees will pay a payroll tax of 3-6%.
  • Doctors and hospitals will also pay into that pool (supposedly, this is more than offset by the increased revenues industry will reap as a result of more insured customers).
  • Counties will contribute to the pool; this is offset by the reduction in their burden of uninsured.
  • It is anticipated that an increase in federal funding will also occur.

Amazingly, the proposal includes a mandate for insurers to be efficient (note my comments in yesterday’s article). Eighty-five percent (85%) of premium has to be spent to pay for healthcare services. That means that plans must keep their administrative costs (plus profit) to 15% of the premium.

Even more amazing, the plan proposes an increase in Medi-Cal payments to providers. It proposes getting the payments close to the level of Medicare payments. How about that! Government acknowledging and trying to correct the long-term woeful underpayment for health services for low-income people.

There is also an emphasis on prevention of disease instead of just focusing on only paying for illness and injury. Does this mean there might be the reintroduction of real public health approaches in the State of California? Imagine robust programs that address obesity, Type 2 diabetes, environmental causes of asthma, and so on and so on.

This is a very high-level overview of the proposal. Of course, the success or failure of reform plans depends on the details. Does the proposed funding really cover the costs? Will those who have to pay be willing to do so? Can the public stomach a government mandate to have insurance?

I am sure there will be vigorous debate on these and other details of the plan. But let me state at the outset, the current “system” is badly broken and is not working for many people right now. It is not working for consumers who are un- and underinsured. It is not working for employers who are paying the “hidden tax” of cost-shifting to pay for the uninsured who get care in ERs. It is not working for ERs that are jam-packed, requiring long waits to be seen. It is not working for docs and hospitals that provide services for un- and underinsured.

Kudos to the Governor for pursuing health reform at a time when many consider it the “third rail” of politics. Kudos to Kim Belshe, the Governor’s Secretary of Health who shepherded this process. Kudos to the panel of people who participated in the process. They have come up with a good proposal.

We will need to debate and tweak the details, but let’s not tank the proposal out of narrow self-interest. The problem is just too big and too important to blow reform once again.


  1. Would Schwarzenegger’s plan require a Physician with ten or more employees to pay 2% of their gross income on top of the 4% payroll tax? If the answer is yes I am glad I live in Arizona.

  2. Thanks, Dr. Pat Salber for giving your take on this proposal, and generally with a thumbs up. As a labor and employmnent lawyer for 30 years, I have worked on behalf of employees and smaller employers in both the union and non union sectors. The issue of health care coverage, and the proportional share of cost (or none) has been a shifing and has become an ever more urgent issue over these years. I do hope that California, once again, can develop a reasoned approach and decent solution to this critical issue. I will certainly lend my voice when and where I can.

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