Will Partisan Politics and Special Interests Burst the Health Reform Bubble?
By Deborah Riordan, PT, MPH

Background
On January 8, 2007 Governor Arnold Schwarzenegger introduced a comprehensive health care proposal that conceptually framed his vision for health reform, including coverage for all Californians. Catch phrases such as “our broken health care system,” “shared responsibility,” and “the hidden tax” helped define his vision. Competing proposals were introduced by both Democrat and Republican Caucuses in the Senate and the Assembly. The debate continued throughout the Spring and Summer with the Governor’s proposal marketed throughout the state at over 1,000 meetings to a broad range of stakeholders.

After a contentious legislative summer due to the budget impasse, the health reform debate for the regular session culminated in a compromise bill sponsored by both Democratic leaders, Assembly Speaker Fabian Núñez and Senate President pro Tem Eon Perata, AB8. The bill was vetoed by the Governor on October 12 because he felt it did not go far enough in covering all Californians (no individual mandate). In response to the protracted debate on both health care reform and water legislation, the Governor then called for a special (extraordinary) session. A month into the special session the Governor introduced legislative language for his proposal (ABX1-2), and the Democratic leaders introduced a parallel bill (ABX1-1) in early November. Neither bill included financing, which would have required a two-thirds majority to pass either house. Instead, a proposed ballot measure with the financing elements for the health reform legislation would be placed on the November 2008 ballot. It should be noted that the Assembly Republican Caucus also authored a health reform bill (ABX1-8), which did not pass out of the Assembly Health Committee.

Negotiations between the Governor’s and Núñez’s staff continued until after the Thanksgiving holiday, with the two reaching a compromise on December 16. The following day the compromise bill, ABX1-1, passed the Assembly floor without one Republican vote. Senator Perata was visibly absent at the press conference following the vote, suggesting that he had not been a party to the negotiations and had reservations regarding the compromise bill.

Concurrently, reports of a looming $14 billion budget deficit and the sub-prime mortgage crises resulted in Senator Perata deferring any Senate hearings on the compromise bill until after the first of the year. He reasoned that prior to debating the health reform bill and its financing, it was in the best interest of the state to have the Legislative Analyst’s Office (LAO) conduct an analysis of the financial impact of the now $14.4 billion health reform package on the state budget.

Meanwhile, the Governor and Assembly Speaker Núñez continued to negotiate the financing piece with a draft ballot measure submitted to the Attorney General’s Office on December 28, 2007. Financing would include federal funding for expanded Medi-Cal and Healthy Families, individual and employee contributions, a hospital contribution of 4% of net patient revenues, employer contributions on somewhat of a sliding scale, a cigarette tax increase of $1.75 per pack and a capped $1 billion contribution from counties. (Federal funding, $4.6 billion; individuals, $2.1 billion; 4 % hospital fee, $2.3 billion; employer contribution, $2.6 billion; tobacco tax, $1.5 billion; county and other funds, $1.6 billion)

What’s Next?
The Governor will present his proposed budget on January 10, followed by the LAO analysis due out on January 15. The Senate Health Committee will hear ABX1-1 for the first time on January 16. If passed, the bill will then go to the Senate Appropriations Committee followed by a vote on the Senate floor. It is expected that there will be amendments to the bill which, if significant, would require the bill return to the Assembly for approval and on to the Governor for signing. It is also expected that negotiations will be required to move the ballot measure forward.

Where Could Things Go Wrong?
There are number of places where the bill and the ballot measure could fail. Legislatively, the two houses could fail to reach a compromise on any new amendments required by the Senate. Even if the bill passed both houses, the amendments could force a veto from the Governor.  The ballot measure is based on the policy framework in the bill. If major changes are made to ABX1-1, the ballot measure could be effectively “unhinged,” requiring a complete rework of the initiative. Additionally, Republican legislators have steadfastly remained opposed to any tax increases.

Judicially, both ABX1-1 and the ballot initiative are not “severable.” In other words, if any aspect of either document is successfully challenged in court, this health reform effort would collapse. The possibility of an ERISA (a 1974 law prohibiting state and local governments from regulating employee benefit plans) challenge remains, despite efforts from legal advisors to draft “safe” language in both the bill and the ballot measure. San Francisco’s health care access program, Healthy San Francisco, has recently bounced back from an initial court ruling that struck down the employer contribution requirement of their city-wide program based on the ERISA statute. However, although the ruling by a three-judge appellate panel allows the city to enforce the employer provision, the city has merely received an emergency stay with the city’s appeal being heard later in the year. (San Francisco Examiner)

The estimated $14 billion budget shortfall. Both the Speaker and the Governor contend that health reform is “bigger” than the budget issues. In his “State of the State” speech on January 8 the Governor referred to health reform when he stated, “Now, I understand the concern that we have a deficit, and that our plan is too daring, too bold, too expensive. But sometimes you have to be daring, because the need is so great” (click here to read report). Núñez responded to the address by adding, “And we wrote the plan specifically so it wouldn’t impact the state budget or add to any deficit” (click here to read report). 

The results of the LAO analysis will likely be a major factor in the success or failure of this health reform proposal in California this year given that the ballot initiative specifically prescribes a “self-destruct” process if the Director of Finance at any time deems that funding is “not sufficient” to continue the reforms.

Special interest groups. Although ABX1-1 has received the blessing of some business groups and the California Hospital Association, there is some concern about the ballot initiative from both groups.  Business is concerned about any required employer contribution above the 4% originally proposed by the Governor. (Note that an employer would be required to contribute 1% of wages for each employee if total Social Security wages were less than or equal to $250,000; 4% if total wages were over $250,000 but less than $1 million; 6% if total wages were over $ 1 million but less than $15 million; and 6.5% for firms with total wages over $15 million). They are also concerned that changes in the employer fee can be amended by a simple majority vote of the legislature and thus do not have the protections of a two-thirds “supermajority” requirement as with other tax increases. On the other hand, hospitals are concerned about the two-thirds supermajority provision to amend their contribution. They want amendments to be subject only to voter approval through a ballot initiative.

If the plan and ballot initiative do move forward, it has been suggested by Deborah Gonzalez, chief consultant to the Republican caucus, that tobacco companies, pharmaceutical firms and other businesses could potentially fund a referendum to overturn the deal on the June 2008 ballot (Sacramento Bee's "Capitol Alert" report).
Daniel Weintraub also has opined that “If Schwarzenegger and Núñez's compromise plan makes it to the ballot, (it) will also likely draw opposition... from Blue Cross ... and from the California Nurses Association. Business groups would likely be split, with large firms that already insure their workers supporting it and smaller companies opposed" (Sacramento Bee).

Voter confusion and fear.  The issue of health care reform is complex and confusing both in terms of the policy and the financing. There is a possibility that competing ballot initiatives may be introduced (i.e., the single-payer initiative) that would add to that confusion. Insured voters may ask “what’s in it for me?” There will also likely be concerns about the definition of “minimal creditable coverage” required through the individual mandate, as it has yet to be defined.

Clearly, health reform in California is extremely vulnerable to the vagaries of the potential “fiscal emergency” partisan politics, unified and well-funded opposition and voter confusion, fear and fatigue. Both Congress and the presidential candidates are watching California closely to see if this “nation-state” can develop the necessary consensus to move health reform forward.

For  full text copies and more complete analysis of the legislative bills and ballot initiative go to the California HealthCare Foundation website at: http://www.calhealthreform.org/, Insure the Uninsured Project website at: http://itup.org/reports.html#universalcoverage and the Governor’s website at: http://gov.ca.gov/.

Deborah Riordan, PT, MPH is the Health Policy Analyst for the Central Valley Health Policy Institute at California State University, Fresno. She is also a member of the Board of Directors at the California State Rural Health Association. Ms. Riordan can be contacted at driordan@csufresno.edu.

Article posted on 1/17/08