Legislating better access

Politicians and policymakers in more than two dozen states are busy exploring ways to broaden healthcare coverage for the uninsured. But so far nothing else comes close to the scope—or the cost—of California Gov. Arnold Schwarzenegger’s bold proposal to provide medical care to the 6.5 million uninsured residents of the nation’s largest state.

Schwarzenegger raised the stakes in the national debate on universal coverage last week, unveiling a controversial, $12 billion-a-year plan funded in part by taxes on hospitals and physicians. If his big bet pays off, it could create a ripple effect across the country, mirroring the success of a universal-coverage plan already under way in Massachusetts and propelling a series of preliminary efforts now percolating in statehouses from Maine to Washington. Or it could be a California bust, another high-profile failure in the nation’s halting efforts to provide basic care to its most vulnerable citizens.

“We’ve been burned so many times in the past, but I do think the arrows are all pointing to a much bigger debate on this issue,” said Drew Altman, president and chief executive officer of the Kaiser Family Foundation, which focuses on national healthcare issues. “You’ve got a handful of states in the talking stages, a few that are significantly expanding efforts, and the pacesetters like California, which is building on the effort already under way in Massachusetts.

“California is the most important of all—it’s the most-populous state with a giant uninsured problem,” Altman said. “If California can actually implement a significant plan, it would really boost the national effort. California definitely will play a huge leadership role, pointing the way for the rest of the nation.”

With America’s army of the uninsured standing at 46.6 million and growing, access to basic medical care has evolved over the past year or so into a potent political issue on a state level. It may soon become just as powerful a force on the national stage. Still, Schwarzenegger’s plan faces tough sledding in the California Legislature, including opposition not only from key interest groups but also from the Republican governor’s otherwise loyal supporters in his own party.

Yet even if it fails or falls short, California’s audacious experiment is viewed as another important learning laboratory that smaller states can study and sample as they move forward with their own efforts in broad-based healthcare reform.

“California has a lot at stake,” said Kevin Lofton, president and chief executive officer of Catholic Health Initiatives and chairman of the American Hospital Association’s board of trustees. “If they could come up with something that works, it would be beneficial for all of us. I think there’s a lot riding on it, but it’s not do-or-die for the rest of the country. Along with Massachusetts, this gives us another big state in play to hopefully come up with a plan that can be used around the country. ”

Despite the prospect of new provider taxes in Schwarzenegger’s proposal, universal coverage represents a potentially huge economic boost for the industry. Ideally, the bottom line for hospitals would improve because of a dramatic drop in bad debt and charity care. Insurance companies would enjoy a huge new pool of customers. And physicians, struggling in recent years with flat reimbursements and higher operating costs, would have a lot more paying patients.

“The majority of (not-for-profit) hospitals plow their (profits) back into their institutions and community service,” said Richard Wade, a spokesman for the American Hospital Association. Universal coverage “would free up a lot of resources to do more of that.”

Of course, momentum to broaden healthcare coverage was building across the country before Schwarzenegger outlined his plan last week. Earlier this month, for instance, some 100,000 residents of Massachusetts became eligible for medical care under that state’s plan to require its residents to purchase low-cost insurance. Living just barely above the federal poverty level, these individuals all became eligible for Commonwealth Care, the landmark universal-healthcare initiative that was signed into law last April. As many as 75% or more of these individuals are expected to sign up for Commonwealth Care, paying modest premiums for comprehensive, state-subsidized medical coverage that might otherwise have been far beyond their means.

With Massachusetts as the model and California as another innovative example, about 25 states have taken at least some preliminary steps toward expanding healthcare coverage. One key to future success will be whether these state politicians can summon the same kind of bipartisan cooperation and civility that led to such a notable legislative victory last year under the golden dome of Boston’s ornate Massachusetts State House.

“We advise people to think of this law less as a policy blueprint and more as a political blueprint,” said John McDonough, executive director of Health Care for All, a Boston-based advocacy group that was involved in helping to develop the legislation. “One state thought outside the box, thought outside the political constraints, and came up with a genuine original article—a political amalgam that is an honest-to-goodness blend of politically conservative and politically progressive approaches to this issue.

“Lots of states had come to the conclusion that nothing could ever be done—it just wasn’t possible politically,” he added. “We think we’ve set an example for folks to think bigger, and more creatively, about their opportunities. Yet we also caution that many aspects of the system (in Massachusetts) are distinctly idiosyncratic. There are many different elements that don’t necessarily apply to other states.”

The groundbreaking legislation that created Commonwealth Care ignited a flood of national media attention that helped trigger the spate of activity that has spread across the country. By the end of the 2006 legislative session, lawmakers in at least 10 states had considered some form of expanded or universal coverage similar to the measure enacted in Massachusetts. Two slightly less-ambitious universal-coverage plans now in place in Vermont and Maine also serve as models.

“I think Massachusetts has inspired a lot of states,” said Paul Ginsburg, president of the Center for Studying Health System Change, a nonpartisan research group based in Washington. “And that inspiration is not just the uniqueness of the plan itself, but the fact that they were able to work out a deal between Democrats and Republicans that everyone seems to be enthusiastic about. They did not get gridlocked. They made it happen politically with some very fresh new ideas.”

Federal frustration

To many observers, the buzz of activity in so many state legislatures is a clear signal that frustrated governors and local lawmakers are losing faith in the federal government’s ability to solve the problem. As the ranks of the uninsured continue to grow in the world’s richest nation, increasing by nearly 7 million Americans since the turn of the century, state lawmakers have apparently concluded that they no longer can afford to wait for Washington.

“People haven’t seen this type of effort on the federal level, and they’re not willing to sit back any longer,” said Robert Doherty, senior vice president for governmental affairs and public policy at the American College of Physicians. “They see the problems this causes on the local scene, and they feel it’s their responsibility to do something.”

Already this year, special commissions or task forces to study plans to expand healthcare coverage have been created in at least nine states, including California, Colorado, Louisiana, New Mexico, North Carolina, Maryland, Minnesota, Ohio and Wisconsin, according to Richard Cauchi, director of health programs at the National Conference of State Legislatures, which tracks legislation in all 50 states. About 15 others are also moving forward on the issue.

“It’s very clear that substantial movement on healthcare insurance is in the air and in the news,” Cauchi said. “There’s a lot of energy on a state level. Part of it is state legislatures looking at what Massachusetts and Vermont did last year. They’re not jumping onboard to try to duplicate that, but digesting the idea of increasing coverage and pondering the concepts. They’re asking, ‘Can we also do something more substantial?’ And they’re concluding that it’s worth a try.”

In California, Schwarzenegger’s comprehensive plan, which must be approved by the Legislature, requires all residents to purchase insurance and also imposes taxes—or “dividends”—on the provider community, a powerful lobbying force in the state capital of Sacramento.

Physicians would be levied a tax of 2% of their gross earnings, while hospitals would have to pay 4% of total revenue to the state. Those fees, however, would be at least partly offset by an additional $4 billion increase in annual payments from Medi-Cal, the state’s Medicaid program. Meanwhile, insurers would be required to spend 85% of every premium dollar on patient care, while employers with 10 or more workers would be forced to spend at least 4% of payroll to offer medical-care coverage to their employees.

“Everyone in California must have health insurance,” the governor declared.

Despite the strict limits on profits for insurers, the plan could prove to be a giant blessing for this sector.

In California alone, the market for insurers could potentially grow by about one-fifth of the state’s total population, a huge new pool of customers for any business segment. But the standard bottom line for insurance companies is just one part of the equation, which includes the overall economic benefit that will come from reducing the amount of money that individuals with insurance must pay to underwrite care for the uninsured, said Karen Ignagni, president and CEO of America’s Health Insurance Plans, the industry trade group that rolled out its own comprehensive plan for universal coverage in mid-November.

The price of this cost-shifting, she says, amounts to about $50 billion a year in increased premiums for insured families. A June 2005 study by Families USA found that costs to cover healthcare for the uninsured added $922 to premiums for employer-provided family health insurance. That number is projected to rise to about $1,500 by 2010. In California, according to a report by the New America Foundation, a nonpartisan think tank, this cost-shifting added $1,186 to the price of premiums for family health insurance in 2006.

“When we talk in terms of economics,” Ignagni said, “it’s a lost opportunity to be the only country that hasn’t embraced (coverage for all citizens). What motivated us (to push for universal coverage) was the amount of cost shifting that employers and consumers have to sustain because of the nation’s inability to confront this challenge.”

It didn’t take long for Schwarzenegger’s proposal to stir opposition, of course. Officials with the 35,000-member California Medical Association said the 2% tax on physicians serves as little more than a penalty on providers, jeopardizing the future of a “fragile” healthcare system and potentially limiting the very access to care it was supposed to provide.

“We are certainly in opposition to the 2% provider tax on doctors,” said Anmol Mahal, president of the California Medical Association. “We feel it’s an unfair way of funding the healthcare needs of California.”

On a national level, universal healthcare will probably be a good deal for doctors—depending on levels of reimbursement, said the ACP’s Doherty, who pointed out that physicians will be hard-pressed to accept a flood of new patients if the costs of care exceed insurance payments. Any plan, Doherty said, must address other components of the “dysfunctional” healthcare system and provide incentives to lower-paid internists. “Look at the Medicaid program,” he said. “The fact that (recipients) have access to care doesn’t necessarily mean they actually have access to care because the rates are so low. Just getting them coverage will not get them assured of access to care if you have a reimbursement system that pays so little.”

He said primary-care physicians would be especially hard-hit by the 2% tax: “They’re already operating on a very slim margin—a tax on revenues might act as a disincentive.”

The California Hospital Association has been a little more welcoming than many of the state’s doctors to Schwarzenegger’s plan, although the group’s president, C. Duane Dauner, has been quoted as saying the proposal has little chance of passing in its current form. Officials say they are still “running the numbers” to figure out whether the $4 billion bump in Medi-Cal payments to hospitals and physicians that is part of the plan would be enough to balance the additional fees.

“We’re still evaluating the details,” said Jan Emerson, a spokeswoman for the association. “We need to run the numbers to understand the potential impact of those taxes versus the increased rates for Medi-Cal and the fact that we will have significantly more people covered, which could reduce uncompensated-care costs.”

Emerson said Medi-Cal ranks “dead last” in the nation in payment rates to providers. Hospitals in California now lose about 40 cents for every dollar of care on inpatient visits, and about 70 cents on the dollar for outpatient services, she said. A preliminary examination of the governor’s plan, she said, indicates that hospitals would be able to “just about cover costs” on inpatient rates and enjoy a hike of approximately 75% for outpatient care. It’s not clear yet whether that will be enough to appease hospitals once everything is factored into the equation.

“The prospect of new taxes on providers,” noted AHA President Richard Umbdenstock, “probably won’t be warmly embraced by most hospitals or doctors. If those taxes are a financing strategy, I don’t think that helps at all. I don’t know the environment out there, but I’d be surprised if the providers are tickled about it.”

While California grapples with Schwarzenegger’s vision for dramatic change, his counterparts in other states are also placing a heavy emphasis on healthcare. New York Gov. Eliot Spitzer has vowed to spend whatever is necessary to provide basic insurance to the estimated half-million children in the state who do not have coverage. He also said he wants to cut the total number of uninsured in half by the end of his four-year term.

In New Mexico, two-term Gov. Bill Richardson pledged to do the same for residents of his state, where about 20% of the population is without health insurance, among the highest rates in the nation. “Step-by-step, year-by-year, working with the private sector, we must extend affordable healthcare to every New Mexican,” the Democrat said in his inaugural address earlier this month.

Illinois, which created a plan last year dubbed All Kids to provide healthcare coverage to every child in the state, is expected to consider a plan to offer affordable coverage to about 1.7 million residents. If adopted, the plan, which includes financial penalties for those who do not purchase the low-cost insurance, could run up an annual tab of about $3 billion.

Illinois Gov. Rod Blagojevich has vowed to make healthcare a top priority in the next four years. Louisiana Gov. Kathleen Babineaux Blanco also has called for her state to provide universal coverage to its residents.

In the meantime, lawmakers in New Jersey are working on an ambitious proposal to spend about $1.7 billion to provide universal health coverage to some 1.4 million residents. Borrowing from Massachusetts and others, the plan, which is expected to be introduced as legislation sometime this spring, would require every resident to purchase subsidized insurance on a sliding scale. The proposal does not include any employer mandates, but it would require businesses to establish some form of pretax health-savings account for their workers.

Other states are broadening coverage by taking incremental steps toward the ideal of universal coverage. Gov. Mitch Daniels of Indiana has proposed a cigarette-tax increase of 25 cents to 50 cents to increase healthcare coverage in the state, where approximately 550,000 citizens lack basic medical insurance. And Pennsylvania Gov. Edward Rendell made his state the sixth to broaden healthcare coverage for children late in 2006, signing into law his Cover All Kids initiative, which expands the State Children’s Health Insurance Program. Rendell will outline his broader plan for universal coverage during a news conference later this week. Gov. Tim Pawlenty of Minnesota last week unveiled a plan that included expanding coverage for children.

For now, at least, the initiative in Massachusetts remains the prototype for universal-coverage proponents. It could also be a potentially vital boost to the state’s hospitals, said Ronald Hollander, outgoing president of the Massachusetts Hospital Association. While the burden of free care will be reduced “significantly over time,” he said, the law calls for a $270 million increase over the next three years in Medicaid payments to help doctors and hospitals “more closely approximate the cost of providing care” to low-income patients, including the estimated 515,000 without insurance before the law took effect.

“We know there’s going to be bumps along the road, but this has excited everybody, including the entire hospital community,” Hollander said. “If we can make three-quarters of our goal, we will have profoundly changed a lot of things about healthcare in this state.”

The Bay State’s all-encompassing initiative, paired with the frenetic legislative hustle and bustle in other states, stands in stark contrast to the inertia that continues to stifle federal lawmakers and the White House. But that may change—and quickly.

Congress, which convened earlier this month, is under Democratic control—with a brief exception—for the first time since 1994, which was the last time a comprehensive national plan for universal coverage was seriously considered. While that debacle still represents a political fiasco for Democrats, healthcare is expected to become one of the key political topics in the 2008 presidential election.

“Politicians in Washington are feeling the same pressure from voters as state lawmakers and governors,” said Ginsburg, the healthcare policy expert. “I would say the most likely thing is that both parties will come up with substantial proposals for the expansion of coverage. They’ll talk about it throughout the election process. And maybe they’ll do something about it—in 2009. But I don’t see anything happening on a federal level until then.”

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