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California mulls universal health care

California mulls universal health care

SACRAMENTO, Calif.—California Gov. Arnold Schwarzenegger's universal health care reform proposal could be a boon to employers by significantly reducing provider cost-shifting, but parts of the sweeping plan are raising concerns for businesses.

The proposal, which Gov. Schwarzenegger unveiled last week, would require all California residents to have health insurance coverage. To reach that goal, the state would expand eligibility for Medi-Cal--the Medicaid program that provides coverage to the very poor--while providing subsidies to allow other lower-income individuals to obtain private insurance through a state purchasing pool.

To help fund coverage for the 6.5 million uninsured California residents--about one-fifth of the state's population--the proposal would create several new revenue sources. Employers with 10 or more employees that do not offer health insurance coverage would be assessed a fee equal to 4% of payroll. In addition, hospitals would have to pay an annual assessment of 4% of revenues, while doctors would have to pay 2% of revenues.

Because of universal coverage and sweetened Medi-Cal reimbursement rates, health care providers no longer would be stuck footing the bill for uncompensated and undercompensated care provided to patients, which they now try to recover by inflating rates for patients with employer-provided health insurance.

That "hidden tax," as Gov. Schwarzenegger describes it, of provider cost-shifting to insured patients to offset uncompensated costs boosts health insurance premiums by 10%, he said. The burden is even higher when underpayments from Medi-Cal are included, according to an outline of the proposal.

But under the proposed system, providers won't have to continue "loading" their charges. For employers, that will mean "providing health coverage to their employees will be more affordable," the proposal says.

Impact on cost-shifting

That scenario may indeed result in less provider cost-shifting and lower employer costs, some believe.

"Potentially, costs could go down" as more of the uninsured are covered, said Bob Burnett, a principal with Buck Consultants L.L.C. in San Francisco.

"Cost-shifting affects premiums. The more people there are in the system, the more we can keep costs under control," said Bruce Benton, a regional vp with National Assn. of Health Underwriters and an independent insurance agent in Woodland Hills, Calif.

Others, though, say enactment of the proposal might lead to new cost-shifting by providers, who may boost charges to offset costs of the new assessments they would have to pay.

"Everything tells me that will get passed back onto payers" in the form of higher rates, said Ron Mason, a principal in the Irvine, Calif., office of Towers Perrin.

In addition, there are other key concerns for employers, including a provision that would make it an unfair business practice for employers to differentiate, except as part of a collective bargaining agreement, the premium contributions they make for employees' health insurance coverage.

Such a requirement could make it illegal for employers not to pay for health coverage for part-time employees while subsidizing health insurance coverage for full-time employees.

"Do I have to provide the same benefits to part-timers? That is a big unknown," said Towers Perrin's Mr. Mason.

Paradoxically, such a requirement could have a negative impact on lower-income employees whose employers set a sliding scale for employee premium contributions, in which such contributions rise in tandem with salary. About 8% to 10% of employers, including such well-known companies as Chrysler Group, the big Auburn Hills, Mich.-based auto manufacturer, have such premium-salary linked arrangements, Mr. Mason said.

But experts question whether such a requirement or the 4% assessment on employers would pass legal muster (see related story).

In addition, others wonder whether the employer assessment could lead to a dilution of employment-based coverage.

Some employers might decide it would be cheaper to close their health insurance plans and pay the 4% assessment, said Lea Gerber, director of risk management and benefits at Elixir Industries, a diverse manufacturer in Mission Viejo, Calif.

Health insurers have concerns about other parts of the proposal, most notably one that would require them to use at least 85% of health insurance premiums to provide medical care to health plan enrollees.

Blue Cross of California, a unit of WellPoint Inc. in Thousand Oaks, Calif., notes that an "arbitrary" medical loss ratio requirement could be counterproductive in controlling costs.

"Much of a health benefits insurers' administrative effort serves to control costs, such as disease management, care management, anti-fraud efforts and information technology. Ultimately, our goal is to serve our enrollees by controlling costs and improving medical outcomes, not to spend an arbitrary amount on medical care," the insurer said in a statement.

Growing trend

Criticisms aside, California observers say the Schwarzenegger proposal is just that, with many details to be filled in and much negotiating yet to come.

"There is a long way to go, and it will change," predicted Chip Moore, chief human resources officer at Pepperdine University in Malibu, Calif.

Still, many believe that when the dust settles, California will enact legislation that will significantly expand health insurance coverage.

"There is overwhelming support for universal coverage in California," said a spokesman for Blue Shield of California in San Francisco.

"Something could well pass. The timing is right as other states are going in similar directions," said Mercer's Mr. Renz.

Indeed, the Schwarzenegger proposal borrows heavily from what some call the Massachusetts model, under which low-income individuals' premiums are heavily subsidized by the state in the hope that will prove less expensive than the uninsured using hospital emergency rooms for primary medical care. Massachusetts enacted such a plan last year, with Vermont following a few months later.

"If one state moves forward with a bold plan like Massachusetts, that provides fuel to other states," said Laura Tobler, a health care analyst with the National Conference of State Legislatures in Denver.

At the same time, there is a lot of momentum for such proposals, Ms. Tobler said, adding that survey after survey has found that access to health care coverage is a top issue for the public.

"Lawmakers are responding to that concern," she said.