Cautionary Health Care Tales

The collapse of health reform in California and ominous signs from Massachusetts spell big trouble ahead for reforming the nation's health care system no matter who is elected President. The lessons from those states, which have tried hard to bring insurance coverage to all residents, are worth heeding for anyone sitting in the White House next year. They also raise the question of whether it is possible, either fiscally or politically, for states to do the job. Indeed, failure in California and troubles in Massachusetts indicate that the underlying problems that bedeviled reform efforts fourteen years ago are still with us, and could doom yet another attempt to change the American way of health care.

Although Hillary Clinton and Barack Obama try to distinguish between their plans, both are variants of the Massachusetts model. That scheme requires everyone to get health coverage, and it imposes tax penalties on people who don't -- the so-called "individual mandate." In both Obama's and Clinton's plan, people do not have a right to health insurance, as is the case in truly universal national health insurance systems, such as in France and Canada, where everyone is guaranteed coverage, with care paid for through a broad-based tax. Instead, both candidates have used the word "universal" to describe a potpourri of options that could bring coverage to some portion of the population currently not covered while keeping commercial insurance in the game. Clinton's plan includes an individual mandate. Obama would require coverage only for children and touts cost-control measures that he says would lower premiums so much that the uninsured could afford them, obviating the need for a coercive mandate. Clinton would boost coverage by requiring large employers to cover their workers, giving incentives to smaller ones to do the same. Obama would make employers provide "meaningful" coverage or contribute to a public plan. Both proposals call for some sort of public alternative that people can buy into if they don't like the market choices, and both try to control medical costs with weak remedies like improved information technology and better care coordination.

Significantly, the premium subsidies and tax credits that Clinton, Obama, and John McCain support to help low-income families buy insurance are a traditional Republican strategy that President Bush has pushed for years. But at least 55 percent of the uninsured already pay no taxes, so unless the credit is made available to non-tax filers, this approach would leave lots of people without coverage. To be useful, subsidies must be high enough to help families pay the annual premiums -- now averaging about $12,000 -- but low enough so the government doesn't go broke. And therein lies the devil that killed reform in California and could do in the much-hailed Massachusetts plan as well: the money just wasn't there.

After a year of acrimonious wrangling among Governor Arnold Schwarzenegger, Democrats in the General Assembly, unions and consumer groups, the Assembly passed a reform bill late last year only to see it shot down in the Senate health committee a few weeks later. By then it was obvious that the measure, which called for an individual mandate and massive subsidies to help low-income people buy insurance, would have cost California far more than the contemplated revenue sources would provide. And even with the subsidies, only 70 percent of the state's 6.5 million uninsured would gain coverage. The state's independent Legislative Analyst's Office found that by the fifth year, the program's costs would exceed revenues by $300 million, and by as much as $1.5 billion a year further down the road. Add those numbers to the $14 billion budget deficit the state currently faces, and health reform died aborning. "The financing mechanism was kind of a mirage," says Charles Idelson, communications director for the California Nurses Association, which supports national health insurance, often called "single-payer." "They were trying to pretend the state could pay for it, when clearly they didn't have enough resources." The funding, subject to approval by a public referendum, was to come from federal matching dollars for Medi-Cal (the state's Medicaid program), contributions from employers who didn't offer health insurance, assessments on hospital revenue, and a raise in the tobacco tax to $1.75 per pack, a potentially declining revenue stream that would be undermined by public health initiatives to get people to quit smoking. While increasing tobacco taxes seemed like a winning strategy, the tobacco industry is well-equipped to fight it: in Oregon last fall a stealth campaign by tobacco companies helped defeat a ballot initiative to expand coverage for kids that would have increased the tax by 85 cents a pack.