Is Schwarzenegger Backed into a Corner?

Governor Arnold Schwarzenegger has consistently stated his desire to enact “comprehensive” health care reform this year. With the Legislature scheduled to adjourn in mid-September, that gives him about two months to deliver — barring his calling for a special session.

His problem is, however, that while he offered a vision of comprehensive reform, there’s no legislation fulfilling his goals. Instead, Speaker Fabian Nunez and President Pro Temp Don Perata have conjured up AB 8. While failing to deliver comprehensive health care reform it is a sure recipe for driving up health insurance costs, permitting escalating health care costs to continue to, well, escalate, and throwing a devastating monkey wrench into the current health care coverage system without offering workable alternatives. In other words it’s a pastiche of reforms which, taken separately are dangerous but taken together are truly disastrous.

AB 8 is not the kind of bill Governor Schwarzenegger was describing when he unveiled his own health care plan. Signing it would be at best embarrassment and at worst would tarnish his image for a long time to come.

Yet, there are rumblings that the Governor may have no choice but to sign AB 8 if it’s passed by the Legislature — passage which would come solely on Democratic votes. The reason he might see no alternative but to sign AB 8 is because of the high expectations his administration has set. Having put California in the forefront of Workers Compensation reform, fighting green house gases and the like, Governor Schwarzenegger has vowed to do the same with health care reform. Some of his staff are rumored to be admitting that, as a result, he’ll sign any bill the Legislature sends him.

 And they know it. Senator Perata was recently quoted in the Wall Street Journal in this regard, saying, “If something lands on his desk, how do you explain not signing it?”

In an earlier post I suggested Senator Perata’s and Speaker Nunez’s bill was designed as a Frankenstein’s monster to give themselves plenty of negotiating room. Now I’m not so sure. Since the Governor isn’t expected to deliver a single Republican vote in the Legislature and is perceived as needing to sign anything that comes his way, the Democrats have little incentive to move away from a bill which appeals to many of their core constituents.

In the past, Governor Schwarzenegger has shown himself to be an adroit politicians, often outmaneuvering experienced legislators. On health care reform, however, the Governor may have backed himself into a corner from which even he will have difficulty escaping. And if that’s the case, he will not only blemish his own legacy, but he will have done serious harm to the state.

The Need to Address Health Care Costs

While often fun, taking today’s trends and extrapolating them for several decades can lead to some absurd results (because the assumption is that nothing changes over the time frame). But they can also highlight the absurdity of today’s public policy.

Case in point: a study by the Congressional Budget Office on what the current rate of health spending growth will do to tax rates if left unchecked through 2050. (Here’s a copy of the CBO Health Care Cost Report). Among the results are an increase to the lowest tax rate from 10%-to-26% and an increase in the highest tax rate from 35%-to-92%.

The reason is that the annual growth in health care cost has exceeded growth in the nation’s Gross Domestic Product by 2.5% over the past 40 years. Continue this trend, uninterupted, for another 40 years and federal spending devoted to health care increases from 4.5% of GDP to 20% of GDP. Further assume no other funding sources are found and you need some pretty hefty taxes. Interestingly, the CBO cites health care costs as having a “significantly higher influence on the budget over the long term than other commonly cited factors.”

Would tax rates really increase by this much? It’s unlikely. Some external event would come along to mitigate the trends. The question is whether that external event will be unplanned for, unexpected and uncontrolled or whether it will be thoughtful and constructive.

As the health care reform debate heats up in Sacramento, it’s sad to note that controlling health care costs is so far back on the burner that it may as well be in the fridge. The political heat is on the easy targets: taxing businesses (oh, excuse me, those aren’t taxes, they’re “fees”) and busting insurance companies.

There’s a lot of room for improvement in the health insurance system. And employers may need to step up to be part of the solution in assuring universal coverage. But none of this will matter in the long run if a tough, serious debate on constraining health care costs isn’t started — and started long before 2050 arrives. All in favor of right now, please raise your hand.

A European’s View of Sicko

I’m actually getting a bit bored of all the Sicko hullabaloo. To his credit, however, Michael Moore has created quite a conversation. Here’s an interesting take from Jurgen Reinhoudt, a research assistant at the conservative American Enterprise Institute. Mr. Reinhoudt is from the Netherlands and, besides researching single payer systems, he’s seen one first hand. The anecdotes he tells are frightening and he ably takes Mr. Moore to task for his one-sided, biased movie.